Equipment Financing for Small Businesses
Equipment financing lets a machine pay for itself over time instead of consuming the cash you need to run the business today.
What is equipment financing?
Equipment financing is business funding used to acquire a specific asset — a vehicle, machine, system or fixture — in which the equipment itself typically secures the transaction.
Because the lender holds a claim on an identifiable, resaleable asset, equipment financing is often available on better terms than unsecured borrowing, and sometimes to businesses that would struggle to qualify for a general-purpose loan. The term is usually matched to the expected useful life of the asset.
There are two broad structures. An equipment loan finances the purchase; you own the asset from day one and the lender files a lien until the balance is repaid. An equipment lease gives you use of the asset for a period, with options at the end to return it, renew, or buy it — sometimes for a nominal amount under a $1 buyout lease, sometimes at fair market value.
Who equipment financing may suit
- Businesses where equipment produces revenue. A truck, oven, CNC machine, excavator or imaging system that directly generates billable output makes the financing case easier to evaluate.
- Owners who want to preserve working capital. Financing a $90,000 asset over five years keeps cash available for payroll, inventory and the unexpected.
- Businesses replacing failing equipment. When downtime is costing revenue every day, financing the replacement is often cheaper than continuing to repair.
- Companies with limited unsecured borrowing capacity. The collateral changes the risk profile, so equipment financing may be available when a general-purpose loan is not.
How equipment financing works
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Identify the equipment and get a quote
Lenders want the invoice or quote from the vendor, including make, model, year, condition and total delivered cost.
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Apply with business and asset details
Underwriting reviews both the business and the asset, since the equipment supports the transaction if repayment fails.
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Choose a loan or lease structure
Compare the monthly payment, the total cost, the end-of-term position and whether you want to own the asset outright.
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The vendor is paid directly
In most cases funds go to the seller rather than to your account, and repayment begins on the agreed schedule.
Common uses for equipment financing
- Trucks, trailers, vans and other commercial vehicles
- Construction machinery such as excavators, loaders and lifts
- Commercial kitchen equipment, refrigeration and POS systems
- Medical, dental and diagnostic imaging equipment
- CNC machines, presses, packaging lines and production tooling
- Server hardware, networking and specialised computing equipment
- Trade tools, shop lifts and diagnostic systems
Potential advantages
- Preserves cash and existing credit lines for operations
- Terms are commonly matched to the useful life of the asset
- Collateral is the equipment itself, so additional business assets may not be pledged
- Financing may cover soft costs such as delivery, installation and training
- Purchases may qualify for Section 179 expensing or bonus depreciation — confirm with your tax adviser
Things to weigh carefully
Financing is a commitment. These are the points worth understanding before you accept an offer.
- A down payment is often required, commonly a percentage of the purchase price
- The lender holds a lien until repayment is complete, limiting your ability to sell the asset
- Financing used equipment can attract shorter terms and higher pricing
- On a lease, the total paid over the term can exceed the purchase price, sometimes substantially
- Technology that becomes obsolete quickly may outlive its usefulness before the term ends
- Insurance on the financed asset is typically required and adds to the real monthly cost
What lenders typically review
- Time in business and industry experience of the owners
- Revenue and the ability to service the new payment
- Personal credit of the owners, weighted more heavily on smaller transactions
- The equipment itself — type, age, condition and resale market
- Whether the vendor is a dealer or a private party
- Existing liens and total equipment debt already outstanding
Documents commonly requested
- Vendor quote or invoice with full equipment specifications
- Three to six months of business bank statements
- Completed application with ownership details
- Business tax returns for larger transactions
- Proof of insurance on the financed equipment
- Photo ID and, for used equipment, an inspection or appraisal
Ask for the total of payments, not just the monthly figure. On leases in particular, the monthly number can look attractive while the total paid over the term tells a different story. Also confirm the end-of-term position in writing — a $1 buyout and a fair-market-value buyout produce very different outcomes.
Equipment loan vs. equipment lease
| Equipment loan | Equipment lease | |
|---|---|---|
| Ownership | You own the asset from day one | The lessor owns it during the term |
| Down payment | Often required | Often little or none |
| Monthly payment | Usually higher | Usually lower |
| End of term | You own it outright, lien released | Return, renew, or buy at $1 or fair market value |
| Best for | Long-life assets you intend to keep | Assets you may replace or upgrade |
| Tax treatment | Depreciation and interest, subject to your situation | Payments may be deductible as an operating expense |
Tax treatment depends on the structure of your agreement and your circumstances. Apex Capital Solutions does not provide tax advice — confirm any tax position with your accountant.
Equipment Financing: frequently asked questions
Can I finance used equipment?
Frequently, yes. Lenders look at the age, condition, hours or mileage, and the strength of the resale market. Used assets typically carry shorter terms and higher pricing than new ones, and some lenders set a maximum age. An inspection or appraisal may be required for private-party purchases.
How much down payment is needed?
It varies with the asset, the business profile and the structure. Some transactions are structured with no money down; others require a percentage of the purchase price or the first and last payments in advance. Newer businesses and older equipment generally attract a larger down payment.
What is a sale-leaseback?
A sale-leaseback converts equipment you already own into cash. You sell the asset to a finance company, receive the proceeds, and lease it back so it stays in service. It can unlock capital tied up in owned machinery, but you give up ownership and pay for use — so weigh it against a working capital option first.
Does equipment financing affect my other credit lines?
Usually less than general borrowing, because the lien is typically limited to the financed asset rather than a blanket lien on all business assets. That said, the payment does appear on your debt schedule and affects debt service coverage on any future application.
Can I finance equipment for a newer business?
Sometimes. The collateral helps, and lenders may give weight to the owner’s industry experience. Expect a larger down payment, a shorter term and higher pricing than an established business would see. Not all applicants qualify.
Have a question that is specific to your business? Start an application and review the options available to you.
Apply NowOther financing structures to compare
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Working Capital
Financing used to cover day-to-day operating costs — payroll, rent, suppliers and inventory — when revenue and expenses fall out of step.
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Merchant Cash Advance
A purchase of a portion of your future sales, repaid as a share of daily or weekly receipts rather than a fixed monthly instalment.
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Business Line of Credit
A revolving credit limit you draw from as needed and repay, with interest charged only on the balance you actually use.
Ready to explore equipment financing?
Start your application and see what financing solutions may be available for your business.