How Equipment Financing Works and What You Should Know

10+ min read • Jul 26, 2021 • Grant Olsen

Equipment financing has become a popular option for small businesses. Why? Because small businesses are often in equipment-reliant industries. For example, construction firms are reliant upon equipment to fulfill jobs and bid for future work. The equipment actually becomes a strategic advantage, as long as the business owner can afford it.

“One of the ways construction firms can gain a significant advantage over their competitors is by using the latest state-of-the-art heavy equipment and machinery,” explains industry expert Patrick Hogan. “However, acquiring the necessary equipment requires a significant cash outflow, which the company may not always have. And making a huge dent in a company’s current cash, especially in the construction industry,  poses a major risk to the company. Instead of using cash to buy the equipment outright, your business has 2 options—equipment leasing and equipment financing. The decision to use leasing or financing to acquire equipment involves several considerations unique to the company.”

The equipment involved isn’t limited to construction-related heavy equipment like dump trucks and backhoes. Just about any tool or resource you use to conduct your business qualifies as equipment, including telephone systems, software suites, desks, cubicles, office appliances, and more.

Of course, all this equipment can get expensive—which is where equipment financing comes into play. This guide will explain how equipment financing works, how it can be used, and how you can qualify for it.

Getting Financing Is Easier Than Ever

There was a time when business owners had no choice but to go to a bank for a loan when they had equipment needs. It took courage to follow this course, however, because the odds were overwhelmingly against you. Most bank loans are denied, and the door is often slammed in your face early in the process.

As mentioned earlier, business owners also have the option of approaching equipment suppliers and trying to arrange a lease. Much like how your neighbor going through a midlife crisis is using a lease on their new Audi R8, equipment leasing allows you to essentially rent a designated piece of equipment from a lender. The period of the lease can vary, but it’s always decided upon up front by both the borrower and the lender. The borrower makes monthly payments until the lease is up, at which point you can either return the equipment, buy it, or renew the lease.

Bank loans and leasing from suppliers are both still available options, but the customer service involved sometimes isn’t quite up to snuff. Limitations that borrowers experience with these financing routes include:

  • You have to apply for the financing in person
  • You’re restricted to a smaller number of financing options
  • It requires a mountain of paperwork
  • It’s a slow process that drags on too long for your needs
  • The approval rates can be surprisingly low
  • The lender isn’t motivated to earn your business

The advent of online lending means that those seeking equipment financing can get faster decisions on their applications, as the entire process has been so streamlined that the borrowers of yesteryear would faint on the spot if they witnessed a modern transaction.

Also, the online approach gives you dozens upon dozens of options. For example, applying through Lendio gives you access to financing options from 75+ leading lenders—and it takes less than 15 minutes to complete the application.

In a competitive field like this, lenders are compelled to offer the best possible rates and terms. It’s similar to what airlines and hotels are willing to do when partnering with an aggregator website like The prices are often super low because those who don’t offer discounts will rarely get chosen. Why would anybody go with them when their high prices are so easily contrasted with the better offers from their competitors?

Remember, competition is good. And the beneficiary is always you, the borrower. Not only will you get better value for your financing, but lenders are driven to deliver customer service above the norm. And, finally, healthy competition fosters the development of better small business loan technology.

“One important benefit of competition is a boost to innovation,” says a report from the Federal Trade Commission. “Competition among companies can spur the invention of new or better products or more efficient processes. Firms may race to be the first to market a new or different technology. Innovation also benefits consumers with new and better products, helps drive economic growth, and increases standards of living. Products that are commonplace today once were technological breakthroughs: cars, planes, phones, televisions, the personal computer, and modern medicines all show how innovation can change your life and increase prosperity.”

These factors have certainly proved to be accurate for today’s lending technology. You can acquire a loan in less time and with less effort than ever before. And you are empowered by multiple financing options. The more choices you have available, the better decisions you can make.

