Equipment Financing: How It Works
and Where to Apply in 2022

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

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Where to find equipment financing in 2022

Here are several business equipment financing companies that may offer equipment financing.

Best equipment financing companies of 2022

LenderBest forLoan amountStarting interest ratesMinimum credit scoreTime to funding
National FundingBad creditUp to $150,000Starting at 4.99%57524 to 72 hours
CurrencyFast funding$10,000 to $100,000APR 7.50% to 12.50%62524 to 72 hours
Commercial Fleet FinancingCommercial vehiclesFrom $10,000Not disclosed64024 hours
Taycor FinancialNo down payment$500 to $2,000,000Starting at 3.49% to 28.00%5504 to 24 hours
CITLarge amountsUp to $500,000Annual interest rates starting at 5.49%Not disclosed24 hours

Methodology

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

  • Minimum FICO Score requirement below 700.
  • Funds are available within one week of approval.
  • Flexible repayment terms with no prepayment penalties.

National Funding: Best for bad credit

If you’re working to improve your credit score but still have equipment financing needs, then National Funding could be a good option for you. The minimum credit score it accepts is 575 and it only requires a minimum of six months in business, making it more accessible than many other lenders offering equipment financing.

You can get financing up to $150,000 for equipment you might need for your business, including office equipment, restaurant equipment or commercial vehicle financing. The interest rates start at 4.99% and, for most customers, payments will be monthly. If approved, you could see funding within 24 to 72 hours.

Currency: Best for fast funding

If you need immediate funds for equipment, then Currency may be an option to consider. This lender also offers working capital loans and commercial loans for other business needs.

For equipment financing, Currency looks for a minimum credit score of 625. If you meet the criteria, you could see funding in 24 to 72 hours with an APR between 7.50% and 12.50%. The minimum it offers is $10,000, up to a maximum of $100,000.

Commercial Fleet Financing: Best for commercial vehicles

If you’re looking for equipment financing specifically to build a commercial vehicle fleet or to buy a vehicle, then Commercial Fleet Financing is an option worth considering. It offers equipment financing starting at $10,000.

While the company doesn’t disclose its interest rates, it does note on its website that its rates can compete with those of your local bank or credit union. Commercial Fleet Financing also notes that it can provide funding in as little as 24 hours, and looks to work with borrowers with credit scores of 640 or higher.

Taycor Financial: Best for no down payment

Taycor Financial lender logo

Taycor Financial can offer you funding in as little as four to 24 hours. Amounts range between $500 and $2,000,000 in funding for equipment financing.

Taycor’s interest rates can be as low as 3.49%, and go up to 28.00%. You’ll need a credit score of at least 550. Once you’re granted your funding, you’ll have a repayment term of 12 to 84 months. It’s flexible with its payment schedule, so you can make payments on one that works best for you.

CIT: Best for large amounts

CIT, a division of First Citizens Bank, offers equipment financing up to $500,000 if you only fill out an application (though it allows up to $1,000,000 if you also offer financial statements). It can finance for term lengths of 6 to 72 months, with annual interest rates starting at 5.49%. Once approved you could have your funding within 24 hours.

Financing from CIT can be used for buying items like inventory, equipment and technology, among others, to help you run your business — plus, it’s got flexible repayment terms to fit a large range of business needs as well.

Other places to shop for business equipment loans

  • Banks: Traditional banks may typically offer more favorable interest rates and terms on commercial loans compared to online lenders. However, lengthy approval processes, additional paperwork and higher eligibility requirements are drawbacks worth noting.
  • Online lenders: Online lenders tend to have more lenient requirements and borrowers could receive funding as soon as after one business day if their loan is approved. Still, be sure to weigh the convenience of online lending against potentially higher interest rates.
  • SBA: The U.S. Small Business Administration (SBA) offers several types of loans for financing equipment — the general-purpose 7(a) loan and equipment-specific 504 loan may help fund business equipment. SBA loans may offer lower interest rates than other lenders, but often have higher eligibility requirements and longer times to funding. Traditional financial institutions, like banks and credit unions, typically facilitate SBA loans, though they may also be available through online lenders.




Equipment financing: How does it work?

Equipment financing is a secured loan, where the equipment you purchase acts as collateral. Since your equipment serves as collateral, failure to make payments could result in the lender repossessing it. But once you repay the full loan amount, you’ll own the equipment outright, without any liens.

Lenders typically cover at least 80% of the equipment cost, which means that you pay the remaining amount via a down payment. You’ll repay the loan over a fixed period of time plus interest.

Equipment financing companies typically offer rates from 5% to 30%. For example, if you run a printing business and need a new digital press, it may cost you $100,000. You could apply for a heavy equipment loan equal to 80% of the equipment’s cost ($80,000), plus 5% interest (a total of $84,000). You’d pay back the loan on a fixed schedule until it’s paid off.

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 financing due to no down payment requirement, you don’t own the equipment with a lease and you will end up paying a higher long term cost.

Equipment financingEquipment leasing
Payment termsCovers the purchase of equipment in exchange for periodic repayments over a specified termMake periodic payments to rent equipment over a specified term
OwnershipBorrower owns the equipmentLender owns the equipment
Down paymentTypically requiredNot typically required
CostCosts 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 it 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. 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 are in an industry where equipment updates often with the latest technology, like an IT firm, 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 of equipment financing

Pros
  • Fast funding: Online lenders offer fast funding (typically within two business days).
  • Interest rate: Since equipment loans are secure, you benefit with relatively low 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: Requires large down payments (typically up to 20%).
  • Credit score requirements: Minimum credit score requirements typically start at 575.
  • Extends equipment lifetime: Loan terms increase the life of the equipment, which may become obsolete.
  • Lien or personal guarantee: 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, like CIT and Funding Circle 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 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

Get quotes on equipment financing

Equipment financing FAQs

Yes, some equipment lenders only require six months in business to qualify for equipment financing, allowing startups to finance any necessary equipment within their first year of business.

Yes, some lenders only require minimum credit scores as low as 575.

Typical equipment loan interest rates range from 5% to 30%.

Yes, lenders may provide equipment financing options for pre-owned equipment.