Article
Equipment Financing and Leasing: Loans, Leases and the Fine Print
Short answer
Equipment financing uses the machine or vehicle as collateral, so it's often easier to qualify for than unsecured credit. A loan means you own the equipment and repay over time; a lease means you pay to use it, with options at the end. Match the term to the equipment's useful life and compare offers on total payments and APR.
Key points
- Because the equipment secures the deal, lenders focus on its value and resale market as well as your credit.
- A $1 buyout lease behaves much like a loan; a fair-market-value lease is closer to a rental.
- Don't finance equipment over a term longer than you'll use it.
- Tax treatment differs between loans and leases and changes with tax law; ask your tax adviser before you choose.
Equipment is one of the easier things for a small business to finance, because the thing you're buying can be repossessed and resold. That collateral changes the conversation with lenders, but it doesn't make every offer a good one.
Three common structures
| Structure | Who owns it | End of term | Feels like |
|---|---|---|---|
| Equipment loan | You, from day one (lender holds a lien) | Lien released when paid | A secured term loan |
| $1 buyout (capital) lease | Lessor during the lease | Buy it for $1 | A loan with different paperwork |
| Fair-market-value (FMV) lease | Lessor | Return it, renew, or buy at market value | A long-term rental |
FMV leases usually have lower payments because you're not paying for the equipment's full value. They can make sense for technology that dates quickly. For equipment you'll run for a decade, owning tends to cost less overall.
What lenders look at
- The equipment: type, new or used, resale market and useful life.
- Down payment: many deals ask for some money down; others finance 100% plus soft costs such as delivery and installation.
- Your business: time in business, cash flow, existing debt.
- The owner: personal credit and, often, a guarantee.
Comparing offers
Ask each provider for the same four things: total of all payments, any amount due at the end (buyout or balloon), every fee, and the term. Then:
- Add payments + end-of-term amount + fees = total cost of ownership.
- Convert to APR with the amount financed. A lease rate or "money factor" is not an APR.
- Check whether the term outlasts the equipment's useful life. A five-year loan on a truck you'll replace in three leaves you paying for a truck you no longer have.
Our loan payment calculator shows payments and interest for a given rate and term.
SBA and other options
SBA 504 loans can finance long-term machinery with a remaining useful life of at least 10 years, and 7(a) loans can finance equipment with maturities tied to its useful life. SBA microloans, up to $50,000, can be used for machinery and equipment. Manufacturers sometimes offer promotional financing; compare the cash price too, because a low rate can come with a higher sticker price.
Fine print worth reading
- Prepayment penalties or "all payments due" clauses on early payoff
- Automatic renewal on FMV leases if you miss a return notice deadline
- Insurance and maintenance obligations
- Blanket liens that cover more than the equipment itself
- Personal guarantee scope
Sources
- SBA: 504 loans (long-term machinery and equipment)
- SBA: Types of 7(a) loans (maturity for equipment)
- SBA: Microloans (machinery and equipment)
Checked November 9, 2026. Program rules and scoring models change; the source is the authority.