Equipment financing is money borrowed specifically to purchase business equipment — vehicles, machinery, kitchen equipment, medical devices, construction equipment, and similar assets — where the equipment itself secures the financing. Because the lender has a tangible asset backing the deal, equipment financing is often more accessible and can carry better terms than an unsecured loan for a business with the same credit profile.
How Equipment Financing Works
You identify the equipment you need — new or used — and the financing covers some or all of the purchase price, up to 100% in many cases. Instead of pledging separate collateral, the equipment itself serves that role: if the loan isn't repaid, the equipment secures the lender's position, similar to how a car loan works for a vehicle. This is what allows equipment financing to work for businesses that might not qualify as easily for a comparable unsecured term loan.
An asset pledged to secure financing. If the loan isn't repaid, the lender has a legal claim to the asset. In equipment financing, the equipment being purchased is typically the collateral itself.
New vs. Used Equipment
Both new and used equipment are commonly eligible. Used equipment financing is common for industries like construction, transportation, and manufacturing, where quality used equipment retains significant value. Age, condition, and resale value can all factor into the terms offered, since they affect how much the collateral is actually worth to a lender.
Equipment Financing vs. Equipment Leasing
These two get confused often, and they're not the same thing:
- Equipment financing is generally structured as a purchase — you're working toward ownership of the equipment as you repay.
- Equipment leasing is generally structured as payment for use over a set term — at the end, you may return the equipment, renew, or in some lease structures purchase it, depending on the agreement.
The right choice depends on how long you expect to use the equipment, whether you want to own it long-term, and how it affects your taxes and balance sheet — which is worth discussing with your accountant for anything beyond a straightforward purchase.
The Section 179 Tax Deduction
One advantage often associated with equipment financing is the Section 179 deduction, part of the U.S. tax code that allows qualifying businesses to deduct the cost of eligible equipment in the year it's placed into service, rather than depreciating it over several years. Financed equipment generally qualifies the same way purchased equipment does — you don't have to pay cash outright to take the deduction.
Who Realistically Qualifies
Because the equipment secures the financing, this is often one of the more accessible programs for businesses with a shorter operating history or a lower credit score than a traditional term loan would require — see Can You Get Business Funding With Bad Credit? for how collateral-backed programs compare to unsecured ones more broadly. Lenders will still generally want to see reasonable business revenue and recent bank statements — the equipment reduces risk, but doesn't eliminate the need to demonstrate the business can support the payment.
Questions to Ask Before Financing Equipment
- What is the total cost, including any fees, over the full term?
- What happens if the equipment is damaged, becomes obsolete, or is no longer needed before the term ends?
- Does the financing follow the equipment if you sell it, or does it need to be paid off first?
- Is there a penalty for paying off the financing early?
Have a specific piece of equipment in mind?
Apply and we'll walk through financing options based on the equipment, its cost, and your business's financial picture.
Frequently Asked Questions
What credit score do I need for equipment financing?
Equipment financing is generally more accessible than an unsecured loan at the same credit score, because the equipment itself serves as collateral, reducing the lender's risk. Exact requirements vary by lender and by the type and value of the equipment being financed.
Can I finance used equipment, or only new?
Both new and used equipment are commonly eligible for equipment financing, though age, condition, and resale value of used equipment can affect terms.
Is equipment financing the same as equipment leasing?
No. With equipment financing, you're typically financing a purchase, working toward ownership as you repay. Leasing structures are different — you pay to use the equipment for a set term and may return, renew, or purchase it at the end, depending on the lease. The two have different tax and ownership implications.
Does equipment financing qualify for the Section 179 tax deduction?
Financed equipment can qualify for the Section 179 deduction the same way purchased equipment does, as long as it's placed into business use and meets IRS eligibility requirements. Deduction limits change periodically, so confirm current limits with a tax professional or IRS.gov before assuming a specific amount.