Key takeaways

  • Equipment loans are specifically designed to help companies purchase tangible assets that they may not have the liquid capital to buy outright
  • In 2023, businesses can claim up to $1,160,000 in deductions for depreciable equipment under Section 179 of the Internal Revenue Code
  • Online lenders can provide loans faster than traditional banks, but may charge more in interest and fees
  • The Small Business Administration (SBA) can also help with equipment financing, offering loans up to $5 million, with capped interest rates and long repayment terms

Is there a tangible asset that could help your business thrive? Whether it’s new computers at your tech company, a commercial oven for your restaurant or even a semi-truck to expand your shipping operations, you might not have the liquid capital to buy it outright. That’s okay. You can explore an equipment loan.

Equipment financing is specifically designed to help companies buy key business equipment, then pay it back over time. It could be what you need to seize an opportunity or avoid a break in operations.

Before you head out and compare equipment financing companies and their rates, let’s get a good handle on how to use these loans.

Purchase equipment

An equipment loan is a type of business loan that gives you cash in hand to buy tangible assets your business needs. Commercial equipment could be anything from HVAC units and phone systems to improve your office to machinery or industrial equipment.

You’ll most often see these loans or lines of credit available for around $500,000, although some extend into the millions of dollars. If you choose an equipment loan, you usually repay what you borrow plus interest in two to 10 years. Some equipment loans require a down payment, while others will finance 100 percent of the equipment cost. Interest rates generally range from six percent to 30 percent.

The equipment you buy generally serves as collateral for the loan. That means that if you default, the lender can seize the asset. They may have also asked for other collateral, like other business assets or a personal guarantee, especially if you’re trying to get a business loan with bad credit. Read the fine print. While the commercial equipment you purchase with the loan is almost always seizable at default, some equipment financing companies can take more from you if you don’t repay what you borrow.

Ultimately, assuming you can live up to the repayment schedule, an equipment loan can give your business the capital it needs to invest in its growth.

Bankrate insight

Make sure you only apply for as much financing as you need. A lender may deny your loan application if you ask for too much financing. Use a business loan calculator to find out exactly how much of a loan you can afford.

Section 179 deduction for 2023

Equipment financing can also give you a way to reduce your tax liability this year. Per Section 179 of the Internal Revenue Code, if you purchase or finance depreciable business equipment, you can deduct the full expense in that tax year (up to set limits) rather than capitalizing it over time.

In 2023, Section 179 lets you deduct up to $1,160,000 of depreciable equipment like office equipment or business machinery. There are some granular details to talk through with your accountant. If you finance an SUV, for example, a $28,900 deduction limit applies in 2023. And if you put more than $2,890,000 of Section 179 property in service in the tax year, it eats into your deduction dollar for dollar.

Even if you can’t qualify for a Section 179 deduction on your business equipment financing, you may be able to get a tax break through bonus depreciation. In 2023, this could allow you to get a deduction for up to 80 percent of the equipment price.

To recap, some key figures you should know when it comes to your equipment financing and your potential tax breaks are:

2023 Section 179 deduction limit $1,160,000
2023 Section 179 spending cap $2,890,000
2023 bonus depreciation 80%

Types of equipment loans

Generally, loans to buy commercial equipment fall into two categories:

Type of equipment loan Description Advantages
Term loan You borrow a lump sum to purchase a single piece of equipment, then pay it back plus interest on the agreed-upon schedule Gives you a clear-cut idea of what you’re borrowing and how much/when you’ll need to repay
Line of credit You get a line of credit with a maximum amount you can borrow against for equipment purchases. You only pay interest on the amount you use Lets businesses buy multiple pieces of equipment with less underwriting for each

Where to get equipment loans

You have several options for equipment financing companies, and each comes with its own unique pros and cons. To help you find the right equipment loan for your company, explore each category here:

Banks and credit unions

These are the longstanding players in the equipment financing game. Because they’re well-established, they can generally offer low-interest business loans.

They also have well-established underwriting processes, which means they closely vet you and your business before offering you a loan. If you’re trying to get approved for a bad credit business loan, you might have difficulty with banks and credit unions. And if you’re trying to get money fast, you’ll likely want to look elsewhere.

Because the underwriting is rigorous, credit unions and banks feel confident before issuing loan proceeds. With that frontend risk mitigation, they can offer lower rates than online lenders.

