How does equipment financing work, and what does it really cost?

Equipment financing pays for machinery, vehicles or tools, and the equipment itself secures the financing. That usually makes it cheaper than unsecured financing (a typical range, not a quote), and it is often open to newer businesses, because the asset carries part of the risk. Typical amounts run $5,000 to $500,000, with terms up to 7 years (typical ranges, not offers), and funding usually takes days, depending on the seller. It comes in two forms: a loan, which makes you the owner from day one, and a lease, where you pay to use the equipment. We know of no published rate band, so the examples below show what payments can look like and how Section 179 can change the cost after tax.

Part of our guide to Small Business Loans: Types, Costs and What It Takes to Qualify.

How does equipment financing work?

The provider pays the seller, you take the equipment, and you repay in fixed payments while the equipment stands as collateral. In order:

1. You pick the equipment and get a quote from the seller.
2. The provider pays the seller directly.
3. You repay in fixed payments over a term matched to the equipment's useful life.
4. If payments stop, the provider can take the equipment back.

That last step is why the financing usually costs less than unsecured products. The provider's risk sits in the asset as well as in your credit, so the amount is tied to what the equipment is worth. Fit out, wiring and plaster cannot secure anything, so they need working capital instead. What is a working capital loan, and which kind fits your business? covers those costs.

Equipment loan or lease?

A loan makes you the owner from day one. A lease lets you pay to use the equipment, with an option to buy it or return it at the end. The right one depends on whether you want to keep the equipment and how you want the cost to show up in your taxes.

Equipment loan and lease compared (general terms, which vary by provider)

A loan suits you if you plan to keep the equipment beyond the term. A lease suits you if you want to use it first and decide at the end. Ask a tax professional which fits your situation.

What does equipment financing cost?

Usually less than unsecured financing, because the equipment secures it (a typical range, not a quote). With no published rate band, the table uses three example rates to show how amount, rate and term move the payment. They are examples, not offers from any provider.

Example monthly payment on equipment financing, with total interest in brackets (examples only, not offers)

The same $50,000 at 8% costs $1,567 a month over 3 years and $779 over 7 years, so the longer term roughly halves the payment. It also takes total interest from $6,405 to $15,462, more than double. The rate moves the cost as much as the term: over 5 years, interest on $50,000 is $10,829 at 8% and $29,482 at 20%.

Match the term to the equipment's working life. Paying for a machine after it has worn out is the mistake to avoid. Compare offers by total repaid in dollars, not by rate alone, because a lower rate over a longer term can cost more. Fees and any down payment are extra, so ask each provider for every fee in dollars.

The Business Loan Calculator: Monthly Payments and How Much You Can Borrow runs your own amount, rate and term, and What Business Financing Costs sets equipment beside every other product.

How does Section 179 lower the real cost?

Section 179 lets a business elect to deduct the cost of qualifying equipment in the year it is placed in service, instead of depreciating it over years, which can lower that year's tax bill. It changes your tax, not what you owe the provider.

For tax years beginning in 2026, the Section 179 limit is $2,560,000. It is reduced dollar for dollar once qualifying purchases placed in service that year exceed $4,090,000, and sport utility vehicles are capped at $32,000 (IRS Rev. Proc. 2025-32, section 4.24).

Bonus depreciation is a separate rule. The One Big Beautiful Bill made the 100% additional first year depreciation deduction permanent for qualified property acquired after January 19, 2025 (IRS Notice 2026-11).

Take a $100,000 machine bought with an equipment loan. If the full $100,000 qualifies and is expensed in the first year, a C corporation at the 21% federal corporate rate cuts its federal tax by about $21,000 that year (derived: 21% of $100,000). The loan payments still run for 5 years, about $2,028 a month at the example 8% in the table above. Owners of pass through businesses use their own tax rate, so their figure differs.

Financing does not stop the deduction: you can generally expense equipment you financed. Whether your equipment qualifies, and how the rules apply to your business, is a question for a tax professional. This is general information, not tax advice.

What do you need to qualify for equipment financing?

No single minimum is published. Providers lean on the value of the equipment, alongside your credit, time in business and ability to make payments.

One equipment lender we reviewed publishes "a solid credit history" and typically 2 or more years under current ownership, with no score and no revenue figure (last checked September 24, 2026). Other providers set their own bars, and a published minimum only means you can apply. Business Loan Requirements by Lender (2026) lists the minimums one by one.

Past the floor, providers look at cash flow and existing debt, and many weigh the equipment's resale value too.

Score under 600? Equipment financing is often the most realistic lower cost route, because the equipment secures it and the provider's risk sits in the asset as much as in your score. Can you get a business loan with bad credit? covers what is realistic.

