Equipment Financing 101: How to Finance Used Heavy Equipment

Most contractors don't pay cash for heavy equipment. Financing lets you put machines to work immediately while preserving cash flow. But choosing the wrong structure can cost you thousands over the life of a loan.

Financing Options Compared

Option	Typical Rate	Term	Down Payment	Best For
Bank Loan	7–10%	3–7 years	10–20%	Established businesses, best rates
Equipment Loan	8–13%	2–6 years	0–20%	Equipment as collateral
Lease	9–15%	2–5 years	First/last	Preserving capital
Dealer Financing	8–14%	2–6 years	Varies	Convenience, promos
SBA Loan	6–9%	10–25 years	10–15%	Large purchases, long terms

Equipment Loans

The most common method for used equipment. The machine itself is collateral, making qualification easier. Specialty lenders like Crest Capital and Beacon Funding focus specifically on equipment financing.

Most lenders finance machines up to 10-15 years old. Before you apply, get a valuation on EquipBook — lenders will order their own appraisal, and knowing fair market value ensures you're not overpaying.

Equipment Leasing

Two main types:

• FMV Lease — Lower payments, buy at fair market value at lease end. Good for short-term needs.
• $1 Buyout Lease — Higher payments, own the equipment for $1 at the end. Functionally similar to a loan with tax advantages.

Credit Requirements

• Credit score — 650+ for most equipment lenders, 700+ for best rates
• Time in business — 2+ years standard, startups can still qualify at higher rates
• Annual revenue — Equipment payment should be under 10-15% of monthly gross revenue
• Down payment — 10-20% typical, more down = better rates
• Equipment age — Under 10 years preferred, older machines need larger down payments

Section 179 Tax Deduction

Section 179 lets you deduct the full purchase price of qualifying equipment in the year it's placed in service — both new and used equipment qualify. Financed and leased equipment also qualifies.

This is a powerful incentive to buy in Q4 if you've had a profitable year. A machine purchased and placed in service before December 31 can be fully deducted against that year's income.

Lease vs. Buy

Factor	Lean Toward Buying	Lean Toward Leasing
Usage length	5+ years	Under 3 years
Cash flow	Have capital	Need to preserve cash
Resale value	You keep the equity	Return it and move on
Technology	Stable machine type	Want to upgrade regularly
Tax situation	Section 179 valuable	Lease payments as OpEx

Use the EquipBook comparison tool to see how different models hold their resale value — brands with strong retention like Cat and Deere are often better candidates for purchasing.

Tips for First-Time Borrowers

1. Know the machine's value first — Run a free valuation on EquipBook for an independent price reference.
2. Get pre-approved before shopping — Apply with 2-3 lenders to know your budget and rate.
3. Read the full loan agreement — Watch for prepayment penalties, balloon payments, and personal guarantees.
4. Factor in total cost of ownership — Insurance, maintenance, fuel, and transport on top of payments.
5. Build credit first if needed — The rate difference between a 620 and 700 credit score is 4-6 percentage points — thousands over a 5-year term.