Equipment Financing vs. Term Loans: Compare Business Funding
Equipment financing vs. business term loans — when to use asset-collateralized equipment loans vs. general-purpose term financing.
Equipment Financing: Equipment financing uses the purchased equipment as collateral, making it one of the most accessible forms of business funding for asset-heavy industries. Business Term Loan: A business term loan delivers a fixed lump sum repaid over a set schedule with predictable monthly payments — the classic business funding structure.
Equipment Financing vs. Business Term Loan — side by side
| Equipment Financing | Business Term Loan | |
|---|---|---|
| Typical amount | $5,000 – $5,000,000 | $25,000 – $2,000,000 |
| Typical term | 2 – 7 years | 1 – 10 years |
| Rate | 6% – 24% APR | 7% – 30% APR |
| Minimum time in business | 1 year | 1 year |
| Minimum credit score | 600+ | 600+ |
Which is right for your business?
- Equipment Financing tends to fit best when you need machinery or vehicles.
- Business Term Loan tends to fit best when you need expansion or equipment.
Frequently asked questions
Can a term loan have the equipment as collateral?
Yes — lenders can take a security interest in equipment as collateral for a term loan. However, dedicated equipment financing is typically better structured for this purpose, with terms aligned to the asset's useful life.
Which has lower rates — equipment financing or term loans?
For qualified borrowers, equipment financing rates are often comparable to or lower than term loan rates because the collateral quality is high (a specific, insurable, resellable asset). Unsecured term loans from alternative lenders frequently carry higher rates.
