How equipment financing works
Equipment financing is essentially a term loan secured by the equipment itself. The lender pays the seller (or you, if you've already purchased), and you make monthly payments over 2-7 years. The equipment serves as collateral for the loan, which reduces lender risk and lets them offer better rates than unsecured business financing.
At the end of the term, you own the equipment outright. You can use it as long as it has useful life, depreciate it for tax purposes, sell it, or use it as collateral for additional financing later.
What can be financed
Almost any tangible business equipment qualifies. Common categories include:
- Commercial vehicles, trucks, and fleet expansion
- Restaurant kitchen equipment, ovens, refrigeration, and POS systems
- Construction equipment (excavators, bobcats, dump trucks)
- Manufacturing equipment and machinery
- Medical and dental equipment
- IT infrastructure, servers, and networking
- Commercial laundry and cleaning equipment
- Agricultural equipment
The two key requirements are that the equipment is for legitimate business use and that it holds value over time. Custom-built or rapidly obsolescing equipment is harder to finance because the collateral value is uncertain.
Financing vs. leasing vs. buying outright
Most businesses face this choice every time they need new equipment, and the right answer depends on your tax situation, cash position, and how long you'll use the equipment.
Buying outright works when you have ample cash and the purchase won't strain working capital. The downside is obvious: tying up cash that could fund inventory, marketing, or hiring.
Equipment financing preserves working capital, lets you take advantage of Section 179 tax deductions (which let you deduct up to the full purchase price in the year you put equipment into service), and ends with you owning the asset. For most growing businesses with taxable income and a long-term need, this is the sweet spot.
Leasing makes sense when the equipment becomes obsolete quickly (technology, certain medical devices), you only need it for a defined project, or you don't want the equipment on your balance sheet. The trade-off is that over the full term, leasing usually costs more than financing.
Section 179 and the tax angle
Section 179 of the tax code is one of the biggest reasons to finance rather than lease. If you own equipment (which includes financed equipment), Section 179 lets you potentially deduct the full purchase price in the year you put it into service — even though you've only paid a fraction of the loan.
For a business with $200,000 in taxable income that finances $100,000 of equipment in 2026, Section 179 could potentially eliminate $100,000 of that taxable income, reducing the tax bill by tens of thousands of dollars. That tax benefit can effectively offset much of the financing cost in the first year.
Section 179 has limits and phase-outs that depend on your total equipment purchases — always confirm with your accountant before relying on the deduction.
Who qualifies for equipment financing
Equipment financing has some of the most flexible underwriting in small business lending because the collateral reduces lender risk. Typical requirements:
- 1+ year in business (some lenders accept startups for vehicles or essential trade equipment)
- Personal credit score of 600+
- $100,000+ in annual revenue
- The equipment must be for legitimate business use
- The equipment must hold reasonable value over time
Down payments are typically 10-20% of the equipment cost, though zero-down financing is available for the strongest borrowers. Repayment terms run from 24 to 84 months, depending on the equipment's useful life.
Typical rates and structure
Rates depend on the equipment type, borrower profile, and term length. For qualified borrowers, expect rates starting around 7-9% for the strongest profiles, climbing to 18-24% for higher-risk situations. Vehicles and essential trade equipment typically price better than specialty or custom equipment.
Most equipment loans amortize fully over the term, with no balloon payment. Some lenders offer interest-only periods at the start (useful if the equipment is generating revenue ramp-up), but standard amortizing structures are most common.
Funding speed
Equipment financing typically closes in 3-7 business days for standard equipment with strong borrowers. Specialty equipment or larger transactions can take 1-2 weeks due to additional collateral verification.
New vs. used equipment financing
Most equipment financing programs work for both new and used equipment, but the terms differ:
New equipment typically gets better rates, longer terms (up to 84 months), and can include 100% financing (zero down) for qualified borrowers. Manufacturers often partner with specific lenders to offer promotional rates that are below market — the OEM is essentially subsidizing the financing to drive sales.
Used equipment is harder to finance because the value is harder to verify and the asset depreciates faster. Expect higher rates, shorter terms (typically 24-60 months), and a larger down payment (usually 15-25%). The age of the equipment matters — equipment under 5 years old qualifies for most programs, while equipment over 10 years old may require specialty lenders.
Auction equipment is the hardest to finance because there's no warranty, no title transfer paperwork, and the equipment may need verification of condition. It's not impossible, but expect more friction.
How equipment financing approval actually works
Underwriting for equipment financing focuses on three things, in this order:
1. The equipment itself. Is it the kind of asset that holds value over time? Standard categories (vehicles, restaurant equipment, manufacturing) are easier than specialty or rapidly-obsolete equipment. The lender will verify the make, model, year, and current market value.
2. The borrower's ability to make payments. Bank statements showing consistent revenue, decent credit (typically 600+), and reasonable existing debt levels. Equipment financing is more forgiving on credit than unsecured loans because the equipment can be repossessed if needed.
3. The vendor. Most equipment financing involves the lender paying the vendor directly. The lender wants to verify the vendor is legitimate and the transaction is real. Established vendors that the lender has worked with before move faster than unfamiliar sellers.
Documentation is lighter than for most other products: typically just bank statements, a basic application, the equipment quote or invoice, and maybe a tax return for larger transactions.
End-of-term options on financed equipment
Most equipment loans amortize fully — you make monthly payments for the term, and at the end you own the equipment outright with nothing further owed. This is the standard structure for businesses that intend to keep using the equipment long-term.
Some equipment financing programs offer "balloon" or "residual" structures where your monthly payment is based on a smaller fraction of the equipment cost, with a larger lump-sum payment at the end. This lowers your monthly cost but means you owe a meaningful amount at maturity. Use these structures with caution — they make sense if you plan to refinance or trade in the equipment, but can become a problem if your plans change.
Compare equipment loans to equipment leases (which are technically different — you don't own the asset and have to return it or buy out at the end). For most growing businesses with long-term needs, the loan structure with eventual full ownership is the better fit. For technology or rapidly-obsolescing equipment, leases can make more sense.
Why TurboFunding for equipment financing
Equipment financing is one of the most lender-specific products in small business finance. Some lenders specialize in vehicles, others in restaurant equipment, others in medical or manufacturing. The right lender for your specific equipment can mean significantly better rates and faster closing than going to a general business lender.
We work with a network of equipment financing specialists and route your application based on the equipment type, your business profile, and your timeline. That matching process typically saves borrowers meaningful money on rate and gets the deal closed faster than the alternative of applying to a single lender and hoping they're competitive in your specific niche.