Equipment Financing for Small Business: Loans vs. Leasing, Rates and Requirements

Equipment financing lets you spread the cost of business machinery, vehicles, and technology over 1 to 10 years while the equipment itself serves as collateral. Rates range from 4% to 45% APR depending on your credit profile, the lender type, and the equipment you are buying. Most established small businesses with credit scores of 620 or higher land in the 7-15% APR range.

You can finance anything from a $5,000 laptop setup to a $10 million fleet of construction equipment. Unlike unsecured working capital loans, the built-in collateral means lower rates and easier approval, even for newer businesses.

The 2026 rate environment favors planning over speculation. The Federal Reserve cut rates three times in late 2026 and held steady in January 2026, bringing the prime rate to 6.75%. If you have been waiting for a dip, this is a reasonable entry point to lock in fixed-rate equipment financing.

Equipment financing is a type of asset-backed loan where the equipment you purchase acts as collateral. The lender holds a security lien on the asset until you pay off the balance, but you own and operate the equipment from day one. This structure means lower risk for the lender, which translates to lower APRs for you compared to unsecured business lines of credit.

There are two main structures. An Equipment Finance Agreement (EFA) gives you ownership immediately and lets you claim tax benefits like Section 179 deductions. An equipment lease lets you use the equipment with lower monthly payments, but you do not build equity and typically pay more over the total agreement.

Use equipment financing when you plan to keep the asset for 3+ years, when the equipment holds its value well (heavy machinery, commercial vehicles), or when you want to claim the Section 179 deduction. If you need to upgrade technology every 2-3 years, leasing may make more sense.

Eligibility varies widely by lender type. Online lenders accept credit scores as low as 580 (Triton Capital) to 600 (National Funding), while traditional banks like Bank of America require a minimum of 700. Your time in business matters too: National Funding requires just 6 months, while Bank of America and Triton Capital both require 24 months.

Annual revenue requirements range from $150,000 (Triton Capital) to $250,000 (National Funding, Bank of America). If your revenue is below $150,000, consider an SBA microloan (up to $50,000) or microloans for small business from nonprofit lenders.

For SBA 7(a) equipment loans, you must operate a for-profit business in the U.S. and demonstrate that you cannot access credit on reasonable terms from non-government sources. SBA lenders typically want a personal credit score of 680+ and a debt service coverage ratio of at least 1.15x. The SBA does not publish a fixed minimum credit score, so individual lender requirements vary.

The application process for equipment financing follows five steps, from identifying your equipment needs to closing the loan. The timeline ranges from 24 hours with online lenders to 2-4 weeks with traditional banks and SBA lenders.

Start by getting a written vendor quote that includes soft costs (delivery, installation, taxes). Next, pull your credit score and gather your financial documents: 2 years of tax returns, 3-6 months of bank statements, and a current profit-and-loss statement. Compare at least 3 lender offers before choosing.

Online lenders like National Funding offer 24-hour approval and next-day funding for straightforward applications. Bank of America funds within 10 business days of approval. SBA 7(a) loans require the most paperwork, including SBA Form 1919 and a Personal Financial Statement, and typically close in 2-4 weeks.

If you are a startup, focus on lenders with low time-in-business requirements. National Funding accepts businesses with 6 months of history and a credit score of 600+, making it one of the most accessible options for newer businesses. For a broader look at startup-friendly options, see our guide to business loans for startups.

Your total cost of capital includes the APR, origination fees, any down payment, and potential prepayment penalties. Equipment financing APRs range from 4% to 45%, but the range tightens significantly based on lender type. Banks charge 6-12%, SBA 7(a) variable rates currently run 9.75% to 14.75% (as of February 2026, per Lendio), and online lenders range from 4.90% to 34%.

Origination fees add 0.5% to 4% of the loan amount to your upfront cost. SBA 7(a) loans also carry a guarantee fee of 0.25% to 3.75% of the guaranteed portion, depending on loan size (per NerdWallet's FY2026 fee schedule). Many established businesses qualify for zero-down financing, but startups or borrowers with challenged credit may need to put up 1-2 months of payments in advance.

