Equipment Financing & Best Small Business Equipment Loans

By Jill A. Chafin | Edited by Kurt Adams and Janet Schaaf

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.

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Best equipment financing companies in 2023

Equipment loans can help to reduce strain on your business’s cash flow for an upfront purchase. There may be equipment financing options available for startups and companies with bad credit.

Here are our picks for the best lenders for equipment loans.

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

LenderBest forMax. loan amountStarting interest ratesApprox. time to fundingMin. credit score
National FundingHigh revenue businesses$150,0004.99%24 hours650
Commercial Fleet FinancingCommercial vehicles$1,000,000Not disclosed24 hours640 or higher is preferred
Taycor FinancialStartups$2,000,0003.49%24 hours550
CITFast funding$500,0005.49%24 hoursNot disclosed
Funding CircleOnline term loan$500,000Not disclosed3 days660
Bank of AmericaTraditional bankStarting at $25,000 (no max.)6.50%10 business daysNot disclosed
SBALarge amounts$5,000,000Prime + 2.75%5 to 10 business days680
Learn more about how we chose our picks.

National Funding: Best for high revenue businesses

Term length24 to 60 months
Max. amount$150,000
Starting interest rate4.99% simple interest
Min. credit score650
Min. time in business6 months

Commercial Fleet Financing: Best for commercial vehicles

Term lengthFlexible
Max. amount$1,000,000
Starting interest rateNot disclosed
Min. credit score640 or higher is preferred
Min. time in businessNot disclosed

Taycor Financial: Best for startups

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

CIT: Best for fast funding

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

Funding Circle: Best for online term loan

Term length6 to 84 months
Max. amount$500,000
Starting interest rateNot disclosed
Min. credit score660
Min. time in business2 years

Bank of America: Best for traditional bank

Term lengthUp to 60 months
Max. amountStarting at $25,000 (no published maximum)
Starting interest rate6.50%
Min. credit scoreNot disclosed
Min. time in business2 years

SBA: Best for large amounts

Term length120 months
Max. amount$5,000,000
Starting interest ratePrime + 2.75%
Min. credit scoreTypically 680
Min. time in businessTypically 2 years

How equipment financing and equipment loans work

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

Rates and terms

Equipment loans typically come with a fixed term — generally around five years, though specific lenders may vary. You’ll need to make regular payments on an equipment loan, usually 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 reduce the overall amount you owe and possibly even the loan’s lifetime.

Where to get equipment financing

You have several options when looking to finance equipment for your business.

  • Alternative lenders: Online lenders utilize a streamlined process to analyze your business’s revenue, assets and general creditworthiness. Because of this, they may offer more lenient credit requirements, higher loan amounts and faster funding times. However, they tend to impose shorter terms and higher interest rates.
  • Banks and credit unions: Most traditional financial institutions offer equipment loans with favorable terms and rates, but they generally have stricter eligibility requirements. For example, you’ll need a robust credit score, several years of business and a high annual revenue.
  • The U.S. Small Business Administration: Another option is to work with an SBA lender. An SBA loan generally has longer terms along with capped interest rates. Furthermore, you can use existing equipment plus the equipment you want to purchase as collateral to secure the loan. However, you typically need a solid credit score and a reliable income stream to qualify.

Equipment financing vs. leasing

You can rent equipment with no or low upfront costs with equipment leasing. While leasing seems cheaper than an equipment loan since you don’t need to provide a down payment, you’ll likely pay more in the long run. You won’t ever own the equipment with leasing, disallowing the ability to claim depreciation deductions.

Equipment financingEquipment 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 paymentTypically requiredNot typically required
CostsCosts less in the long termCosts more in the long term
DepreciationTax-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 will never 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 if you need the equipment for a short time and can’t afford the down payment. In addition, leasing equipment would lower your risk of owning obsolete equipment if you’re in an industry where equipment changes or updates often, like an IT firm.

Equipment leasing might be a better option if:

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

Pros and cons of equipment financing

Pros
  • Fast funding: Online lenders offer fast equipment loans (typically within two business days).
  • Interest rate: Since equipment loans are secure, you’ll benefit from comparatively lower interest rates.
  • Monthly payments: With fixed monthly payments, you can spread 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 20%).
  • Credit score requirements: Minimum credit score requirements are generally in the 600s, although some go as low as 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 look at the following:

  • Personal credit score: Lenders will examine your personal credit score to determine eligibility. Many online lenders, including Commercial Fleet Financing, have minimum credit score requirements in the 600s.
  • Time in business: Some lenders have a minimum time in business requirement of two years, but certain online lenders only require six months or less in operation. For example, Taycor Financial has no minimum time in business requirement.
  • Annual revenue: Traditional banks may require minimum annual revenues, which can vary greatly. For example, Funding Circle requires $50,000, whereas Bank of America requires $250,000.

Tips for getting an equipment loan

REQUIRED DOCUMENTS

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

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

How we chose our picks

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 10 days of approval

Frequently asked questions

Business owners can finance all sorts of equipment, such as vehicles, computers, kitchen appliances and commercial office supplies. Most industries can apply for equipment loans. Restaurant owners can also consider a specific restaurant loan to purchase business-related expenses.

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.

Equipment loans may be available for businesses with bad credit. Some lenders accept minimum credit scores as low as 550 — however, having a higher credit score will likely help you secure a lower interest rate. No-credit-check equipment loans don’t exist, but because the equipment acts as the collateral to secure the loan, borrowers with poor credit may find equipment financing to be an accessible funding option.

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

Yes, some lenders provide equipment financing options for pre-owned equipment. Shop around with different lenders to compare 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 ten 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.