Equipment financing can help your business cover the cost of expensive machinery when you want to expand or just need an update. You can often finance business equipment directly through the manufacturer or seller — but you might find a better deal through a bank or alternative lender.
Equipment financing is a type of business loan specifically for purchasing equipment that a business needs. This can include things like restaurant ovens, farming equipment, commercial refrigerators, construction equipment, office furniture, company vehicles and so on.
With this type of financing, the lender bases your loan amount and term on the equipment itself.
Usually you can finance between 80% to 100% of the equipment’s value and receive a loan term based on how long your lender thinks the equipment will be useful — often around five years. You’ll likely repay the loan with monthly payments, and when the term is up, your business owns the equipment outright.
Equipment financing rates typically start at around 4% and can reach 40% APR, according to online business loan marketplaces like Fundera, Lendio and Lending Tree. That often includes an origination fee of 1% to 5%.
In many cases, you may also need a down payment of around 10% to 20% of the equipment’s manufacturing price.
The monthly and total cost of equipment financing also depends on your loan term. This is based on the useful life of the equipment you’re purchasing — usually around five years. However, depending on the cost of the equipment you’re purchasing and the lender, the loan could be anywhere from one to 25 years long.
Use our calculator to estimate how much an equipment financing loan may cost your business.
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Lenders vary, but typical requirements and documents for business equipment financing include:
Plan on needing a good credit score to qualify — often defined as 670 and up. Lenders may be hesitant to approve you for equipment financing if your personal credit history is littered with negative marks, such as late payments, defaulted loans, repossessions or recent bankruptcies.
For some lenders, having enough regular cash flow over the past six months may make up for a low credit score or less than a year in business.
When you take out an equipment loan, the lender often puts a UCC lien on the equipment you purchase and may require a personal guarantee from business owners with a 20% stake in the company or more. This means that if your business defaults on the loan and you can’t sell the equipment at a price that covers the full balance, you’re personally responsible for paying off the remaining balance.
Many lenders advertise a turnaround time of one to two business days. Oftentimes, equipment financing and business loans are approved or denied very quickly, often the day you apply.
It may be difficult to qualify for equipment financing with poor credit. Lenders typically prefer good to excellent credit for this type of financing — but there are some lenders willing to work with fair credit. Lendio, for example, can accept personal credit scores as low as 580.
However, just know that major negative marks, such as bankruptcies, can negatively affect your approval odds. The cleaner your credit reports and the higher your credit score, the more lending opportunities you may have.
You have a number of options as to how to get equipment financing.
The main type of equipment financing is a secured business term loan. These are available through banks and alternative lenders that lend to small businesses. You can use a term loan for purchasing equipment for varying industries, such as:
Some lenders might specialize in funding specific industries, such as, Bankers Healthcare Group, which specializes in medical practice financing.
After reviewing over 200 lenders, we’ve narrowed down to four of the best lenders that offer equipment financing and other business loans.
National Funding business loans
Finder rating 4.65 / 5 ★★★★★
| Loan amount | $5,000 – $500,000 |
|---|---|
| APR | Not stated |
| Min. Credit Score | 600 |
SmartBiz business loans
Finder rating 4.5 / 5 ★★★★★
| Loan amount | $30,000 – $5,000,000 |
|---|---|
| APR | 7% to 9.25% |
| Min. Credit Score | 660 |
Lendio business loans
Finder rating 4.75 / 5 ★★★★★
| Loan amount | $500 – $5,000,000 |
|---|---|
| APR | Starting at 6% |
| Min. Credit Score | 580 |
BlueVine business lines of credit
Finder rating 4.5 / 5 ★★★★★
| Loan amount | $5,000 – $250,000 |
|---|---|
| APR | Starting at 4.8% |
| Min. Credit Score | 600 |
Our team reviewed over 220 lenders that offer business loans before selecting the best equipment financing options. We focused on lenders that specialize in equipment loans, before comparing interest rates, fees, terms and requirements. We were also careful to include providers that don’t require a down payment and those that allow you to purchase equipment directly.
If you’re not sure if financing is the right route, look into equipment leasing.
With equipment leasing, you agree to pay for the equipment over a period of time, and at the end of the term, you typically have the option of purchasing the equipment or giving it back. This can be a great option for a start-up, or if you run a business where the equipment becomes obsolete quickly.
Other alternatives include:
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