An equipment loan is a type of financing where a business borrows money specifically to purchase equipment—like machinery, vehicles, technology, or tools—and the equipment itself usually serves as collateral. It’s a direct, practical way to expand operations without tying up your company’s working capital.

Details of an Equipment Loan

  • Purpose: To purchase physical assets that are essential for running or growing your business.

  • Collateral: The equipment itself typically secures the loan, lowering the lender’s risk.

  • Loan Amount: Usually covers 80–100% of the equipment’s cost (sometimes including installation or shipping).

  • Repayment Terms: Typically 2–10 years, depending on the equipment’s expected useful life.

  • Interest Rates: Can be fixed or variable; often lower than unsecured loans because of collateral.

  • Ownership: You own the equipment outright once the loan is paid off.

Benefits for Businesses

  1. Preserve Cash Flow
    You don’t have to drop a big chunk of capital at once—keeping money available for payroll, marketing, or other operating costs.

  2. Build Business Credit
    Regular, on-time payments strengthen your business credit profile, helping you qualify for bigger loans later.

  3. Tax Advantages
    In many cases, you can deduct interest payments and depreciation under Section 179 of the IRS code, reducing taxable income.

  4. No Extra Collateral Needed
    Since the equipment itself secures the loan, you often don’t have to risk other assets like real estate or personal property.

  5. Predictable Payments
    Fixed monthly payments make it easier to budget and forecast your company’s finances.

  6. Ownership vs. Leasing
    Unlike leasing, you actually own the equipment at the end of the loan—an asset you can continue using or resell.

  7. Quick Approval Process
    Lenders often approve equipment loans faster than traditional loans because the purpose and collateral are straightforward.

When It Makes Sense

  • You’re buying essential, long-term equipment that will directly generate revenue or efficiency.

  • You want to own the equipment (instead of leasing).

  • You need to spread the cost out rather than draining cash reserves.