Equipment financing helps businesses purchase or lease assets such as vehicles, machinery, computers, restaurant equipment, and other tools needed to operate. Equipment loans typically provide funding for a specific purchase, with the equipment itself serving as collateral. Equipment leases let a business use equipment for a set period without necessarily owning it.
For small businesses, the right financing option depends on the equipment’s cost and useful life, available cash, qualification requirements, and whether the business needs financing for one purchase or more flexible access to capital.
What you need to know
- Equipment financing is designed for business assets. It can help fund machinery, vehicles, technology, medical equipment, restaurant equipment, and other purchases.
- Equipment loans and leases work differently. A loan typically leads to ownership, while a lease gives your business the right to use equipment under an agreement.
- The equipment often helps secure the financing. With many equipment loans, the asset being purchased serves as collateral.
- Other business financing can also fund equipment. Depending on your needs and eligibility, a term loan or business line of credit may offer more flexibility than financing tied to one asset.
How does equipment financing work?
Equipment financing is generally structured around the purchase or use of a specific business asset.
With an equipment loan, your business typically identifies the equipment it wants to purchase and provides the lender with information such as a quote, invoice, or purchase agreement. The lender then evaluates both the business and the asset before determining whether to approve the financing and on what terms.
The process commonly includes four parts.
1. Choose the equipment
Your business identifies the new or used equipment it needs and determines its purchase price. Lenders may evaluate factors such as the equipment’s age, condition, expected useful life, and potential resale value.
2. Apply for financing
The lender reviews your business’s financial profile. Depending on the lender and financing product, this may include revenue, cash flow, credit history, time in business, existing debt, and information about the equipment.
3. Use the equipment as collateral
With many equipment loans, the asset being purchased serves as collateral. If the business does not meet its repayment obligations, the lender may have the right to take possession of the equipment.
Because the equipment helps secure the financing, equipment loans differ from general-purpose financing that may not be tied to one particular purchase.
4. Repay the financing over time
Equipment financing is usually repaid over a predetermined period. The length of that period can depend on the lender, the amount financed, and the expected useful life of the equipment.
For example, financing for machinery expected to remain productive for many years may have a longer term than financing for technology that becomes obsolete more quickly.
How much does equipment financing cost?
The cost of business equipment financing varies widely by lender, borrower, equipment type, loan structure, and repayment term. Rather than comparing financing based on an advertised rate alone, it helps to understand the different costs that may make up an offer.
These can include:
- Interest or other financing charges
- Origination or documentation fees
- A required down payment
- Closing costs
- Lease fees
- Purchase-option or residual costs at the end of a lease
- Prepayment or early-termination provisions, when applicable
A business with stronger credit and financial history may receive different terms than a newer company or a business financing highly specialized equipment. The value and resale potential of the asset may also affect an equipment lender’s decision.
When comparing options, look at the full cost of financing and the repayment structure, rather than one number in isolation.
Is it better to finance or lease business equipment?
Financing may fit businesses that want to own and use an asset for several years, while leasing may provide more flexibility for equipment that requires frequent replacement or upgrades.
The better fit depends on the equipment, how long your business expects to use it, available cash, and the terms of the loan or lease.
| Equipment loan | Equipment lease | |
|---|---|---|
| Ownership | Business generally owns asset after repayment | Lessor typically owns asset |
| Collateral | Equipment commonly secures loan | Equipment remains owned by lessor |
| Upfront cost | May require down payment | May require less upfront |
| Best fit | Long-term asset the business wants to keep | Equipment that may need frequent upgrading or replacement |
| End of term | Business keeps equipment after repayment | Return, renew, or purchase depending on lease |
When equipment financing may fit
Financing may be worth considering when your business expects to use the equipment for most of its useful life and wants to own the asset after repayment.
Ownership can also give a business the ability to continue using the asset without ongoing lease payments after the financing is repaid.
When equipment leasing may fit
Leasing can offer more flexibility when technology or equipment changes quickly. Instead of owning an aging asset, a business may be able to return it or move to newer equipment at the end of the agreement.
Lease terms vary, so it’s important to understand what happens at the end of the lease and whether the agreement includes a purchase option.
Equipment purchases and leases can also have different tax implications. Consult a qualified tax professional about how current tax rules may apply to your business and equipment.
Who qualifies for business equipment financing?
