Equipment Financing
Definition
Equipment financing refers to loans or leases used to purchase business equipment, machinery, vehicles, or technology. The equipment itself serves as collateral, which means qualification requirements are often less stringent than unsecured loans. Equipment loans typically cover 80–100% of the equipment cost with terms matching the useful life of the asset (2–7 years). Interest rates range from 4–30% depending on creditworthiness, time in business, and equipment type. Options include equipment loans (you own the equipment at the end), capital leases (you own it after a $1 buyout), and operating leases (you return or upgrade the equipment).
Example
A construction company needs a $250,000 excavator. They secure equipment financing at 7.5% interest over 5 years with $0 down. Monthly payments are $5,010. The excavator serves as collateral, so no additional assets are pledged. At the end of 5 years, they own the equipment outright.
Related Terms
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR) is a financial metric that measures a business's ability to s...
Working Capital
Working capital is the difference between a business's current assets (cash, accounts receivable, in...
Sale Leaseback
A sale leaseback (or sale-leaseback) is a financial transaction where a business sells an asset it o...
Ready to Get Funded?
Apply in 60 seconds. Get matched with the best funding options for your business. No obligation, no impact to your credit.