Updated for 2026 — rates, requirements, tax benefits, and how to get approved even with imperfect credit
When your business needs a new delivery truck, a commercial kitchen setup, diagnostic medical equipment, or a fleet of computers, coming up with the full purchase price upfront can drain your working capital. That’s exactly where equipment financing steps in — and it’s one of the most accessible forms of small business funding available today.
Unlike unsecured business loans that depend heavily on your personal credit or years in business, equipment financing is backed by the equipment itself. The machinery, vehicle, or technology you’re purchasing serves as built-in collateral. That single fact makes lenders significantly more willing to approve applicants who might struggle to qualify for other loan types. Most equipment lenders accept credit scores as low as 560, and some work with even newer businesses.
Whether you’re comparing loan versus lease structures, trying to understand current 2026 interest rates, or looking for Section 179 tax advantages, this guide covers everything you need to make the smartest financing decision for your business.
Equipment Loan vs Equipment Lease: What’s the Difference?
Before applying for any financing, it’s critical to understand whether you should purchase the equipment through a loan or lease it from a financing company. Both options have distinct advantages depending on your cash flow needs, tax situation, and how long you plan to use the equipment.
Factor
Equipment Loan
Equipment Lease
Ownership
You own the equipment outright after final payment
Lender/lessor owns it; you may have an option to buy at end
Tax Treatment
Depreciation deductions; eligible for Section 179 deduction
Lease payments are fully deductible as a business expense (operating lease)
Maintenance Responsibility
Borrower is fully responsible for upkeep and repairs
Some leases include maintenance; responsibility varies by agreement
Balance Sheet Impact
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Frequently Asked Questions
How does equipment financing work?
You apply with an equipment finance company, providing details on the equipment, its cost, and your business financials. The lender evaluates the equipment's value and your creditworthiness, then funds 80-100% of the purchase. The equipment serves as collateral, so terms are usually more favorable than unsecured business loans. You make fixed monthly payments over 2-7 years.
What's the difference between an equipment loan and an equipment lease?
An equipment loan: you borrow money to buy equipment, you own it, you depreciate it for taxes, and you pay off principal + interest. An equipment lease: you rent equipment for a fixed term (often with a buyout option at end). Leases have lower monthly payments but you don't build equity. Loans typically save money long-term if you keep equipment past payoff.
What credit score do I need for equipment financing?
Most equipment finance companies approve businesses with 600+ owner credit and 1+ year in business. Some specialty lenders work with credit scores as low as 550 by requiring larger down payments (20-30%) or charging higher rates. SBA 504 equipment loans require 680+ credit.
How much down payment do I need for equipment financing?
Down payments typically range 0-20% depending on lender, equipment type, and your credit profile. Established businesses with strong credit can often finance 100%. Startups and businesses with credit challenges may need 10-20% down. SBA 504 requires 10% borrower equity.
What types of equipment can be financed?
Almost any business equipment with a clear resale market: construction equipment, commercial vehicles, manufacturing machinery, medical equipment, restaurant equipment, IT hardware, agricultural equipment, and office equipment. Specialty equipment with limited resale value may require higher down payments or different financing structures.
Can I deduct equipment financing payments from taxes?
Yes, generally. With an equipment loan, you depreciate the asset (often via Section 179 or bonus depreciation in year one) and deduct interest. With an equipment lease, you typically deduct the full monthly payment as a business expense. Consult a CPA — tax treatment depends on lease type (operating vs capital lease) and current IRS rules.
RO
Robert OkaforSmall Business Finance Liaison (SBFL)
SBFL Certification, 11 years CDFI and SBA advisory, NC SBDC advisory board
Robert Okafor is a Small Business Finance Liaison with 11 years of experience advising minority-owned and underserved small businesses on accessing capital. He has facilitated over USD 180 million in business loans through CDFI partnerships and SBA programs. Robert serves on the advisory board of the NC SBDC and holds a Business Finance certificate from UNC Chapel Hill.
All content is reviewed against SBA, Federal Reserve, and CFPB guidelines. Small Business Loans Today is an independent affiliate publisher — not a lender or broker.
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