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A Guide to Equipment Financing for U.S. Businesses

By Zack Andresen

For businesses that rely on equipment to maintain operations and generate a profit, the high costs of purchasing, replacing, or upgrading key or heavy equipment can consume working capital and impede growth.1 To offset those costs and maintain cash flow, 78 percent of U.S. businesses turn to banks, independent lenders, or manufacturers and suppliers for business equipment financing. 2,3

What is Business Equipment Financing?


The Equipment Leasing and Financing Association (ELFA) expects U.S.-based organizations to spend $1.6 trillion on capital goods and fixed business investments in 2018 – the largest capital investment level since 2012.4 An estimated 63 percent of that spending will be financed through loans, leases, and lines of credit.5


Equipment financing and leasing offer businesses an opportunity to access funding for equipment purchases, often without the credit and down payment requirements found in traditional business loans. Flexible equipment financing terms enable U.S. businesses of any size to satisfy their equipment needs without consuming huge amounts of working capital.6 Because lenders typically assume the leased or purchased equipment itself as collateral, businesses with credit ratings of only 600 or above can often qualify for equipment financing with no money down.7,8


In contrast, traditional small business loans generally require higher credit scores and a down payment of 10 to 30 percent of the purchase price.9,10 As a result, equipment financing credit approval rates are high when compared to traditional small business loans. In January 2018, lenders approved nearly 77 percent of equipment financing requests.11 Comparatively, traditional small business lending saw approval rates between 25 and 64 percent depending on the type of provider.12


January 2018 also showed a 10 percent year-over-year increase in the overall volume of new equipment financing.13 The ELFA forecasts that new investments will continue to increase during 2018 as positive economic drivers encourage U.S. businesses to leverage equipment financing for a broad range of purchases.14 Transportation and technology equipment are the two most prominent areas where new U.S. businesses invest in equipment.15 However, the ELFA notes that almost all verticals – from agricultural machinery to aircrafts, medical equipment to mining and oilfield machinery – saw increased investment in 2017, and that the growth pattern is likely to continue through 2018.16


What Kinds of Equipment Financing Exist for U.S. Businesses?


Those interested in obtaining equipment financing may wish to analyze and compare both the type of lender and the type of financing that best support their business objectives. Lenders primarily come in three forms: banks, independents, and the equipment manufacturers or suppliers themselves (also known as "captive" lenders).17 Each have their own benefits.


Bank loans typically offer the most favorable terms and interest rates, but also have the strictest qualifications for businesses and a more prolonged approval process.18,19 Alternatively, independent lenders are often able to expedite credit approvals, with some turning around equipment financing requests in as little as 24-hours, albeit with historically higher interest rates.20 Captive lenders, on the other hand, traditionally offer low rates and predetermined financing terms.21


However, captive lenders typically do not extend credit beyond their own brands. According to Equipment Finance Advantage, 60 percent or more of captive lender portfolios consist of financing for equipment produced by the parent company or its affiliates.22 The most recent market data from 2015 shows banks accounted for 47 percent of equipment financing. Captive lenders came in second with 30 percent of the market, and independents accounted for 16 percent.23


Some lenders also extend lines of credit to businesses with a strong standing and good credit. This type of equipment financing allows businesses to repeatedly draw on their credit to make purchases from a variety of vendors. Lines of credit work best as short-term loans to cover intermittent cash flow gaps. While the flexibility offers an opportunity for businesses to maintain working capital, interest rates that sometimes rise to the mid-thirty percent range can be enough to deter businesses away from this funding source.24


Equipment Financing vs. Leasing


U.S. organizations can choose from a variety of loans, credit, and lease options when pursuing funds for business equipment. The right type of funding may depend on a number of factors, including a business's annual revenue, credit scores, length of time in business, and the desired equipment.25 Financing equipment through leasing options offers businesses the opportunity to utilize equipment owned by the lessor for a designated window of time. An equipment lease requires no down payment and monthly installments are usually less than one would find with a loan.


However, unlike a loan, a lease does not entitle ownership of the equipment at its conclusion. Though many lenders offer options to buy at lease end, it is not guaranteed.26 For equipment with shorter lifespans, like computers, leasing can ensure businesses don't get stuck using out-of-date technology. However, for equipment that promises to offer more long-term value, a loan's result in outright ownership can help prevent the need to make ongoing investments in equipment.27




Business equipment financing options help firms purchase, upgrade, and replace equipment to improve operational efficiency and remain profitable. Through a variety of funding options and lenders, U.S. businesses can invest in the tools they need today without sacrificing large amounts of their working capital.

The Author

Zack Andresen

Zack Andresen is a business technology writer based in Brooklyn, NY, but currently traveling the world with his wife and son. Learn more at


1. "Benefits of Equipment Finance," Equipment Finance Advantage;
2. "Finance Types," Equipment Finance Advantage;
3. U.S. Equipment Finance Market Study: 2016-2017, Equipment Leasing & Financing Foundation;
4. “Top 10 Equipment Acquisition Trends for 2018,” Equipment Finance Advantage;
5. “Industry Overview,” Equipment Leasing and Financing Association;
6. “Benefits of Equipment Finance,” Equipment Finance Advantage;
7. “Equipment Leasing vs. Equipment Financing: What You Need to Know,” Inc;
8. “The Small Business Owner’s Guide to Equipment Financing,” Bond Street;
9. “How to Qualify for a Small-Business Loan in 5 Steps,” NerdWallet;
10. “The Financing Advantage: SBA Loans for Business Buyers,” BizBuySell;
11. “Monthly Leasing & Finance Index: January 2018,” Equipment Leasing and Financing Association;
12. “Biz2Credit Small Business Lending Index: January 2018 Lending Index,” Biz2Credit;
13. “Monthly Leasing & Finance Index: January 2018,” Equipment Leasing and Financing Association;
14. “Top 10 Equipment Acquisition Trends for 2018,” Equipment Finance Advantage;
15. U.S. Equipment Finance Market Study: 2016-2017, Equipment Leasing & Financing Foundation;
16. 2018 Equipment Leasing & Financing U.S. Economic Outlook, Equipment Leasing & Finance Foundation;
17. “Finance Types,” Equipment Finance Advantage;
18. “Equipment Financing: Find the Best Loan for Your Business,” NerdWallet;
19. “The Small Business Owner’s Guide to Equipment Financing,” Bond Street;
20. “Understanding Equipment Financing and Leasing,” OnDeck;
21. “Captive Finance Company,” Investopedia;
22. “Finance Types,” Equipment Finance Advantage;
23. “Industry Overview,” Equipment Leasing and Financing Association;
24. “The Small Business Owner’s Guide to Equipment Financing,” Bond Street;
25. Ibid.
26. “Lease/Loan Comparison,” Equipment Finance Advantage;
27. “Equipment Leasing vs. Equipment Financing: What You Need to Know,” Inc;