Compare banks that offer equipment loans

You have many options here, but some leading traditional equipment financing companies include:

Lender Top features
Bank of America
  • Loan amounts starting at $25,000
  • Fixed interest rates starting at 6.5%
  • Terms of up to five years
  • Eligibility requirements: At least two years in business, at least $250,000 in annual revenue
Wells Fargo
  • Loan amounts starting at $100,000
  • Terms from one to 10 years
  • Up to 100 percent financing for some equipment
  • Rates and eligibility requirements undisclosed
PNC Bank
  • Loan amounts from $10,000 to $3 million
  • Terms from two to seven years
  • Up to 100 percent financing for some equipment
  • Eligibility requirements vary by business size
  • Rates undisclosed
Chase Bank
  • Loan amounts from $5,000 to $500,000
  • Terms of up to seven years
  • Up to 100 percent financing for some equipment
  • Rates and eligibility requirements undisclosed

Online lenders

Online lenders leverage technology for faster underwriting and loan proceeds issuing. They’re also generally less stringent than banks and credit unions, so they might be a good option to explore if you’re looking for bad credit business loans.

Less thorough underwriting does increase their risk, so online lenders generally charge more in interest and fees than traditional lenders.

On the upside, online lenders’ tech-powered processes mean they can move fast. Applying for an equipment loan with one usually takes a matter of days, and once approved, the money can hit your account in a day or less.

Compare online lenders that offer equipment loans

Some of the leading online equipment financing companies operating today include:

Lender Top features
National Funding
  • Loan amounts of up to $150,000
  • Up to 100 percent financing
  • Eligibility requirements: At least six months in business, at least $250,000 in annual revenue, fair-to-excellent credit
  • Funding in as little as 24 hours
SMB Compass
  • Loan amounts from $25,000 to $5 million
  • Rates starting at 5.99%
  • Eligibility requirement: at least two years in business
  • Funding in 24 to 48 hours for loans under $200,000
Triton Capital
  • Loan amounts from $5,000 to $250,000
  • Rates starting at 5.99%
  • Terms from one to five years
  • Approval and funding in around two business days
Taycor Financial
  • Loan amounts up to $400,000
  • Up to 100 percent financing
  • Eligibility requirements: Minimum credit score of 550 and no minimum time in business requirement
Bankrate insight

Lender requirements will vary. Some may require a business plan. Many will want to see your funds being deposited in a business checking account.

SBA loans

Small Business Administration (SBA) loans can come from some of the equipment financing companies we’ve already mentioned, like Wells Fargo and Chase. The big difference is that these loans get backed by the SBA, making them easier for small businesses.

With the SBA involved, underwriting is generally a rigorous, lengthy process. While these loans might help you get a lower rate than an equipment loan through an online lender, they generally take months to secure.

Compare SBA loans for purchasing equipment

If you want an equipment loan backed by the SBA, you can look to:

Type of SBA Loan Features
SBA 7(a) loans
  • Loan amounts up to $5 million
  • No collateral required for loans up to $25,000
  • Loan terms up to 10 years generally, or up to 15 years if the equipment should be functioning that long
SBA 504 loans
  • Loan amounts up to $5.5 million
  • Terms of 10, 20 and 25 years
  • Available exclusively through Certified Development Companies (CDCs), which you can find near you with this map
SBA microloans
  • Loan amounts up to $50,000
  • Terms of up to six years
  • Rates generally between 8% to 13%
  • Available exclusively through nonprofit, community-based organizations, which you can find near you with this list
SBA Community Advantage loans
  • Loan amounts up to $350,000
  • Geared toward underserved markets, like minority-, woman- and veteran-owned businesses
  • Terms of up to 10 years

Bottom line

Ultimately, the best equipment loan can help your business buy a tangible asset to operate at a higher level. And it means you can make that purchase now (and potentially get a big tax deduction this year) rather than waiting to save up.

Before you take out a commercial equipment loan, make sure your business can repay the set schedule. Also, consider any loan fees as you’re budgeting for your loan.

Frequently asked questions

  • Section 179 of the IRS tax code says you can deduct up to $1,160,000 for any depreciable equipment you buy or finance in that tax year rather than spreading it out over the coming years. This can help your company dramatically reduce its tax liability in the year you take out the equipment loan and buy the equipment.
  • That varies widely, depending on your personal and business credit score, the lender you choose and the cost and use of the commercial equipment you want to buy. Generally, you can expect your rate to fall between six percent and 30 percent.
  • Because of loan fees and interest, equipment loans mean paying more for what you need than if you bought it outright. They can also be a challenge if your business hasn’t properly budgeted to repay the loan.