Here is the real impact on a $100,000 equipment purchase at 10% APR over 5 years: you will pay roughly $27,480 in total interest, bringing your all-in cost to about $127,480 before fees. Add a 2% origination fee ($2,000), and your true cost is approximately $129,480. Run these numbers for your specific scenario before signing.

Bank of America is the best option if you have strong credit. Rates start at 7% APR, and Preferred Rewards members get an additional 0.25%-0.75% discount. Loans go up to $750,000 with terms up to 60 months. You will need a credit score of 700+, 24 months in business, and at least $250,000 in annual revenue. Funds arrive within 10 business days of approval.

National Funding is the top pick for startups and speed. You can qualify with a credit score of 600 and just 6 months in business. Approval happens within 24 hours, with next-day funding available. Maximum loan amount is $150,000 with no down payment required. The trade-off is higher rates compared to bank options.

Triton Capital accepts the lowest credit scores among major lenders at 580 and offers customized repayment schedules (monthly, quarterly, semi-annual, or seasonal). Loans go up to $250,000 with terms of 3-96 months. You will need 24 months in business and $150,000 in annual revenue.

U.S. Bank stands out for its 125% financing option, which covers soft costs like installation, tax, and freight on top of the equipment cost. Loans go up to $1,000,000 with flexible payment schedules (monthly, quarterly, or annually). You can even finance multiple pieces of equipment on a single contract.

SBA 7(a) Loans are your best bet for large equipment purchases. The maximum is $5 million with terms up to 10 years, and rates are capped by the SBA at prime plus 2.25%-4.75% depending on loan size and term. The application process takes longer (2-4 weeks), but the combination of low rates and long terms makes SBA equipment loans the cheapest option over the life of the loan. See our full SBA loan guide for more details.

If your credit score is below 580 or your business is brand new, equipment financing becomes harder to access at reasonable rates. Here are your best alternatives:

• Merchant cash advance can fund equipment purchases within 24-48 hours with no minimum credit score, but expect effective APRs of 40-150%. Use this only for revenue-generating equipment that will pay for itself quickly.
• Invoice factoring lets you unlock cash from outstanding invoices to buy equipment outright. Fees run 1-5% per invoice, and there is no debt on your balance sheet.
• Small business grants do not need to be repaid. USDA grants, state economic development programs, and SBA-funded Community Advantage lenders sometimes offer equipment-specific grant funding.
• Vendor financing is available from many equipment manufacturers and dealers. Terms vary widely, but some offer 0% promotional APR for 6-12 months on new equipment. Always compare the vendor's rate to a third-party lender.
• Business credit cards can work for smaller equipment purchases under $25,000. Some cards offer 0% intro APR for 12-15 months, giving you an interest-free financing window.

1. Accepting the first offer without comparing. Equipment financing rates vary by 10-20 percentage points across lender types. A $100,000 loan at 7% vs. 17% APR over 5 years means a difference of roughly $28,000 in total interest. Compare at least 3 offers every time.

2. Ignoring the total cost of leasing. Leasing has lower monthly payments, but you pay more overall and own nothing at the end. A $50,000 piece of equipment leased over 5 years at typical lease rates will cost you 20-30% more than financing the same equipment, and you will have no resale value at the end.

3. Skipping the Section 179 deduction. The 2026 Section 179 deduction lets you write off up to $2,560,000 of qualifying equipment purchases. At a 25% effective tax rate, that is $640,000 in potential tax savings you leave on the table if you depreciate the asset over its useful life instead. File IRS Form 4562 with your tax return to claim it.

4. Timing equipment purchases on rate speculation. Waiting for rates to drop another quarter-point while your business loses revenue from outdated or missing equipment is almost always a losing trade. Match your purchase timeline to operational need, not to Federal Reserve announcements.

5. Overlooking prepayment penalties. Some lenders charge 2-5% of the remaining balance if you pay off your equipment loan early. If you plan to sell or upgrade the equipment within 2-3 years, confirm the prepayment terms before signing. Building strong business credit now gives you better terms on your next equipment purchase.