Equipment financing vs a business term loan
If the money is going into a specific piece of equipment, finance the equipment. The asset secures the facility, which usually means an easier approval, a longer amortisation and a lower rate than unsecured term debt. A term loan is the better instrument when the spend is mixed — part equipment, part working capital, part something else — or when you need the asset unencumbered.
Start an applicationSide by side
| Best for | Equipment Financing: Trucks, machinery, kitchen, construction, tech — Term Loan: Growth, expansion, refinancing |
|---|---|
| Typical range | Equipment Financing: $25K – $5M — Term Loan: $25K – $2M |
| Speed to funding | Equipment Financing: 3–7 days — Term Loan: 7–20 days |
| Cost | Equipment Financing: ~7–18% APR — Term Loan: ~8–22% APR |
| Collateral | Equipment Financing: The equipment — Term Loan: Sometimes |
Choose Equipment Financing when
- The full amount is going into identifiable equipment with resale value
- You want the asset itself to carry the security rather than the business
- Credit is imperfect — asset-backed underwriting is more forgiving
- You want the payment schedule matched to the equipment's useful life
Choose Term Loan when
- The spend is mixed and only partly equipment
- You need the equipment free of a lien, for a future sale or refinance
- The equipment is specialised with a thin resale market, which weakens it as security
- You are buying used equipment from a private seller and the lender will not finance it directly
When both make sense
A frequent structure is equipment financing for the asset and a smaller term loan or line of credit for the installation, training and working capital that come with it — matching each dollar to the right instrument rather than forcing one to cover everything.
Frequently asked questions
Can I finance used equipment?
Usually yes, though age and condition affect both the advance rate and the term. Private-seller purchases are the harder case: some lenders will not fund them at all, which is a common reason a file moves to a term loan instead.
Do I own the equipment?
Under equipment financing you own it and the lender registers security against it, released on final payment. That differs from a true lease, where the lessor owns the asset — see the equipment financing versus leasing comparison for that distinction.
Which is cheaper?
Equipment financing, generally, because the asset reduces the lender's risk. The published ranges are roughly 7–18% for equipment against 8–22% for term debt, though the specific file, the equipment type and the lender all move that.
Related
- Chartered bank term loan vs Business Line of Credit — A chartered bank term loan is cheaper and should be your first call if the business is bankable — two or more years of history, clean financials and strong credit.
- Invoice Factoring vs Merchant Cash Advance (MCA) — If the business invoices other businesses, factoring is almost always the cheaper answer — it advances money the business has already earned, priced from 1.5% per 30 days, and creates no debt.
- Term Loan vs Merchant Cash Advance (MCA) — A term loan is the cheaper instrument and the right one whenever the file can carry it — fixed payments, a defined end date, and pricing quoted as an annual rate.