Guide · What it costs
What does equipment financing cost?
By Alex Makowski Updated
Priced as interest, not a factor, because the asset secures it. A strong file — two years in business, a score in the high 600s, a resaleable asset — sees rates in the high single digits to low teens; a newer business or a score in the 500s sees the high teens to twenties with a larger down payment. Over a five-year term, a $50,000 machine at those rates costs somewhere between about $12,000 and $33,000 in total interest. Fees are small; the down payment is the number to plan for.
In this guide
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01
What decides the rate
Four things, in rough order. The asset: a dealer-sold truck or a common machine with a resale market prices low; a specialised or aging machine prices higher because the lender's recovery is worse. Your personal credit: it matters more here than for an advance and much less than for a bank loan. Time in business: two years opens the best pricing; six months is financeable with a down payment. And the down payment itself: more down, lower rate, because the lender's exposure is smaller.
Manufacturers' finance arms — for trucks, machine tools, medical devices — often price below independent lenders on their own equipment because they want the placement. Always get both quotes.
Cost of $50,000, by product
02
The numbers, worked
$50,000 over five years at 9 percent: about $1,040 a month, roughly $12,300 of total interest. The same at 15 percent: about $1,190 a month, roughly $21,400 of interest. At 22 percent, for a thin file: about $1,380 a month and around $32,800. A 15 percent down payment on that $50,000 machine drops the financed amount to $42,500 and every figure with it.
Compare that to the same machine on a six-month cash advance at 1.3: $15,000 of cost in six months, and the machine still has four and a half years of payments' worth of life in it. This is why the split rule exists.
| Financing | Payment | Total cost of the $50,000 | Typical file |
|---|---|---|---|
| Equipment loan at 9% | About $1,040 a month | About $12,300 of interest | Strong: two years in business, a high-600s score, a resaleable asset |
| Equipment loan at 15% | About $1,190 a month | About $21,400 of interest | In between |
| Equipment loan at 22% | About $1,380 a month | About $32,800 of interest | Thin: a newer business or a score in the 500s |
| Six-month cash advance at 1.3, for comparison | About $516 each business day | $15,000, paid in six months | The fast product used for a long job |
03
Fees and the end of the term
A documentation fee of a few hundred dollars is common; origination fees are smaller than on unsecured products or absent. The costs to watch are at the end: a balloon or a fair-market-value buyout on a lease can add thousands if you intend to keep the equipment. A dollar buyout or a straight loan has no cliff. Ask what you owe on the last day before you sign the first.
Written by
Alex Makowski, Owner
Alex Makowski owns and runs Business Loans for America and has been placing funding for U.S. small businesses since 2021. Businesses he has worked with have secured $50M+ in financing across 1,200+ placements. He writes and reviews every guide on this site.
FAQ
Related questions.
- Is equipment financing cheaper than a bank loan?
- Often comparable for a strong file, and available to many businesses a bank would decline. A bank's own equipment loan can be cheaper still if you qualify; the equipment lender's advantage is speed and reach, not always price.
- Does the rate change for used equipment?
- Usually up a little, with a shorter term, because the resale value is lower and falls faster. A dealer-certified used unit with a warranty prices close to new.
- Can I deduct the interest and the equipment?
- Interest on business equipment financing is generally deductible, and the equipment itself can often be expensed under Section 179 in the year it is placed in service. The IRS publication on depreciation is the authority.
Guides
More on what it costs
Lower factor, not always cheaper
A 1.2 with high fees and a four-month term can cost more per month than a 1.3 over ten. Compare in dollars.
Worse than advertised
Files are graded A to D on deposits, balance and history. The advertised rate is the A grade. Most files are not A.
What is negotiable
The factor moves a little. The term, the payment frequency, the fees and the amount move more. Ask before signing, never after.
The renewal trap
A $20,000 renewal that retires a $14,900 balance puts $5,100 in your account and charges the factor on all $20,000.
What factor rate should you expect on a merchant cash advance?
Can you save money by paying off a merchant cash advance early?
Sources
- IRS Publication 946 — How to Depreciate PropertyThe Section 179 deduction and depreciation limits, from the authority that sets them.
- U.S. Small Business Administration — LoansFederal loan programmes, eligibility and what the SBA does and does not guarantee.
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