The 4 Equipment Financing Options — At a Glance
Equipment Loan
TraditionalInterest rate6–20%+ APR
Term2–7 years
Down payment10–20%
Min. FICO600–680+
Time in business1–2+ years
CollateralEquipment itself
OwnershipYou own from Day 1
Section 179Full deduction available
Equipment Lease
Operating or FinanceEffective rate8–24%+ (varies)
Term2–5 years typical
Down payment0–1 month advance
Min. FICO600–650+
Time in business1–2+ years
CollateralEquipment (lessor retains title)
OwnershipNo (unless $1 buyout lease)
Section 179Finance lease yes; operating lease no
SBA 504
Best for $150K+Interest rate~5–6% fixed (CDC portion)
Term10 years (equipment)
Down payment10% (startups: 15–20%)
Min. FICO680+
Time in business2+ years (startups eligible)
CollateralEquipment + possibly real estate
OwnershipYou own from Day 1
Section 179Full deduction available
MCA (T.A.G.)
Fastest / Most FlexibleFactor rate1.15–1.45× of advance
Term4–18 months typical
Down paymentNone
Min. FICO500
Time in business4+ months
CollateralNone (revenue-based)
OwnershipEquipment is yours outright
Section 179Full deduction on purchase
Equipment Loans — How They Work
An equipment loan is a term loan secured by the equipment itself. The lender advances 80–90% of the equipment's value; you put down 10–20% and make fixed monthly payments over 2–7 years. The equipment is collateral — if you default, the lender can repossess it.
What qualifies as equipment for equipment loans:
- Commercial vehicles (trucks, vans, trailers)
- Construction equipment (excavators, cranes, forklifts, skid steers)
- Restaurant and commercial kitchen equipment
- Medical and dental equipment
- Agricultural equipment
- Manufacturing and CNC machinery
- Technology (servers, POS systems, specialized computers)
- HVAC and refrigeration equipment
- Print and graphics equipment
What typically does NOT qualify for equipment loans: general working capital, inventory, software subscriptions, or equipment with extremely short useful life (under 2 years). Lenders want collateral that will retain value through the loan term.
Equipment loan approval criteria by lender type:
- Traditional bank/credit union: 680+ FICO, 2+ years in business, positive cash flow, clean credit history, sometimes personal financial statement for amounts over $50K.
- Online equipment lenders (Crest Capital, Balboa Capital, Currency Capital): 600–640+ FICO, 1–2 years in business, less paperwork than banks, decision in 24–48 hours.
- Equipment manufacturer financing (Caterpillar Financial, John Deere Financial, Ford Motor Credit): Often more lenient on FICO (600+) for their own equipment; may offer promotional rates (0–2.9% for 24–36 months on select models).
Equipment Leasing — Operating vs. Finance Lease
There are two fundamentally different types of equipment leases with very different financial and tax implications:
| Feature | Operating Lease (True Lease) | Finance / Capital Lease ($1 Buyout) |
|---|---|---|
| Ownership at end | No — return or buy at FMV | Yes — for $1 at end of term |
| Balance sheet treatment | Asset and liability recorded (ASC 842) | Asset and liability recorded |
| Tax treatment | Lease payments = operating expense (rent) | Depreciation + interest deductible |
| Section 179 | No — you don't own the asset | Yes — treated as purchase |
| Monthly payment | Generally lower | Generally higher (building toward ownership) |
| Equipment obsolescence risk | Lessor bears it — you can upgrade | You bear it — you own it at the end |
| Best for | Tech equipment, medical devices, anything that updates rapidly | Equipment with long useful life you want to own |
When leasing beats buying — the 3-year upgrade cycle argument:
For technology equipment (servers, POS systems, diagnostic equipment) that becomes obsolete in 3–5 years, an operating lease lets you return the equipment and upgrade when the lease ends. With a loan, you own outdated equipment at payoff. Calculate total cost of ownership including replacement cost before choosing.
SBA 504 for Equipment — The Best Rate for Large Purchases
SBA 504 is specifically designed for major fixed asset purchases including equipment over $150,000. The structure involves three parties: a Certified Development Company (CDC), a conventional lender (bank or credit union), and the borrower.
- Structure: Bank covers 50% → CDC covers 40% → You put 10% down. (Startups and special-purpose equipment: 15–20% down.)
- CDC/SBA portion: Fixed rate tied to 10-year Treasury + spread, approximately 5–6% in 2026. 10-year term for equipment.
- Bank portion: Variable or fixed at bank's rate, typically 6–8% in 2026. 10-year term matched to CDC portion.
- Maximum loan: $5.5 million for most businesses; $5.5 million per project in certain manufacturing and renewable energy categories.
- Job creation requirement: SBA 504 typically requires creating or retaining 1 job per $65,000 of SBA debenture ($90,000 for manufacturers).
- Timeline: 45–90 days — SBA 504 is significantly slower than all alternatives. Not suitable for urgent equipment needs.
