Equipment Financing 101: How It Works and When to Use It (2026)

How Equipment Financing Works

Equipment financing uses the equipment being purchased as collateral for the loan. The lender pays the equipment vendor directly, and you repay the lender over a fixed term — typically matching the useful life of the equipment. Because the loan is secured by the equipment, credit requirements are more flexible than unsecured products, and rates are generally lower.

Equipment Loan vs. Equipment Lease

An equipment loan results in ownership of the equipment at the end of the term — ideal for equipment with a long useful life or high residual value. An equipment lease keeps the equipment off your balance sheet and lets you upgrade at the end of the term — ideal for technology that becomes obsolete quickly. The total cost of a lease is often higher, but the flexibility and lower monthly payment can be worth it in certain industries.

How to Qualify and What Rates to Expect

Equipment financing is one of the easier products to qualify for because the collateral reduces lender risk. Most lenders require 1+ year in business, 600+ credit score, and proof of revenue. Rates range from 5–30% depending on credit quality, equipment type, and term length. New equipment typically qualifies for better rates than used equipment. Section 179 tax deduction allows full deduction of financed equipment in the year of purchase — consult your tax advisor.

Frequently asked questions

Can I finance used equipment?

Yes, most lenders finance used equipment, though rates may be slightly higher and some lenders cap financing at equipment under 10 years old.

Do I need a down payment for equipment financing?

Many lenders offer 100% financing on equipment; some require 10–20% down for high-value or specialty equipment.