Equipment Financing: Loans, Leases and How They Work

A new convection oven, a CNC mill, a dental chair, a refrigerated van: the equipment that makes your business money is rarely cheap, and paying cash for it can drain the very working capital you need to run the place. Equipment financing exists so the asset can pay for itself while it works for you.

The core idea is simple. The equipment you are buying serves as collateral for the financing, so the funder has something tangible behind the deal. That often makes approval more attainable than an unsecured product of the same size, and it can allow longer repayment periods that match the useful life of the asset.

This guide covers the difference between loans and leases, how a payment works out in practice, what funders review, and where the tax conversation with your CPA fits in. Fidelity Funding is a broker, so what follows describes options that may be available through our funding partner network depending on your profile.

Why the equipment itself matters to the funder

In most equipment financing, the funder takes a security interest in the specific asset being purchased. If payments stop, the funder has a claim on that asset, which is why the deal is considered more secured than a cash-flow-only product. Because the risk is somewhat lower, funders may be more flexible on credit history or time in business, and the repayment period can stretch to match how long the equipment is expected to last.

That also means value matters. Funders look at what the equipment is worth, how quickly it loses value, and how easy it would be to resell. A common piece of construction or kitchen equipment with a deep resale market is simpler to finance than a one-off custom machine built for a single process.

Loan versus lease

With an equipment loan, you are generally buying the equipment and making payments until it is paid off. You typically own it from the start, subject to the funder's lien, and when the last payment is made the lien is released. With a lease, the funder owns the equipment and you pay to use it for a set term. At the end you may have options such as returning it, renewing, or buying it at a stated price, depending on the structure.

Leases can carry lower monthly payments, which helps when the equipment becomes outdated quickly, as with certain technology or imaging gear. Loans tend to cost less over the full life of an asset you plan to keep for years. Contract language varies a lot here, especially around end-of-term buyouts, so read the purchase option carefully and ask a specialist to explain it.

• Loan: you build ownership as you pay, and the lien comes off when it is paid in full
• Lease: lower payments are possible, but you may not own the asset at the end
• Dollar-buyout or fair-market-value leases differ significantly in end-of-term cost
• Check who is responsible for maintenance, insurance and damage in either case

A worked payment example

Say you are buying a $60,000 piece of equipment and put 10 percent down, or $6,000, financing $54,000. Suppose a funding partner quotes a 48-month term with total repayment of $64,800 including all finance charges. That works out to $1,350 per month. Total cost of financing is $10,800 on top of the $54,000 principal.

Now ask the question that matters: does the equipment earn more than $1,350 a month in new revenue or savings? If a $60,000 machine lets a shop take on $3,500 a month in additional contribution margin, the payment is covered with room to spare. If it only replaces an older machine that still works, the math is tighter. These numbers are purely hypothetical; actual pricing varies by funding partner, equipment type and underwriting.

New, used and soft costs

Used equipment can often be financed, though funders may limit the age or require an appraisal or inspection. Older equipment generally means shorter terms and sometimes smaller financed amounts, since collateral value is lower. New equipment from a dealer usually moves through a clean process: an invoice or quote from the vendor supports the request, and funds are often paid directly to the seller.

Ask whether delivery, installation, training and software can be bundled in. Some funders will include these so-called soft costs; others only finance the hard asset. Knowing this before you order prevents a surprise gap you have to cover from your own cash.

Taxes: a conversation for your CPA

Business owners often hear about Section 179 of the Internal Revenue Code, which can in some circumstances allow a deduction for the cost of qualifying equipment in the year it is placed in service, rather than depreciating it over time. Whether it applies to you, and how a lease versus a loan changes the treatment, depends on your tax situation and on current limits that change over time. Treat this as a prompt to ask your CPA before you buy, not as tax advice. A quick call before the purchase date can matter more than anything you do afterward.

What funders typically review

Expect to provide a quote or invoice for the equipment, basic business information, and recent bank statements. For larger amounts, funders may also request financial statements or tax returns. They commonly look at time in business, revenue, credit, and your existing obligations, and they want to understand how the equipment fits your operations.

A down payment, even a modest one, can improve the structure of an offer. It reduces the financed amount, lowers the monthly payment, and shows commitment. Not every program requires one, and requirements differ across funding partners.

Insurance is another practical point. Funders usually require coverage on the financed equipment and may want to be named on the policy, so factor that annual cost into your budget alongside the monthly payment.

• Vendor quote or invoice with make, model and price
• Three to six months of business bank statements
• Government ID and ownership details
• Down payment amount, if applicable
• Proof of insurance on the equipment once purchased

Moving forward with Fidelity Funding

Because we work with several funding partners, one short application can surface both loan and lease structures for the same piece of equipment so you can compare monthly payment, total cost and end-of-term rules side by side. The initial review uses a soft credit pull, and a funding specialist walks you through the numbers. If you have a quote in hand, start the application and let a specialist help you weigh your options.

This article is for general information only and isn’t financial, legal or tax advice. Funding approval, amounts and terms are set by funding partners and depend on underwriting.