There is no universal minimum credit score, revenue requirement, or time-in-business requirement for equipment financing. Eligibility depends on the lender and the type of financing.
Common factors lenders may consider include:
- Personal and business credit history
- Annual or monthly business revenue
- Cash flow
- Time in business
- Existing debt obligations
- Equipment price and condition
- Expected useful life of the equipment
- Potential resale or collateral value
- Down payment, if required
Because equipment can serve as collateral, the asset itself may play a larger role in the underwriting process than it would with some forms of general working-capital financing.
That does not guarantee approval for businesses with limited credit or operating history. Lenders can apply different minimum requirements, and newer businesses may have fewer financial records for a lender to evaluate.
How do you apply for equipment financing?
Equipment financing applications vary by lender, but most follow a similar process.
1. Identify the equipment and its cost
Determine exactly what your business needs and obtain a quote, invoice, or other documentation showing the expected purchase price.
2. Decide whether you want to buy or lease
Consider how long you expect to use the equipment, whether ownership matters to your business, and how quickly the asset could become outdated.
3. Review lender requirements
Before applying, check factors such as minimum credit requirements, revenue, time in business, eligible equipment types, down payments, and documentation requirements.
4. Gather your documents
Depending on the lender, you may be asked to provide:
- An equipment quote or invoice
- Business bank statements
- Financial statements
- Business or personal tax returns
- Business ownership information
- Personal identification
- Revenue information
- Business formation documents
The documentation needed can vary significantly by lender and financing program.
5. Compare financing offers
Review the financing amount, total cost, repayment schedule, term, collateral requirements, fees, and other conditions before choosing an offer.
The lowest payment does not always mean the lowest overall cost. A longer repayment period, for example, can reduce individual payments while increasing the total financing cost.
What equipment can a small business finance?
Equipment financing can apply to many types of tangible business assets. What qualifies ultimately depends on the lender and financing program.
Common examples include:
- Construction: Excavators, loaders, trailers, generators, and power equipment
- Manufacturing: Production machinery, CNC equipment, packaging equipment, and material-handling systems
- Transportation: Commercial vehicles, trucks, vans, and trailers
- Restaurants: Ovens, refrigerators, freezers, dishwashers, and other commercial kitchen equipment
- Healthcare: Medical, dental, laboratory, and diagnostic equipment
- Agriculture: Tractors, harvesters, irrigation systems, and other farm equipment
- Office and technology: Computers, servers, printers, telecommunications systems, and other technology
Some lenders finance both new and used equipment. The age and condition of used equipment can affect eligibility because lenders may consider its remaining useful life and resale value.
Manufacturing businesses, in particular, may have to balance large equipment purchases with ongoing expenses such as inventory, payroll, freight, and materials. Different financing tools can serve those needs differently
Should you use an equipment loan, term loan, or line of credit?
A dedicated equipment loan is only one way to finance business equipment. A term loan, business line of credit, or SBA-backed financing may also be used for certain equipment expenses.
The right structure depends on what your business is purchasing and whether the financing needs stop with that one asset.
| Financing option | How it works | When it may fit |
|---|---|---|
| Equipment loan | Financing tied to a specific asset, commonly secured by that equipment | A defined equipment purchase you plan to keep or use long-term |
| Equipment lease | Business pays for use of equipment over a set period | Assets that need regular upgrades or replacement |
| Term loan | Lump-sum financing with scheduled repayment | Large, one-time equipment purchases or projects |
| Line of credit | Revolving access to funds up to an approved limit | Equipment plus other variable or ongoing business expenses |
| SBA financing | Eligible businesses obtain financing through participating SBA lenders | Eligible longer-term equipment or fixed-asset investments |
Equipment loans
A dedicated equipment loan is structured around the asset being purchased. Because the equipment commonly secures the financing, the loan proceeds are generally intended for that specific purchase.
This can create a clear connection between the useful life of the equipment and the financing used to pay for it.
Term loans
A business term loan provides a lump sum rather than financing tied specifically to one asset.
That can give a business greater flexibility when a project includes more than the equipment itself. For example, an expansion might include new machinery along with installation, facility improvements, or other eligible business expenses.
Term-loan terms and eligibility vary by lender.
Business lines of credit
A business line of credit provides revolving access to capital up to an approved credit limit. Instead of receiving one lump sum, your business can draw funds as needed, subject to the terms of the credit line.
