9 minute read

Equipment Financing: How It Supports Growth and Drives Value at Exit

When you’re running a business that depends on specialized assets, machinery, or vehicles, equipment is your backbone. But buying that equipment outright can drain cash reserves. That’s where equipment financing can be an option. When it comes to buying or selling a business, equipment financing can significantly affect how the business is valued and how the acquisition is financed. It often becomes a key negotiation point and plays an important role in due diligence, especially in asset-heavy industries.

This type of funding helps business owners buy or lease what they need to operate and grow, without locking up working capital. Whether you’re replacing outdated HVAC trucks, upgrading restaurant walk-ins, or expanding your manufacturing line, equipment financing can keep your cash flow healthy while the business is scaling.

Here’s how it works, when it makes sense, and what to watch out for.

What Equipment Financing Really Is

Equipment financing is a loan or lease specifically used to purchase business-related equipment. The equipment itself serves as collateral, which means you typically won’t need to put up real estate or personal assets to secure it.

You make monthly payments, often over two to seven years, until the equipment is paid off. Once it’s paid in full, you own it outright.

The main appeal is that it’s faster and easier to qualify for equipment financing than for a traditional bank loan, because lenders can repossess the equipment if you default. That lowers their perceived risk.

When Equipment Financing Makes Sense

Equipment financing makes the most sense when:

You’re buying something that directly produces revenue. Think vehicles for a plumbing business, kitchen gear for a café, or manufacturing machinery that increases output.
You want to preserve cash flow. Paying in installments instead of a lump sum keeps funds available for running the business, marketing, or seasonal fluctuations.
The equipment has a long usable life. An asset worth financing is durable enough to last well beyond the loan term.
Sometimes the seller agrees to finance part of the equipment.

It makes less sense when:

The equipment rapidly depreciates or becomes obsolete (like certain tech or electronics).
You’re financing smaller purchases that you could pay for in cash.
The loan term is longer than the expected life of the equipment.

Types of Equipment Financing

1. Equipment Loans

This is the most straightforward option. You borrow a set amount, buy the equipment, and make monthly payments with interest until you own it.

Best for: Businesses with solid credit and predictable revenue.
Rates: Interest typically ranges from 6% to 20% depending on credit and term.
Advantage: You can claim depreciation and interest as tax deductions.

2. Equipment Leases

Leasing works more like renting. You pay to use the equipment for a fixed term, often with an option to buy at the end for a residual value.

Best for: Businesses that need to upgrade often or don’t want ownership responsibilities.
Perk: Lower upfront costs and easy replacement cycles.
Caution: Over time, leasing can cost more than buying outright if you renew repeatedly.

3. SBA 7(a) and 504 Loans

If you qualify, SBA loans can offer some of the best long-term financing for equipment with low rates, long terms, and partial government guarantees.

The 7(a) loan is flexible and can be used for both working capital and equipment purchases.
The 504 loan is designed for fixed assets like real estate and heavy machinery.

Note: As of 2025, only U.S. citizens and green card holders can qualify for SBA-backed financing. Foreign investors or visa holders (including E-2s) are no longer eligible.

SBA equipment financing typically covers up to 90% of the purchase cost, with terms up to 10 years. The process is slower than private lenders, but rates are hard to beat.

4. Vendor Financing

Some equipment manufacturers and distributors offer their own financing. This is convenient because the vendor wants to make the sale and can often approve quickly with minimal paperwork.

Best for: Buyers with average credit or industry-specific equipment needs.
Caution: Interest rates and terms vary widely. Get multiple quotes and compare them.

5. Online and Alternative Lenders

Online lenders have made equipment financing faster and more accessible. Approvals can happen in hours, and funds can arrive within days.

Best for: Time-sensitive purchases or businesses without strong credit histories.
Caution: Convenience comes at a cost. These often have higher interest rates and shorter repayment periods.

Alternatives to Equipment Financing

If financing doesn’t fit, you have a few alternatives:

Business lines of credit: Great for smaller purchases or maintenance costs.
Equipment sharing or rentals: Ideal for short-term or seasonal use.
Private investors: If the equipment directly increases revenue, investors may back it.

How to Qualify

Lenders look at three main factors:

Credit score: Typically 650+ for traditional lenders, but some online lenders accept lower.
Time in business: Two years is ideal, but startups can qualify if the equipment itself has strong collateral value.
Cash flow: Lenders want to see consistent revenue that comfortably covers loan payments.

Have financial statements, recent tax returns, and an equipment quote ready.

What Business Buyers Need to Know About Equipment Financing

Equipment financing rarely stands alone in a deal. In many acquisitions, equipment financing is usually one piece of the capital stack, not the whole thing. Buyers often pair it with seller financing, SBA debt, or a cash injection to complete the purchase. For example, if a lawn care company is priced at $1M and $250K of that is equipment, you might finance just the equipment separately through an asset lender. That keeps the SBA or bank loan smaller and the debt ratios cleaner.
Appraisals can make or break approvals. Equipment lenders rely heavily on current fair market value, not replacement cost.

If you’re buying used equipment, lenders will often lend only 70–80% of its appraised value. So when you’re negotiating price, make sure the numbers line up with what a lender will actually underwrite.

That means as a buyer it’s important to understand depreciation, brand value, and resale data. It’s not as simple as pulling current comps for the same equipment pieces.
The SBA won’t finance equipment separately from the business anymore.

Many buyers try to split equipment out from a full acquisition to get it done faster. Under current SBA rules, you can’t use an SBA 7(a) just to buy equipment unless it’s part of an operating business purchase.

SBA lenders want operating cash flow behind the loan. Pure equipment loans without revenue streams attached to them typically get declined.
Leased equipment affects valuation and financing.

If a seller has leased or financed equipment, a broker will often flag that for due diligence. A surprising number of buyers discover after LOI some key equipment is leased, not owned. That can throw off valuation and even loan approval because the lender can’t use that equipment as collateral. In a business acquisition, sometimes the seller agrees to finance part of the equipment, especially if traditional financing can’t be obtained.

It’s important to request UCC lien searches and equipment schedules early on to get this visibility.
Equipment-heavy businesses get judged differently.

In service and manufacturing businesses, lenders may look at collateral coverage ratios more than profit margins. A trucking company might not have a huge EBITDA, but if it has $500K in trucks with clean titles, that can still be a bankable deal.
Tax timing matters more than most buyers realize.

Timing equipment purchases near year-end can change depreciation schedules and tax liability. Many buyers structure closings in Q4 to capture Section 179 deductions on the new assets immediately. Work with your accountant on this personally to explore if this is possible for you.

The Bottom Line

Equipment financing is a tool to help business owners grow without choking cash flow, and it's a strategic lever in business valuation and acquisition. If your equipment is critical to the business, long-lasting, and directly tied to revenue, it could make sense to finance. But in a sale, it also affects how lenders assess value, how deals are structured, and what buyers can actually borrow. Leased or heavily depreciated equipment can complicate due diligence and reduce collateral value.

The smartest move is to compare all options. SBA, vendor, and online lenders all approach risk and pricing differently. The best deal depends on your timeline, credit, and how integral that equipment is to your operation.