Aug 27, 2022

The Complete Guide to Small Business Equipment Financing

Ernane Iung

Ernane Iung – President and Owner of ei Funding

As your business grows, you’ll soon begin to see the need for more expensive and larger equipment. Of course, you could simply pay out of pocket each time you need new equipment, but this can get expensive. 

Instead, most business owners opt to finance their new equipment. Equipment financing is a smart choice for small businesses that aren’t quite ready for traditional bank loans but still require a substantial amount of money to invest in tangible assets.

Are you on the hunt for equipment financing for your small business? Are you wondering how equipment funding for a small business works? Here’s a quick guide to help answer your questions and put you on the path to better business.

Understanding Equipment Financing and How It Works

Equipment financing is a type of loan that enables small businesses to purchase the equipment and machinery they need. From large machinery to software and electronics, your business can use equipment financing to obtain the tools you need to operate at your best. There are many options for financing your equipment, and choosing the right one depends on your needs and the financial status of your small business. 

Equipment Financing vs. Equipment Leasing

While they sound similar, equipment financing and equipment leasing agreements have very different terms. When financing equipment, your company owns the asset purchased with the money loaned to you by your financial partner. When leasing equipment, your company only has access to the equipment for the duration of the leasing agreement, with some leasing plans offering the option to either return the equipment, purchase it outright or renew your rental agreement.

If your equipment needs are relatively short-term and you need to upgrade frequently, leasing your equipment might be best for your business. On the other hand, if you plan to keep the equipment for a long time, use it frequently and are looking to build equity, equipment financing is probably the better option.

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What Type of Equipment Qualifies for Financing?

Equipment financing can be used to purchase a wide variety of tangible equipment that helps your business operate and generate revenue. Equipment that retains value over time is generally a good candidate for financing, as your company will own the asset and can resell it in the future.

Popular choices for equipment financing include:

What Are the Different Types of Small Business Equipment Finance Lenders?

Small businesses can obtain equipment funding from banks, credit unions, The Small Business Administration and other lender services. Each offers its own pros and cons depending on the type of financing you wish to pursue.

Exploring Your Options for Small Business Equipment Financing

Term Loans

A term loan is similar to a traditional home or auto loan. A business loan with a fixed-term plan, a term loan provides your company with a lump sum of money that you must repay over the loan’s term at an agreed-upon interest rate. Term loans typically have a repayment period of a few years with relatively fast approval. Most lenders look for a credit score over 600 and have an annual percentage rate between 6% and 25%, but this can vary depending on market conditions and whether you’re seeking a loan from a bank or an alternative lender.

Many small businesses choose term loans because of their predictable repayment terms, making budgeting easy. However, this benefit can also cause issues if your business experiences seasonal slowdowns and cannot make its regular payments. They may also require additional loan fees, collateral or personal guarantees — so if you’re considering this option, be on the lookout for hidden costs.

Equipment Loans

Business equipment loans use the asset purchased as collateral against the loan, making this an appealing option for small businesses just getting off the ground. Equipment loans can be obtained from traditional banks, equipment financing companies and many online lenders.

Equipment loans may require a down payment of up to 20% of the equipment’s cost, but they tend to have a quick turnaround. Annual percentage rates can range from 8% to 30%.

SBA 504 Loans

If you’re OK with waiting a bit longer for approval and funding, the Small Business Administration’s 504 loan program might be a good fit for you, with approvals taking anywhere from 5 – 8 weeks, sometimes longer. SBA 504 loans are fixed-rate loans of up to $5 million for assets such as business equipment, typically with lower APRs than bank loans. 

The SBA partners with and backs certified development companies (CDCs) that finance up to 40% of the loan. The remainder of the loan is funded by third-party lenders like banks (50%) and the borrower (10%) with a choice of either a 10- or 20-year repayment plan.

SBA 504 loans are a good fit for U.S.-based businesses needing to purchase especially costly long-term assets, but they require both time and money to get started. You’ll need to set aside 10% of the cost of your desired asset to use as a down payment and be prepared for long approval times. Additional requirements include a net worth of less than $15 million and a net income of less than $5 million.

Small Business Credit Card

Small business credit cards can be a good solution for businesses looking for fast approval. Many cards offer perks like cash back or reward points, which can be appealing at first glance. While credit cards do allow for flexible, fast funding, they also tend to have lower limits and higher interest rates (11% – 24%) than other financing methods.

Small Business Line of Credit

Similar to a credit card, a small business line of credit allows you to access funds as needed, repay your loan and borrow another lump sum. APRs range from 7% – 36%, with most lines of credit having a limit of between $10,000 and $100,000. Requirements to open a line of credit vary between institutions, but if you qualify for funding, your application can be processed in a matter of days.


Factoring is a form of financing equipment for a small business exclusive to ei Funding that uses rebates resulting from the revenue generated by your newly acquired equipment to pay down your initial loan.

It’s a flexible option that reduces the payback period of your loan based on your business’s generated invoices, allowing you to own your equipment faster. Factoring⁺ is a good option for small B2B companies with annual sales ranging from $100,000 to $5 million.

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How to Find a Small Business Equipment Financing Company

Which lender you choose depends on the type of equipment financing you wish to pursue. Deciding on the right fit for your business depends on several factors, including:

  • Your business’s credit score
  • How many years you’ve been in business
  • Your company’s annual revenue
  • Your desired loan amount
  • How much money you have available for a down payment
  • How quickly you need the funds/equipment
  • What repayment terms suit your business best

No matter which type of lender you decide to go with, you want to choose a trustworthy financial partner.

At ei Funding, we’ve worked with businesses of all different sizes and industries to provide growth-focused financial solutions. We offer personal-touch guidance, transparent rates and customized funding for small businesses, including Factoring⁺. We’re here to advocate for your small business and will work together in a partnership with you to get you the tools and equipment you need to succeed and grow.

Learn More About Factoring+


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