How to Finance Equipment for Your Business

The old adage, “It takes money to earn money,” holds water, but the underlying premise is the judicious allocation of those funds. Merely channeling resources without discernment doesn’t guarantee entrepreneurial success.

It’s indisputable that equipping your business with the right tools is vital. The appropriate machinery or software can bolster efficiency, curtail operational costs, or open doors to emerging markets – all of which can significantly enhance profitability.

Would you trust a tech company operating on dated computers and servers? Or perhaps frequent a cafe that lacks the basics like an espresso maker? Or would you commission a construction firm devoid of the essential equipment for quality building? The answer is a resounding no.

For any enterprise to function optimally, thrive, and scale new heights, it’s imperative to have the requisite equipment, technology, or tools. However, the stark reality remains that not all businesses possess the immediate capital for these necessary expenditures.

Fortunately, there exist diverse financial avenues to transition to a phase of revenue generation.

Steps Before Delving into Financing Solutions

Venturing into the realm of business equipment financing usually follows a series of preliminary strategic endeavors. The usual preparatory pathway includes:

  • Establishing clear organizational objectives;
  • Gauging both current performance and future projection;
  • Evaluating operational output capacity;
  • Scrutinizing present equipment assets;
  • Investigating market availability of novel or pre-owned equipment;
  • Weighing the pros and cons of purchasing versus leasing.

Undoubtedly, this preparatory phase demands significant investment in terms of time and diligence. To ensure that these initial efforts are not rendered futile, the subsequent phase – delving into appropriate financing avenues – is of paramount importance.

Equipment Financing Strategies for Businesses

Once your business needs are precisely defined, charting a roadmap for equipment financing becomes paramount. 

Traditional Business Loans

Traditional business loans provide an avenue for companies to obtain a significant amount, sometimes even up to $1 million. These loans function similarly to regular mortgages or car loans, allowing businesses to borrow a sum and repay it under either a fixed or variable interest rate.

The stability of a fixed-rate loan offers consistent repayment amounts, making financial planning simpler for enterprises.

Term loans typically carry an annual interest rate of 6% to 25%, and the repayment duration spans one to five years. These loans are usually expedited in terms of approval and funding, often processed within two business days.

However, businesses should be aware of associated fees, including those related to origination, underwriting, and packaging, and the potential need for collateral or personal guarantees.

Specialized Equipment Loans

These loans cater explicitly to equipment procurement. Various financial institutions, ranging from traditional banks to online lenders and specialized financing companies, offer them. Such loans may cover up to the entire value of the equipment, with interest rates oscillating between 8% to 30%.

The repayment duration usually aligns with the equipment’s lifespan.

While these loans might necessitate an initial deposit of between 5% to 20% of the equipment’s price, they generally promise a swift approval process, mainly since the equipment serves as collateral. This aspect also potentially makes these loans accessible to newer businesses.

an opened silver laptop, calculator, and money behind it on a plain pink background 

SBA 504 Loan Program

The Small Business Administration’s 504 loan initiative provides fixed-rate loans to businesses, allowing them to invest in long-term assets like infrastructure or equipment.

These loans are channeled through certified development companies (CDCs), with the funding structure comprising 40% from the CDC, 50% from another financial institution, and a 10% contribution from the borrower. The CDC’s portion has SBA backing.

Eligibility criteria for these loans are:

  • Operating as a for-profit entity within the U.S. or its territories;
  • Maintaining a tangible net worth below $15 million;
  • Reporting an average net income below $5 million over the previous two years.

Repayment terms are either 10 or 20 years, with APR influenced by five- and 10-year treasury bonds rates, typically lower than typical bank rates. It’s crucial to remember that these loans come with certain fees and might not be the fastest option in terms of approval and disbursement.

Business Lines of Credit

Business lines of credit offer flexible access to funds. Instead of borrowing a fixed sum, companies can draw from this line as needed, akin to credit card operations. Only the borrowed amount accrues interest.

These credit lines generally range from $10,000 to $100,000, though larger amounts might require collateral. Qualification criteria include business performance, duration of operation, and revenue figures, among others.

The interest rates can either be fixed or variable, spanning from 7% to 36%. Approval processes for lines of credit are typically swift.

