Funding for Buying Business Equipment

Why equipment financing is different

The equipment serves as collateral, which often means easier approval and a lower cost than unsecured working capital.

With most small business funding, the lender relies on your cash flow and credit. With equipment financing, the machine adds a second layer of security. If you stop paying, the lender can reclaim and sell it. That reduces their risk, so terms can be better than for unsecured products.

The flip side is that the financing usually covers only the equipment, often including delivery and installation, not general expenses. And the equipment loses value as it ages, so the term should not outlast its useful life. A five-year payment plan on a machine that is obsolete in three is a trap.

See our full guide to equipment financing for product details.

Finance, lease or pay cash

Cash costs least overall but drains reserves, financing builds ownership over time, and leasing lowers payments but you may not own the equipment at the end.

A decision rule many owners use: if paying cash would leave less than a month or two of operating expenses in the bank, finance it. A business that runs lean can be wiped out by a slow month right after a big cash purchase. Also ask your accountant about depreciation and tax treatment, which may favor one route. Rules change, so confirm current limits and do not rely on an old article.

Payback period: the number that matters

Divide the total cost of the equipment by the extra monthly profit it produces to find how many months until it has paid for itself.

Illustrative example. A print shop buys a $60,000 press. Financing costs add up to $72,000 in total repayment over four years, about $1,500 a month. The press lets the shop take on jobs worth $5,500 a month in new gross profit and saves $400 a month in outsourced work. Net monthly gain: $5,900 minus the $1,500 payment is $4,400.

Payback on the $72,000 total comes in around 12 to 13 months of that gain. After that, the press is producing profit that the shop keeps.

Now test it with weaker demand. If new work only brings in $2,000 a month, the net after payments is $900, still positive but slow. If demand does not materialize, the shop owes $1,500 every month for a machine sitting idle. Our equipment payback calculator guide walks through the math with your own figures.

New, used and what funders accept

Funders can finance both new and used equipment, but used items may have shorter terms and require more detail on age and condition.

Used equipment costs less but may carry higher repair risk and shorter financing terms. Funders look at the type, age, serial numbers and the vendor's invoice. Heavy equipment with strong resale value, like excavators or CNC machines, tends to finance more easily than specialty gear with few buyers.

Private party purchases can be harder than buying from a dealer, since a dealer invoice documents price and condition. If you find a deal with a private seller, tell the funder early. For industry-specific detail, see heavy equipment or restaurant equipment pages.

Costs beyond the sticker price

Delivery, installation, training, permits, insurance and maintenance all add to the real cost of an equipment purchase.

• Installation and site prep. Electrical work, ventilation or floor reinforcement can add up quickly.
• Training. Staff time while learning a new system.
• Insurance. The lender usually requires coverage on the financed asset.
• Maintenance contracts. Often optional but valuable.
• Downtime during changeover. Plan for lower output at first.

Ask the vendor for an all-in quote and see whether those soft costs can be folded into the financing. If not, they need to come from cash. If you also need money for those items, working capital may cover what equipment financing does not.

How to apply and what to send

Apply online in a few minutes with a soft credit pull, then send the vendor quote and three months of business bank statements.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ in monthly revenue, covering all 50 states from $5,000 to $5,000,000. Equipment financing runs 2 to 7 days. Send the quote or invoice, the equipment details, and the bank statements. There is no obligation to accept an offer, and you can see total cost and monthly payment before you decide.

Compare at least two structures, such as financing and a shorter term, to see how the total cost changes.

One more habit helps: get two or three vendor quotes, even if you already prefer one. Different dealers include different delivery, warranty and installation terms, and the financing amount should reflect the cheapest complete package, not the first number you heard. If a vendor offers its own financing, compare its total repayment to an outside offer using the same monthly-equivalent figure.