Is it hard to get equipment financing?

It is usually easier than unsecured financing, because the asset secures it, and it is often open to newer businesses. That is a typical pattern, not a promise.

A specific, resellable piece of equipment is often a more realistic application than a request for general working capital, even at the same revenue. In our data, 37.1% of applicants in their first year say they are borrowing for equipment, more than for any other purpose (self reported). Can you get a business loan in your first year? shows what a first year business can reach.

Limits remain. One lender publishes about 2 years under current ownership, and a business under six months old is below what most funding partners consider, so a match is less likely.

How do you choose an equipment financing provider?

Compare on total cost in dollars first, then on how the terms fit your equipment. These are the points to check:

• Total cost in dollars. The total repaid minus the price of the equipment, with every fee included.
• Term against useful life. The payments should end before the equipment wears out.
• Down payment. How much is due at signing.
• Prepayment terms. Whether paying early saves interest or triggers a charge.
• Speed. Funding usually takes days, depending on the seller, and a decision is not the same as money in hand. Business Loan Approval Times by Product (2026) goes product by product.
• The seller's own financing. Ask whether the equipment seller offers it, then set it beside an outside offer on the same total cost basis.

What do business owners borrow for?

Equipment is the second most common purpose applicants give, at 29.0%, behind business expansion at 34.4%.

Share of applicants borrowing to buy equipment (self reported, unverified shares of businesses that applied through TopFunders.ai)

In the first year, the order flips: equipment at 37.1% sits ahead of expansion at 22.9%. In transportation, equipment is 46.3% of applications, the clearest case in our data. These shares describe demand, not approvals or funding. Method: TopFunders Small Business Funding Study.

Frequently asked questions

What is equipment financing?

Equipment financing is money to buy machinery, vehicles or tools, with the equipment itself securing the financing. The provider pays the seller, and you repay in fixed payments over a term matched to the equipment's useful life. It comes as a loan or a lease.

Is it hard to get equipment financing?

Usually easier than unsecured financing, because the asset secures it, and it is often open to newer businesses. It is not automatic: one lender publishes about 2 years under current ownership, and under six months old a match is less likely.

What credit score do you need for equipment financing?

There is no single published minimum. One equipment lender publishes "a solid credit history" and no score, and many providers weigh the equipment's resale value alongside credit. Under 600, equipment financing is often the most realistic lower cost route.

What is the monthly payment on a $50,000 equipment loan?

At an example 8% APR, $1,014 a month over 5 years or $779 over 7 years. At an example 12%, $1,112 over 5 years. Total interest on the 5 year, 8% example is $10,829. These are examples, not offers: the provider sets the real rate and term, and fees are extra.

Is it better to lease or finance equipment?

Neither is better for every business. A loan makes you the owner from day one, and a lease lets you pay to use the equipment with an option to buy or return it. Ownership generally lets you depreciate or expense the cost, and lease payments are generally deducted as an expense. Ask a tax professional which fits your situation.

Can you use Section 179 on financed equipment?

Generally yes: you can generally expense equipment you financed, if it qualifies. For tax years beginning in 2026, the Section 179 limit is $2,560,000. Ask a tax professional. This is general information, not tax advice.

Can a new business get equipment financing?

Sometimes. Because the equipment secures the financing, it leans less on trading history than most products, so it is often a strong fit for a first year business. Floors vary, and under six months in business a match is less likely.

Not sure which equipment financing fits your business?

Answer a few questions and see the lending partners ready to make your business an offer. Checking your options doesn't affect your credit. TopFunders.ai is not a lender and not a loan broker, and the partners you see depend on your answers.

See the lending partners ready to make your business an offer

TopFunders.ai is not a lender, not a loan broker, and does not originate, underwrite, price or fund loans. We make no credit decisions. A match is not an approval: each partner makes its own decision and sets any amount, rate and terms. Costs, speeds and amounts are typical ranges unless marked as published, and lenders change their terms. Payments shown are examples with fees left out. Minimum scores, time in business and revenue are as published by lenders and last checked September 24, 2026. Percentages from our applicant data are self reported and describe demand, not approvals. Tax information is general, not tax advice.

Sources

• IRS Rev. Proc. 2025-32, section 4.24 (Section 179 limits for tax years beginning in 2026)
• IRS, Treasury and IRS issue guidance on the additional first year depreciation deduction amended as part of the One Big Beautiful Bill (Notice 2026-11)
• Lender minimums: each lender's own website, read September 24, 2026 (named table in Business Loan Requirements by Lender (2026))
• Applicant shares: TopFunders Small Business Funding Study, and the first year cut in Can you get a business loan in your first year?