How Equipment Financing Works

If you’re wondering how much cash you can expect to get with equipment financing, the amount ranges dramatically. You’ll often see smaller versions in the $5,000 range, which could cover most office equipment and other things of that variety. On the larger end, the amounts can reach up to $5,000,000.

The terms for this type of financing also range quite a bit, typically from 1 year up to 5 years. You can expect interest rates as low as 7.5%, though this obviously depends on your credit history and other circumstances.

Will the cost of the loan be worth it for your business? Determining the ROI is essential before you can sign on the dotted line with confidence.

“Growing your business can be a slow process, but equipment financing can help you pick up the pace,” says small business guru Rebecca Lake. “If you’re unsure whether equipment financing is right for you, consider what you stand to gain. For example, if buying a piece of equipment allows you to cut down on the amount of time required to handle invoicing and payroll each work or adding a new vehicle to your fleet lets you deliver products to your customers faster, your business benefits. The important thing is to compare your equipment financing options from different lenders before committing to a loan to ensure that you’re getting the best terms for your business.”

One of the hallmarks of equipment financing is immediacy. Once you get the ball rolling, you can often get funds in as little as 24 hours. That’s right—you can get the money you need for that new delivery truck in the same amount of time it takes super glue to completely dry.

In many cases, the equipment you purchase will actually be the collateral for the loan. So if you default, the lender will be taking that shiny new truck off your hands. Other times, the lender requires a personal guarantee or uses a blanket lien. In both cases, the lender could lay claim to your various assets in the case of a default.

As with all loans, you have nothing to fear if you consistently make your payments. It’s just important to understand the full context of the loan and know what consequences are in place if you’re unable to meet your obligations.

What You Can Get With Equipment Financing

The uses for equipment financing are as varied as the businesses that seek it. Basically, if you need something inanimate and practical for your business, there’s a solid chance you can acquire it using equipment financing. It doesn’t even have to be tangible, as business-related software is a prime candidate for equipment financing.

“Every business uses some type of equipment in its daily operations—from basic tech devices like laptops and cell phones to more specialized machinery like tractors, manufacturing equipment or diagnostics machines,” says a loan report from the US Chamber of Commerce. “As you might imagine, industrial equipment and machines can be expensive, and aspiring entrepreneurs rarely have that kind of budget when first starting out.” Even established businesses may not have the funds to replace a delivery truck or x-ray machine when it breaks down. That’s where business equipment financing comes in.”

If small business owners encounter issues with equipment financing, they often stem from a lack of understanding. We’ve already covered how diverse the definition of “equipment” can be, but some people have a hard time seeing it as anything other than forklifts, hydraulic lifts, refrigerated trucks, conveyor belts, and the like. Let’s look at some common examples of how you can use this type of financing to fuel your business.

For Your Office

If your team is working in an external office, you can maintain and update it with equipment financing. Same goes for home offices. The range of applicable uses is incredibly wide.

  • Solar panels
  • Stand-up desks
  • Office chairs
  • Lights
  • Heaters
  • Tile flooring
  • Carpet
  • Rugs
  • Microwaves
  • Toasters
  • Refrigerators
  • Freezers
  • Water coolers
  • Drinking fountains
  • Coffee makers
  • Blenders
  • Air conditioning units
  • Filing cabinets
  • Cubicles
  • Security systems
  • Aquariums
  • Televisions
  • DVD players
  • Couches
  • Ottomans

For Your Technology Needs

You need to have the right technology in order for your business to succeed in today’s competitive climate. Whether it’s systems to securely store customer data or point-of-sale tools to make purchases smoother, these investments can offer major benefits.

  • Laptop computers
  • Desktop computers
  • Tablets
  • External hard drives
  • Keyboards
  • Mice
  • Printers
  • Phones
  • Routers
  • Networking tools
  • Bookkeeping software
  • Payment processing systems
  • Operating systems
  • CRM software
  • Inventory management software
  • Payroll software
  • Email tools

For Your Retail Location

Do you own retail spaces? If so, there’s a whole world of equipment required to keep everything running smoothly. Here are some of the things you’ll need to consider.