That flexibility can be useful when equipment costs are one part of a broader need. A business might need to replace equipment while also covering repairs, inventory, payroll, or other operating expenses.
As funds are repaid, available credit on a revolving line can replenish, allowing the business to access it again without submitting a new loan application for every expense, subject to applicable terms and approval.
SBA financing
Certain SBA loan programs can also finance eligible equipment.
The SBA 7(a) program allows eligible loan proceeds to be used for purposes that include machinery, equipment, furniture, and fixtures. The SBA 504 program is focused on major fixed assets and can finance qualifying long-term machinery and equipment.
According to the U.S. Small Business Administration, 504 loans can provide up to $5.5 million for eligible projects. Repayment terms vary based on the asset and program requirements.
SBA financing has its own eligibility, documentation, and use-of-proceeds requirements, so businesses considering this route need to review the current SBA rules and participating lender requirements.
How can Bluevine help finance business equipment?
Bluevine does not offer a dedicated equipment loan. Depending on your financing needs and eligibility, however, a business term loan or line of credit may provide another way to fund equipment.
Business term loans through Bluevine’s lending partners
A term loan provides a lump sum upfront, which can make it useful for a large purchase with a known cost. Businesses applying through Bluevine may be considered for term loans of up to $500,000 from Bluevine’s lending partners, with repayment terms of up to 24 months. Eligibility and loan terms vary by partner.BVSUP-00151
Bluevine Line of Credit
A Bluevine Line of Credit provides revolving access to capital, which may offer more flexibility if your business needs to purchase equipment while also covering inventory, repairs, payroll, or other changing expenses.
Bluevine offers credit lines up to $250,000. Current minimum qualifications for a Bluevine Line of Credit include:
- A personal FICO score of 625 or higher
- At least $10,000 in monthly revenue or $120,000 in annual revenue
- At least 12 months in business
- A corporation or LLC in good standing
- No bankruptcies on file
Additional eligibility requirements apply. Bluevine reviews applicant information when determining eligibility.BVSUP-00020
Because a line of credit is not tied exclusively to one piece of equipment, approved funds can be used for equipment as well as other eligible business needs. If your expenses are recurring or less predictable, compare how a term loan and line of credit work before deciding which financing structure better fits the business need.
Find the right financing structure for your equipment needs
The right way to finance business equipment depends on more than the price of the asset. Consider how long you expect to use the equipment, whether you want to own or lease it, how predictable the expense is, and how the financing will affect your broader cash flow.
A dedicated equipment loan can provide financing tied directly to an asset. A term loan can provide a lump sum for a larger planned purchase, while a line of credit can give a business more flexibility across equipment and other operating costs.
Bluevine gives eligible small businesses access to a line of credit of up to $250,000, along with financing offers from participating lending partners, including term loans of up to $500,000. Explore your business financing options to compare which structure may fit your needs.BVSUP-00020
Get considered for multiple types of business financing with one simple application.
Business equipment financing FAQs
How does equipment financing work for a small business?
Equipment financing helps a small business pay for machinery, vehicles, technology, and other business assets over time instead of covering the full cost upfront. With an equipment loan, the asset being purchased commonly serves as collateral. The business repays the financing according to the lender’s agreed rate, term, fees, and repayment schedule.
What credit score do you need for equipment financing?
There is no single credit-score requirement for equipment financing. Minimum scores vary by lender, financing type, equipment, business revenue, time in business, and other underwriting factors. Some lenders may also consider the value of the equipment because it commonly serves as collateral.
Can a new business qualify for equipment financing?
A new business may qualify for equipment financing, but requirements vary by lender. Businesses with limited operating history may have fewer financial records for lenders to evaluate, so factors such as the owner’s credit profile, available down payment, revenue, cash flow, and the value of the equipment may play a larger role.
Is it better to lease or finance business equipment?
Leasing may offer more flexibility for equipment that becomes obsolete quickly or requires frequent upgrades. Financing may fit equipment a business expects to own and use for several years. The better option depends on the asset’s useful life, upfront costs, total financing or lease cost, and the terms of the agreement.
Should I use a loan or a line of credit to buy equipment?
A loan and line of credit can both be used to fund equipment, but they work differently. A term loan provides a lump sum that can fit a large, planned purchase with a known cost. A line of credit provides revolving access to funds, which may fit businesses that need to cover equipment alongside other recurring or unpredictable expenses.