Section 179 and Bonus Depreciation — The Tax Benefit of Equipment Financing
Section 179 Example — $150,000 Equipment Purchase in 2026
Equipment purchase price$150,000
Section 179 deduction (full amount eligible, under $1.22M limit)($150,000)
Net taxable cost in Year 1$0
Tax savings at 21% corporate rate$31,500
Tax savings at 35% effective rate (S-Corp/LLC)$52,500
Effective out-of-pocket cost after tax savings (at 35%)$97,500
Section 179 limits for 2026: $1,220,000 deduction limit; phase-out begins at $3,050,000 in total equipment placed in service. Bonus depreciation in 2026: 40% (the phase-down is 40% in 2026, 20% in 2027, 0% in 2028 under current law — Congress may extend). For equipment above the Section 179 limit or for businesses that maximize Section 179 first, bonus depreciation applies to the remaining cost.
Section 179 works on financed equipment — you don't need to pay cash:
If you finance $150,000 of equipment with a loan, you can still deduct the full $150,000 under Section 179 in year one — even though you've only paid a $15,000 down payment. The IRS essentially funds 21–35% of your purchase through the tax deduction while you make loan payments on the rest. This is one of the most powerful cash flow tools in the tax code for capital-intensive businesses.
Full Comparison — All 4 Options
| Factor | Equipment Loan | Equipment Lease | SBA 504 | MCA |
|---|---|---|---|---|
| Typical amount | $5K–$5M | $5K–$5M | $150K–$5.5M | $10K–$1M |
| Interest rate / cost | 6–20%+ APR | 8–24%+ effective | 5–8% (blended) | Factor rate 1.15–1.45× |
| Term | 2–7 years | 2–5 years | 10 years | 4–18 months |
| Down payment | 10–20% | 0–1 month advance | 10–20% | None |
| Collateral required | Equipment | Equipment (lessor holds title) | Equipment + possibly real estate | None |
| Min. FICO | 600–680 | 600–650 | 680+ | 500 |
| Min. time in business | 1–2 years | 1–2 years | 2+ years | 4 months |
| Time to funding | 3–14 days | 2–7 days | 45–90 days | 24–72 hours |
| Equipment ownership | Yes (from Day 1) | No (unless finance lease) | Yes (from Day 1) | Yes — you buy outright |
| Section 179 eligible | Yes | Finance lease yes; operating no | Yes | Yes (purchase is yours) |
| Best for | Well-qualified businesses, 1–7 year equipment | Technology, fast-obsoleting equipment | Large equipment $150K+, best rate | Thin credit, urgent need, smaller equipment |
Equipment Financing Application Checklist
- Equipment quote or invoice from a vendor (lenders need the make, model, year, and price — new or used)
- 2–3 years business tax returns (or 1 year for newer businesses)
- 2–6 consecutive months recent business bank statements (6 months for SBA 504)
- Current profit and loss statement (year-to-date)
- Business and personal credit score (know your FICO before applying — avoid applying to lenders whose minimum you don't meet)
- Business license and entity formation documents (Articles of Organization/Incorporation)
- EIN confirmation letter (IRS Letter 147C or SS-4 confirmation)
- Driver's license or government ID for all 20%+ owners
- For SBA 504 only: business plan, 3-year financial projections, real estate appraisal if applicable, and CDC application packet
Frequently Asked Questions
- What credit score do I need for equipment financing?
- It depends on the lender type: traditional bank or credit union — typically 680+ FICO, 2+ years in business. SBA 504 — typically 680+. Online equipment lenders — typically 600–640+. Equipment manufacturer financing — sometimes 600+ for their own equipment with promotional rates. Equipment leasing — 600–650+ depending on amount. MCA from T.A.G. — 500+ FICO minimum, 4+ months in business, $10K+ monthly deposits. If your credit is below 640, MCA is typically the most realistic path to equipment funding.
- What is the difference between an equipment loan and equipment leasing?
- Equipment loan: you own the equipment from Day 1. The equipment is collateral. At payoff, you own it free and clear. Section 179 fully available. Equipment lease: you pay to use equipment you don't own. Operating lease — return or buy at fair market value at end; payments are a rent expense; no Section 179. Finance/capital lease ($1 buyout) — functions like a loan; you own it for $1 at end; Section 179 available. Choose loan if: equipment has long useful life and you want to own it. Choose lease if: equipment becomes outdated quickly (technology, medical) and you prefer to upgrade every few years.
- Can I use Section 179 with equipment financing?
Yes — if you finance equipment with a loan, you can still deduct the full purchase price under Section 179 in the year placed in service, up to $1,220,000 in 2026 (phase-out above $3,050,000 in total equipment purchases). This means the IRS effectively subsidizes 21–35% of your equipment cost through the tax deduction even though you financed it. For leases: capital/finance leases typically qualify for Section 179; operating leases typically do not — you deduct payments as rent expense instead. Always confirm treatment with your CPA before the purchase year ends.