Equipment financing explained: how to get the tools, trucks and machines your business needs

A new oven that doubles a bakery's output. A second truck that lets a landscaper take on another crew's worth of jobs. A machine that brings outsourced work in-house. Equipment is often the fastest way to grow, and it's expensive to buy outright. Equipment financing spreads that cost over time while the equipment earns its keep.

How it works

A funder pays for the equipment, and you repay in regular installments over a set term. The equipment serves as collateral: if the loan isn't repaid, the funder can take it back. Because the loan is secured by something of value, equipment financing can be easier to qualify for than an unsecured loan, and it usually doesn't require putting up other assets.

• New or used: many funders finance both.
• Terms are typically matched to how long the equipment will be useful, often a few years.
• Down payment: some deals require one, others finance most or all of the price.
• At the end of the term, you own the equipment.

What you can finance

• Trucks, vans, trailers and work vehicles
• Restaurant and commercial kitchen equipment
• Construction machinery and tools
• Medical, dental and salon equipment
• Manufacturing, printing and fabrication machines
• Computers, point-of-sale systems and technology

Financing vs. leasing

With financing, you're buying the equipment over time and it's yours at the end. With a lease, you're renting it, which can mean lower payments and easy upgrades, but you may not own it at the end. If the equipment will last and you'll use it for years, financing usually makes more sense. If it goes out of date quickly, a lease may fit better.

Tax benefits worth asking about

In the United States, businesses can often deduct some or all of the cost of qualifying equipment in the year it's put into service under Section 179 of the tax code, even when it's financed. Rules and limits change, so ask your accountant how it applies to your purchase.

What to prepare

• A quote or invoice from the seller, including the equipment's make, model and year.
• Recent business bank statements.
• Basic business details and an owner's ID.
• A short explanation of how the equipment will bring in revenue or cut costs.

Is it worth it? A simple test

Estimate how much extra revenue (or savings) the equipment will produce each month, and compare it to the monthly payment. If the equipment clearly pays for itself, with room to spare, it's usually a sound investment. If it's close, look at a smaller purchase, used equipment, or a longer term.