  • Shelving
  • Displays
  • Mirrors
  • Mannequins
  • Shopping carts
  • Shopping baskets
  • Banners
  • Room dividers
  • Monitors
  • Toilets
  • Sinks
  • Drinking fountains
  • Cash registers
  • Scanners
  • Receipt paper
  • Receipt printers

For the Road

It’s not just delivery businesses that need vehicles. Whether you’re a tech startup or a birdhouse repair company, you likely have transportation needs.

  • Delivery vans
  • Fleet cars
  • Electric vehicles
  • GPS devices
  • Dollies
  • Floor mats
  • Seat protectors

For Your Jobs

Getting your work done requires tools and equipment that vary from industry to industry. Equipment financing can help you get what you need and then keep it functioning at a high level.

  • Forklifts
  • Compressors
  • Hydraulic lifts
  • Conveyor belts
  • Box crushers
  • Dump truckers
  • Graders
  • Backhoes
  • Tractors
  • Jackhammers
  • Wrenches
  • Ovens
  • Fryers
  • Freezers
  • Mixers

Perhaps you feel uncertain as to whether your current business needs would be met with equipment financing. If you have further questions, reach out to our friendly loan experts, your business mentor, or colleagues in your industry who have likely faced similar financing needs and can offer insights.

How to Qualify for Equipment Financing

Qualifying for equipment financing is easier than you might think. Typically, you’ll need to have been in business for at least a year, $50,000 or more in annual revenue, and a credit score of 650 or higher. Because the collateral is often part of your loan, it’s not as difficult to obtain as other types of financing.

Remember, the vetting process for equipment financing moves quicker than you see with many other types of financing. Part of this expediency comes from the nature of the collateral. For example, if you were to apply for a different type of loan, such as a term loan or a startup loan, you would likely be asked to provide collateral. Let’s say that you offered up your ranch in Wyoming. The lender would then need to assess the value of the property before they could conclude the underwriting process. As you can imagine, it could take a fair amount of time for the lender to figure out the value of a ranch they have never seen before.

With equipment financing, the value of the collateral is baked right into the loan. So the lender can easily record the value and proceed to approval. Just remember that if you default on the loan, the lender will take your precious equipment to cover their losses. So the very thing that streamlines the approval process is also a liability if you aren’t able to meet your financial obligations.

There are other factors to consider with your loan. Once you’ve narrowed down the list of options to a handful that offer similar levels of reliability and customer service, pay close attention to the loan’s cost. This usually involves analyzing metrics such as the annual percentage rate (APR), total cost of capital (TCC), average monthly payment, and cents on the dollar.

One possible hurdle you’ll encounter is that various lenders sometimes list their disclosures differently. So the resulting ambiguity can make it hard to compare apples to apples. We offer helpful resources such as this equipment financing calculator, but sometimes these solutions aren’t able to compensate for confusion brought on by loan disparities.

In these situations, it can be extremely helpful to have a tool that creates common ground. The Innovative Lending Platform Association (ILPA) has actually created a  comparison resource called SMART Box (Straightforward Metrics Around Rate and Total cost). You’ll find that SMART Box doesn’t work for every small business loan product, but it’s a powerful resource to keep in your back pocket for times when you’re trying to make sense of the complexities of financing.

“It is important to note that the SMART Box is not intended to replace a lender’s existing disclosures or detract from the importance of providing clear and conspicuous information to a small business regarding the relevant finance product,” explains the ILPA’s website. “The SMART Box is instead intended to serve as a supplemental disclosure that presents key pricing information in a uniform fashion and helps to flag for the small business, in plain English, certain product features or policies. We ultimately believe that there are many responsible providers and products in the market, but these products often convey their pricing characteristics in different ways.”

Carefully consider all your available options and crunch the numbers. You might save time on the front end by skipping out on your due diligence, but this expedited approach can cause real problems on the back end. Due diligence will always be the best way to set yourself up for success. After all, the right loan at the right time from the right lender is a proven recipe for success. Your objective is to sort through the choices to find it.


Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on and Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.