Business Credit Cards

Business credit cards are another avenue for equipment financing. They offer certain benefits over traditional loans, including more straightforward application procedures, potential introductory 0% APR offers, and continuous rewards in various forms. However, their limitations lie in lower credit limits and relatively higher APRs, ranging from 11% to 24%.

Relying heavily on credit cards might inflate the long-term costs of equipment, especially if balances aren’t cleared punctually. Thus, it might be more prudent to utilize business credit cards for less expensive purchases.

Pros and Cons of Equipment Financing for Small Enterprises

Liquidity Maintenance: Equipment financing ensures that your cash reserves remain intact, allowing for other vital business expenditures.Risk of Asset Seizure: Should your loan be fortified with a blanket lien or a personal assurance, defaulting might lead to the lender seizing your business or personal holdings, inclusive of the funded equipment.
Ownership Possibilities: At the culmination of the lease term, there’s potential for outright ownership or an option to buy the equipment.Initial Payment Obligation: Based on the financing model, an upfront payment, often around 20%, may be necessitated.
Tax Benefits: The entire acquisition cost of eligible new or pre-owned equipment can be written off within the same fiscal year of its utilization. Challenges with Equipment Longevity: There’s a potential pitfall of investing in equipment that becomes redundant or malfunctions before the financing period concludes.
Accessibility for Startups: Startups might find the process of procuring equipment financing more challenging.

Comparing Equipment Leasing and Equipment Financing

A calculator, eyeglasses on a laptop, a leather wallet with banknotes, and scattered coins set against a dark background

At the heart of the decision between equipment leasing and financing lies the concept of ownership. With financing, businesses gain perpetual ownership of the equipment. Conversely, leasing grants businesses a provisional right to use the equipment for a set lease period, after which they can decide to return, purchase, or extend the lease.

Two primary categories of equipment leases exist: capital and operating leases. Capital leases grant prolonged access to vital equipment, placing the onus of maintenance on the lessee. On the other hand, operating leases are tailored for short-lived equipment requirements and possess the flexibility to be ended before their stipulated duration.

Choosing the right lease category is contingent upon the equipment’s characteristics and the company’s specific needs. For enterprises that leverage fast-changing technology, a capital lease, often referred to as a fair market value lease, may be the preferred choice.

Such leases empower businesses with the agility to transition to state-of-the-art equipment at the lease’s end. However, for long-lasting equipment, like linear accelerators, opting for a finance lease might be more beneficial, allowing companies the choice to keep the equipment post-lease.

Opting for equipment leasing might be suitable if:

  • The equipment requirement is temporary;
  • Frequent technology updates are necessary;
  • Available funds are limited.

Leasing can present advantages like zero down payments, minimized initial expenses, reduced monthly outlays, and potential tax deductions associated with lease payments.

Nevertheless, leasing does have its downsides: you pay without gaining equipment equity and may be committed to the lease beyond the actual equipment need.

On the other hand, equipment financing might align better with businesses that:

  • Intend to use the equipment over an extended period;
  • Rely heavily on the equipment for revenue generation;
  • Have a robust cash flow.

Ownership benefits from purchasing include complete control over the equipment, the option to resell if no longer needed, and potential tax deductions associated with the purchase.

However, it’s worth noting that financing might involve higher monthly outlays, substantial down payments, and challenges in offloading obsolete equipment.


For businesses aiming for growth and success, securing the appropriate equipment is crucial. This piece underscores the significance of equipment in boosting operational efficiency, tapping into new market opportunities, and amplifying profitability.

Whether a budding venture or an established entity, there’s a spectrum of financing avenues available, encompassing standard loans, dedicated equipment financing, and diverse credit facilities. Each financing route presents its benefits and inherent challenges.

When it comes to choosing between leasing and outright purchasing of equipment, factors like the business’s distinct necessities, anticipated equipment lifespan, and fiscal stability play a decisive role.

It’s vital for enterprises to meticulously assess their functional needs, financial standing, and the equipment’s characteristics before finalizing a financing strategy. Such a forward-thinking stance promotes the wise use of resources, paving the way for sustainable business expansion and triumph.