Question 1

Is equipment financing cheaper than a standard term loan?

Accepted Answer

Equipment financing is usually cheaper because the asset itself secures the loan, reducing the lender's risk. Interest rates for equipment loans often range from 6% to 15%, whereas unsecured term loans can carry rates from 10% to 30% or higher. If you have strong credit and the equipment has a high resale value, the specialized equipment route will almost always save you money.

Question 2

When should I choose a term loan over equipment financing?

Accepted Answer

A term loan is the better choice when the total cost of the project exceeds the physical price of the machine. If you need to pay for site preparation, electrical upgrades, or specialized employee training to use the new gear, equipment financing won't cover those 'soft costs.' A term loan provides a lump sum that you can distribute across both the hardware and the operational expenses needed to get it running.

Question 3

Which option is easier to qualify for with fair credit?

Accepted Answer

Equipment financing is actually one of the most accessible forms of capital for owners with lower credit scores. Lenders are often willing to work with FICO scores as low as 600 or 620 because they can repossess the asset if you default. Term loans, especially those with lower interest rates, typically require a FICO of 680 or higher since they rely more heavily on your business's cash flow.

Question 4

What are the tax implications of these two funding types?

Accepted Answer

Under Section 179 of the IRS tax code, equipment financing often allows you to deduct the full purchase price of the equipment in the first year, even if you haven't paid it off yet. Term loans also allow for interest deductions, but the depreciation schedules might differ depending on how the funds were used. Always consult with a CPA to see which structure maximizes your specific tax shield.

Question 5

Do I need a down payment for equipment financing?

Accepted Answer

Most equipment loans cover 100% of the purchase price, meaning you can keep your cash in the business for other needs. Term loans, conversely, often require a down payment or only fund a portion of the projected cost, necessitating an upfront cash outlay. If preserving liquid capital is your primary goal, equipment-specific financing is usually the superior path.

Question 6

How long does it take to get funded for each?

Accepted Answer

The approval process for equipment financing is remarkably fast, often taking 24 to 48 hours because the underwriting focuses on the equipment's value and invoice. Term loans can take anywhere from a few days to several weeks if they are SBA-backed or require extensive financial reviews. If you need a machine immediately to fulfill a contract, equipment financing is the speedier route.

Question 7

What happens to my collateral in each scenario?

Accepted Answer

With equipment financing, the lender holds a lien on that specific piece of machinery until the final payment is made. With a term loan, the lender may take a blanket lien on all business assets or require a personal guarantee, putting more than just the new machine at risk. If you want to limit your liability to a single asset, stick with equipment-specific funding.

Question 8

Can I have an equipment loan and a term loan at the same time?

Accepted Answer

It is often possible to have both, provided your debt-to-income ratio remains healthy. You might use equipment financing for a fleet of vehicles and a term loan for a major office expansion or marketing push. However, taking on too much fixed debt simultaneously can squeeze your monthly cash flow, so we recommend staggering these obligations based on your revenue cycles.

Requirement	Typical standard
Minimum FICO Score	600 for Equipment / 680 for Term Loan
Time in Business	6+ Months (Equipment) / 2+ Years (Term Loan)
Monthly Revenue	$10k+ for Equipment / $20k+ for Term Loan
Down Payment	0% - 10% (Equipment) / 10% - 25% (Term Loan)
Maximum Funding Amount	Up to $5M (Equipment) / Up to $500k+ (Term Loan)
Repayment Terms	2 - 7 Years (Equipment) / 1 - 5 Years (Term Loan)
Interest Rate Range	6% - 15% (Equipment) / 8% - 30% (Term Loan)
Documentation Required	Equipment Invoice & 3 Months Bank Statements

Equipment Financing vs. Term Loan

Key takeaways

Who this is for

What you need to qualify

Best funding options

Equipment Financing

Term Loan

Working Capital

SBA Loans

When this makes sense

When to be careful

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