How equipment financing works: the equipment is the collateral
You borrow to buy a machine, vehicle or system, and the lender takes a security interest in it. Because the lender can take the equipment back if you stop paying, you may qualify with less time in business and lower credit than other loans need.
Terms usually follow the equipment's useful life. Some lenders finance the full price, and some add soft costs like delivery and installation. Leasing is different: you rent the equipment instead of owning it.
True cost: on $100,000 over 5 years, interest runs from about $10,500 to $152,800
| APR | Monthly payment | Total interest |
|---|---|---|
| 4% (strong bank or SBA borrower) | $1,841.65 | $10,499.13 |
| 10% | $2,124.70 | $27,482.27 |
| 45% (top of the online range) | $4,212.67 | $152,760.18 |
An origination fee of 0.5% to 4% adds $500 to $4,000 on this loan. Bank and SBA lenders quote roughly 4% to 15% APR to well-qualified borrowers; online and specialist lenders roughly 6% to 45%, and some quote a factor rate instead, which you should convert to an APR.
Pros and cons: easier approval and you own the asset, but you carry the risk if it breaks
Pros
- Easier to qualify for because the equipment secures it.
- Can cover the full price, and sometimes soft costs.
- You own the equipment when it is paid off.
Cons
- The lender can take the equipment if you default.
- Rates vary widely between bank and online lenders.
- You keep paying even if the equipment becomes outdated.
When equipment financing fits, and when it doesn't
It fits when
- Equipment that will last longer than the loan.
- Equipment that earns or saves money right away.
Look elsewhere when
- Equipment you will replace before it is paid off; compare a lease.
- Working capital needs; look at a line of credit.
Red flags: a factor rate instead of an APR, and long leases you cannot cancel
Watch out
A quote in a factor rate. Convert it to an APR before you compare.
A term longer than the equipment's useful life.
Prepayment penalties and late or returned-payment fees.
A lease you cannot cancel, with a buyout price you have not seen.
State rules: some states require cost disclosures on equipment deals
Several states now require a written cost disclosure before a financing deal is signed, and some, like New York and California, require an estimated APR. New York covers deals up to $2.5 million, California up to $500,000, Virginia sales-based deals up to $500,000, and Vermont adds rules on July 1, 2027. Some of these states also regulate brokers like Batch Capital.
New Jersey has no commercial financing disclosure law yet. Bill S1760 was introduced on Jan 13, 2026 and sits in committee. See our state disclosure law lookup and the New Jersey MCA law guide.
This is general information, not legal advice, as of Oct 20, 2026.
Alternatives to equipment financing
- SBA loans: 504 and 7(a) loans cover equipment with terms up to 10 years.
- Term loan: if you also need working capital.
- Line of credit: for smaller, repeated purchases.