The ABC's of equipment financing
Commercial equipment financing runs on different rules than the consumer credit you're used to. Here's what actually determines your terms — and what to watch for in the fine print.
What determines your terms
Commercial financing isn't consumer financing
A 700 personal credit score doesn't work the way it does at a car dealership. Commercial equipment is financed as a revenue-producing business asset, with its own risk scoring that has nothing to do with the consumer credit market.
Your specific industry matters
Long-haul or short-haul trucking, dump trucks, pump trucks, box trucks, boom trucks — every industry and equipment type is assigned its own risk score by the underwriter. Lower risk means better rates and terms; higher risk can mean a higher rate or a down payment requirement.
Your personal credit score still counts
Whether you're brand-new or established, personal credit plays a real role. Below roughly 650, expect a down payment to be requested, especially in trucking. In construction and similar industries, $0-down approval is realistic with a 630+ score, because lenders view the industry itself as lower-risk.
Your borrowing history matters ('comp credit')
Underwriters look at whether you've financed commercial equipment before. A track record of on-time payments on similar equipment works in your favor.
Time in business changes your options
Start-ups almost always need a down payment — the exact amount depends on credit. Businesses with a longer track record have more programs available to them.
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Every deal is different.
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Avoid financing scams
Some financing companies engage in genuinely questionable practices. The biggest one: once you've verbally agreed to terms — or been given a phony credit approval — they ask you to send money before ordering your closing documents. Watch for requests framed as a “commitment fee,” “consulting fee,” “documentation fee,” “professional fee,” or your “first payment,” sent before any paperwork is finalized.
Legitimate financing fees are disclosed in your closing documents and paid at funding — not wired ahead of time on a verbal promise.
Contracts to understand before you sign
The FMV clause
If a lease lets the lessor determine fair market value on their own at end of term, that's a liability sitting in your contract. Require an independent third-party appraisal, agreed to by both sides, before you sign anything.
The evergreen clause
Miss the written notice window to return or buy out your equipment, and some leases auto-renew for months at a time — sometimes repeatedly. Know your notice period the day you sign, not the month it's due.
Frequently asked
How is equipment financing different from financing a car or a house?
Consumer credit scoring doesn't carry over. A 700 personal credit score that gets you a low rate on a car doesn't work the same way here, because commercial equipment is underwritten as a revenue-producing business asset, not a personal purchase. Underwriters weigh your industry, the specific equipment, your time in business, and your personal credit together.
Should I get an Equipment Finance Agreement (EFA) or a lease?
If you plan to keep the equipment for more than five years, an Equipment Finance Agreement usually makes more sense — you're financing toward ownership. If you prefer to run the newest equipment and upgrade regularly, a purchase-option lease agreement may fit better, since it's built around returning or upgrading at the end of term.
What is a 'Direct Lender,' and does it matter who I work with?
'Direct Lender' is used loosely in this industry. Most people assume it means the company they're talking to is lending its own money and holding the lien — but there are only a handful of actual lienholders, and hundreds of finance companies that all place deals with the same pool of banks. It's similar to mortgage brokers versus the banks that actually hold the note. What matters is getting a broker who's straight with you about terms, not the label on the door.
What fees should I expect on an equipment financing deal?
Ask for a full breakdown before you sign. Common fees include an admin or doc fee, a UCC filing fee (for non-titled equipment), a title agency fee (for titled equipment), a GPS unit fee on some titled equipment, a wire fee, and sometimes a prefunding fee. Get the total in writing, and be skeptical of any single fee that looks padded — a several-thousand-dollar doc fee on one piece of equipment is a red flag, not a rate buy-down.
What is the FMV clause in a lease, and why does it matter?
FMV means 'fair market value' — what you'd pay to buy the equipment at the end of a lease. If the contract lets the lessor (the finance company) determine that value on their own, that's a red flag: it gives them room to charge whatever they decide is fair. Insist on language that has FMV determined by an independent third-party appraisal, agreed to by both you and the lessor. If a leasing company won't put that in writing, walk away.
What is the 'evergreen clause' in a lease?
Some purchase-option and FMV leases require you to give advance written notice — often 30, 60, or 90 days — before the end of the term if you want to return the equipment or exercise your purchase option. Miss that window and the lease automatically renews for a set 'renewal period,' often 3-6 months, and you have to give notice all over again. Miss it twice and it renews again. Read the notice-period language carefully before you sign, and calendar the deadline the day you sign.
How much of a down payment will I need?
It depends heavily on your credit and how long you've been in business. Start-ups typically need 10%-40% down, with better credit reducing that number. Established businesses in favorable industries — like construction — can sometimes get $0-down approval with a credit score in the 630+ range.
Can I get equipment financing with no money down?
Yes, in the right circumstances. Established businesses in favorable industries — construction is a good example — can get $0-down approval with a credit score in the 630+ range. Start-ups almost always need some down payment, typically 10%-40% depending on credit. See Rates for the full breakdown of what moves that number.
Can I finance used equipment, or only new?
Yes. Most equipment financing programs cover new and used equipment alike, whether you're buying through a dealer or a private seller — construction equipment in particular usually has no age or hour restrictions. Financing used equipment instead of paying cash preserves your operating capital while still qualifying for many of the same terms as new.
What's the difference between equipment financing and an equipment line of credit?
They solve different problems. Equipment financing — a loan or lease — is tied to one specific piece of equipment and underwritten around it. An unsecured line of credit is revolving and isn't tied to any single asset, which makes it a better fit for cash-flow gaps like payroll or supplies than for a big equipment purchase. Many clients use both: financing for the equipment itself, a line of credit for the overhead around it.
Is equipment financing a secured loan?
Yes — the equipment itself is almost always the collateral. That's exactly why underwriters weigh the type and value of the equipment as heavily as your credit and industry, and why terms vary so much deal to deal: a five-year-old backhoe and a new walk-in cooler carry very different resale value and risk to a lender.
Ready to see how this applies to your industry? Browse Types of Equipment, run the numbers on the lease vs. buy calculator, or get in touch for a straight answer on your deal.