SBA Loan vs. Equipment Financing: Which Is Better for Business Equipment?
SBA loan vs. equipment financing — compare rates, speed, and total cost when buying business equipment, machinery, or vehicles.
SBA Loan: SBA 7(a) and 504 loans are government-backed programs offering some of the lowest rates and longest terms available for qualifying small businesses. 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.
SBA Loan vs. Equipment Financing — side by side
| SBA Loan | Equipment Financing | |
|---|---|---|
| Typical amount | $50,000 – $5,000,000 | $5,000 – $5,000,000 |
| Typical term | 5 – 25 years | 2 – 7 years |
| Rate | Prime + 2.25% – Prime + 4.75% | 6% – 24% APR |
| Minimum time in business | 2 years | 1 year |
| Minimum credit score | 650+ | 600+ |
Which is right for your business?
- SBA Loan tends to fit best when you need business acquisition or real estate purchase.
- Equipment Financing tends to fit best when you need machinery or vehicles.
Frequently asked questions
Can I use an SBA loan to buy used equipment?
Yes — SBA 7(a) can fund used equipment purchases as well as new. Equipment financing programs also generally fund used equipment, though some lenders require minimum age or condition standards for used assets.
Which has better rates — SBA or equipment financing?
For equivalent borrower profiles, SBA 7(a) typically carries lower rates (Prime + 2.75% ≈ 11%) than many equipment lenders (8–20%). However, the SBA guarantee fee adds 3% upfront on larger loans, which partially offsets the rate advantage. Run the total cost calculation including all fees for both options.
