Equipment Financing & Best Small Business Equipment Loans

By Marianne Hayes | Edited by Kurt Adams and Xiomara Martinez White

Equipment financing — also called equipment loans — helps small business owners acquire, upgrade or replace essential or heavy equipment, such as restaurant refrigerators, computers, vehicles and commercial copy machines. Equipment loans can help avoid a substantial strain on your business's cash flow from an upfront purchase. There may even be equipment financing options available to startups and businesses with bad credit.

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Best equipment financing companies in 2022

Here’s our picks for the best places for equipment loans.

LenderBest forMax. loan amountStarting interest ratesTime to fundingMin. credit score
National FundingBad credit$150,0004.99%24 to 72 hoursHigher than 575
CurrencyFast funding$100,0007.50% to 12.50%1 to 3 business days625
Commercial Fleet FinancingCommercial vehicles$1,000,000Not disclosed1 business day640
Taycor FinancialStartups$2,000,0003.49% to 28.00%4 to 24 hours550
CITLarge amounts$500,000Starting at 5.49%1 business day620
Learn more about how we chose our picks here.

National Funding: Best for bad credit

Term length24 to 84 months
Term length24 to 60 months
Max. amount$150,000
Starting interest rate4.99%
Min. credit scoreHigher than 575
Min. time in business6 months

Pros

  Low minimum credit score requirement

  Payments not required for the first three months


Cons

  It could take up to three business days to receive funding

  No down payment required, but this could trigger a higher monthly payment since you’re borrowing more

If you’re looking for an equipment loan but have a less-than-perfect credit score, National Funding might be worth exploring. You can finance new or used equipment — plus, borrowers have a few months before their first payment is due.

Commercial Fleet Financing: Best for commercial vehicles

Term length36 to 108 months
Term length36 to 108 months
Max. amount$1,000,000
Starting interest rateNot disclosed
Min. credit score640
Min. time in business2 years, though startups may qualify with a 10% 20% down payment

Pros

  Ideal for business owners with commercial transportation needs

  Open to startups that make a substantial down payment


Cons

  High minimum credit score requirement

  Lack of transparency around average interest rates

If you’re looking for an equipment loan for commercial vehicles, Commercial Fleet Financing specializes in commercial transportation equipment like trucks and trailers. Creditworthy business owners could secure funding in as little as 24 hours.

Taycor Financial: Best for startups

Taycor Financial lender logo

Term length12 to 84 months
Term length12 to 84 months
Max. amount$2,000,000
Starting interest rate3.49% to 28.00%
Min. credit score550
Min. time in businessNone

Pros

  No minimum time-in-business requirement

  Lower credit may not be an issue


Cons

  Interest rates may be in the double-digits

  A longer loan term could mean paying more interest over time

Taycor Financial may be appealing to newer businesses, as the lender may be open to offering equipment loans and leases to startups. Borrowing limits are high, though interest rates can be steep.

CIT: Best for large amounts

Term length6 to 72 months
Term length6 to 72 months
Max. amount$500,000
Starting interest rate5.49%
Min. credit score620
Min. time in business2 years

Pros

  Qualified borrowers could be approved for up to $500,000

  Interest rates could be as low as 5.49%


Cons

  Startups must be in business for at least two years

  Not ideal for business owners with a lower credit score

CIT’s equipment financing stands out for its high borrowing limits. Eligible business owners could receive up to $500,000 in just one business day.

 

How equipment financing and equipment loans work

Equipment financing is a type of business loan that enables companies to purchase the needed equipment to operate their businesses — think computers, vehicles or large machinery. An equipment loan is a kind of asset-based financing, which means that the equipment acts as collateral to secure the loan.

Equipment loans typically come for a fixed term — generally around five years, though specific lenders may vary. You’ll be expected to make regular payments on an equipment loan, oftentimes in monthly installments of the loan principal plus interest, which can be as high as 28% in some cases. Some lenders require a down payment, which can help to reduce the overall amount you owe and possibly even the lifetime of the loan.

Equipment financing vs. leasing

With equipment leasing, you can rent out the equipment with no or low upfront costs. While it can seem cheaper than equipment loans due to no down payment requirement, you don’t own the equipment with a lease and you’ll end up paying a higher long-term cost.

