Equipment Financing Explained: Rates, Terms, and How to Qualify

How equipment financing works

An equipment loan finances a specific asset — a truck, excavator, pizza oven, MRI machine, CNC mill — and uses that asset as collateral. Because the lender can repossess and resell the equipment, approval is easier and rates are lower than unsecured working capital. You typically finance 80–100% of the purchase price over 2–7 years and own the equipment outright at the end.

Loan vs. lease

• Equipment loan: you own it, you depreciate it, fixed payments, typically 100% financing for established businesses.
• $1 buyout lease: functions like a loan; you buy the equipment for $1 at the end. Often easier to approve.
• Fair market value (FMV) lease: lower payments, return or buy at market value at term end. Best for tech that becomes obsolete.
• Sale-leaseback: you sell equipment you already own to a lender and lease it back, unlocking cash.

Rates and terms in 2026

• Strong credit (700+), 2+ years in business: roughly 7–12% APR.
• Fair credit (620–699): roughly 12–20% APR.
• Challenged credit (550–619) or startups: 20–30%+ APR, often with 10–20% down.
• Terms: 24–84 months, usually matched to the equipment’s useful life.
• Amounts: $5,000 to $5 million+; titled vehicles and heavy equipment are the easiest to finance at the high end.

Requirements

• Equipment quote or invoice from a vendor (private-party sales are possible but harder).
• Business bank statements (3 months) and ID.
• Credit score of 580+ for most lenders; startups accepted with down payment and industry experience.
• For deals over $150,000–$250,000: tax returns and financial statements.
• Used equipment generally financeable if under 10–15 years old with verifiable value.

The Section 179 tax deduction

Section 179 lets you deduct the full purchase price of qualifying equipment in the year you put it into service, even if you financed it and have paid only a fraction. For 2026 the deduction limit is well over $1 million. Combined with bonus depreciation, financing equipment in December can reduce that year’s taxable income by the full equipment cost. Confirm with your CPA, but this is why Q4 is the busiest equipment financing season.

When equipment financing beats working capital

Any time the purchase is a durable asset. Using a 6-month revenue-based advance to buy a 7-year truck means paying for the truck in 6 months at a high factor rate. Equipment financing matches the term to the asset life and costs a fraction. Save working capital for inventory, payroll, and opportunities that pay back fast.