Equipment financing Equipment leasing
Payment termsEquipment loans cover the costs of equipment in exchange for periodic repayments over a specified termThe borrower makes periodic payments to rent equipment over a specified term
OwnershipBorrower owns the equipmentLender owns the equipment
Down payment Typically requiredNot typically required
CostsCosts less in the long termCosts more in the long term
Depreciation Tax-deductibleNot typically tax-deductible

Capital lease vs. operating lease

A capital lease may give you the benefit of renting equipment with the option to buy at the end of the lease term. On the downside, you can’t cancel a capital lease.

An operating lease is similar to a conventional rental agreement: You make regular payments but it doesn’t allow you to own the equipment. However, as the lessee, you can usually cancel the lease with prior notice.

When is equipment leasing better for you?

Generally, an equipment lease might be better for you if you need the equipment for a short amount of time and don’t have the ability to make a down payment. In addition, if you’re in an industry where equipment updates often with the latest technology — an IT firm, for example — then leasing equipment would lower your risk of owning obsolete equipment.

Equipment leasing might be a better option if:

  • You’re only planning to use the equipment for a short period of time
  • You don’t have the ability to make a down payment
  • You think the equipment will become obsolete quickly
  • You don’t want to own the equipment

Pros and cons

Pros
  • Fast funding: Online lenders offer fast funding for equipment loans (typically within two business days).
  • Interest rate: Since equipment loans are secure, you’ll benefit with comparatively lower interest rates.
  • Monthly payments: With fixed monthly payments, you can spread out your cost over time.
  • More cash flow: Equipment loans allow you to have more cash on hand.
Cons
  • Down payments: Equipment loans may require large down payments (typically up to 20%).
  • Credit score requirements: Minimum credit score requirements typically start at 550.
  • Extends equipment lifetime: Loan terms increase the life of the equipment, which may become obsolete.
  • Lien or personal guarantee: With equipment loans, lenders typically require a lien and personal guarantee in addition to collateral.

How to qualify for equipment financing

To qualify for equipment financing, lenders will typically examine your credit score, time in business and annual revenue.

Personal credit score: Lenders will examine your personal credit score to determine eligibility. Many online lenders, including Currency and Commercial Fleet Financing, have minimum credit score requirements in the 600s.

Time in business: Some lenders may have a minimum time in business requirement of two years, but there are online lenders available that only require six months in operation.

Annual revenue: Traditional banks may require minimum annual revenues of $250,000.

Tips for getting a business equipment loan

  • Shop around and get an equipment quote from the vendor
  • Improve your personal credit score
  • Create or revamp your business plan

REQUIRED DOCUMENTS

When applying for equipment financing, the lender may require the following documents:

  • Equipment quote
  • Recent bank statements
  • Business plan
  • Personal and business tax returns
  • Personal credit score
  • Driver’s license

Methodology

​​To appear on our list of best equipment financing companies, lenders needed to meet the following criteria:

  • Either a minimum credit score requirement lower than 680 or no credit score requirement.
  • Flexible repayment terms with no prepayment penalties.
  • Funds are available within one week of approval.

Frequently asked questions

Business owners can finance all sorts of equipment, including vehicles, computers, kitchen appliances, commercial office supplies and more. Equipment loans can make sense across many industries.

Yes, some equipment lenders only require six months in business to qualify for equipment financing — and some don’t have any time-in-business requirements. This allows startups to finance any necessary equipment within their first year of business.

Yes, some lenders require minimum credit scores as low as 550 — however, it is worth noting that borrowers with higher credit scores are more likely to get equipment loans with lower interest rates. A higher rate will make your loan more expensive in the long run.

The interest rate on equipment loans depends on a few different factors, though the borrower’s credit score will likely influence their loan’s interest rate. (Note, however, that every lender is different, and will weigh these factors in their own way.) Interest rates for equipment loans vary, but can typically range anywhere from 3.49% to 28%.

Yes, some lenders may provide equipment financing options for pre-owned equipment. Shopping around with different lenders can help you compare your options so you can make the best decision for your business.

It all depends on your situation. The following factors will likely come into play when applying for equipment financing:

  • Your credit score
  • Your down payment amount
  • Your time in business
  • Your business plan (if the lender requires it)

Because the equipment acts as collateral to secure the loan, it’s generally easier to qualify for an equipment loan versus a traditional business loan, as the latter may have stricter lending requirements.

The loan itself is not an asset, but equipment loans are an asset-based form of financing. This means that you’re using a loan to purchase an asset — the equipment itself will serve as collateral for the loan, and once your loan is fully paid, you’ll own the equipment free and clear.

Some equipment loans have generous term lengths of up to nine years. Others may be as short as six months. Just keep in mind that a longer loan term will mean paying more interest over the life of the loan.