Ten to twenty percent. That is the down payment most equipment lenders commonly ask for on a standard equipment loan, and there is a structural reason behind it: the equipment itself is collateral, so much of the risk carries itself. That single fact explains why equipment purchases are generally easier to finance than nearly any other business need, with approvals available to companies too young for a bank line and owners whose credit is good rather than perfect. The catch is that equipment financing is not one product but a family of them, and choosing the wrong structure quietly costs real money. Here is the practical path: the problem, the options, how to choose, and what to do before you apply.
The Problem: Growth Requires Equipment, and Cash Is Finite
If your business is growing, equipment is usually the bottleneck before demand is. A landscaping company starts turning down install jobs because it does not have a second crew truck. A machine shop bids on work it cannot produce without the next machine. A restaurant gets quoted on a second location and realizes the kitchen package alone eats half the build-out budget.
Paying cash for every asset drains the reserve that protects payroll, and most companies can self-fund only one major purchase at a time — on their own timeline, not the market's. Financing separates those two clocks. You put the asset to work now and pay for it as it earns. The only real question is which structure does that at the lowest total cost for your situation.
The hidden cost of waiting
Hesitation has a price, too. Suppose a piece of equipment would add $8,000 a month in capacity and the financing payment on it is $2,500. Every month of delay is a month of foregone margin — usually far more than the difference between two reasonable financing structures. That is why the practical approach is to line up two or three realistic structures early, collect indicative terms, and compare on total cost while the machine you need is still in stock. Even if the purchase itself waits a quarter, having terms in hand changes every conversation with your vendors.
Your Options: How Equipment Purchases Get Funded
Five structures cover the overwhelming majority of equipment deals, and they differ less in what they can buy than in how cost, risk, and ownership are split. At the highest level, the choice is between secured lending (the asset backs the debt), leasing (you pay for use), and government-supported programs (longer terms and lower down payments, in exchange for more process).
| Structure | How it works | Best suited to | Watch-outs |
|---|---|---|---|
| Equipment loan | The equipment is the collateral; terms commonly run three to seven years, longer for heavy machinery | Assets you will keep and use for years | Down payment and advance rate vary; judge total cost, not the monthly payment |
| Equipment lease | You pay for the use of the asset, sometimes with service included | Technology, vehicles, and gear you may replace sooner | Buyout and return terms at the end matter more than the headline payment |
| SBA 504 | Bank and CDC split the financing, commonly 90% of eligible cost; the CDC portion can reach $5.5M; long amortizations tied to Treasury benchmarks | Large fixed assets: facilities, heavy machinery, owner-occupied real estate | More documentation and slower closings; eligibility rules apply |
| SBA 7(a) | SBA-guaranteed, with a maximum loan amount of $5M | Equipment bundled with working capital in one facility | Timeline measured in weeks, not days |
| Business line of credit | Revolving; draw, repay, draw again | Small tools, short-life purchases, bridging a gap | The wrong tool for long-life assets — mismatch risk |
What lenders look at
Underneath every structure sits the same underwriting question: will this asset earn enough to pay for itself? Lenders typically review time in business, revenue consistency, the owners' credit, industry conditions, and the equipment itself — age, condition, and resale market. Newer companies lean more heavily on the owner's personal credit and a larger down payment, because there is less operating history to trust. Established companies with clean financials often see lighter documentation. Either way, the preparation is the same: draw a clear line between the equipment and the revenue it produces. One more signal matters, especially for younger companies — money down. A down payment is not just risk-sharing; it tells the lender you believe in the purchase enough to stand behind it.
Loan or lease? One useful test
If the equipment will still be productive when a seven-year loan would be paid off, buying usually wins — you capture depreciation, build equity, and stop paying when the term ends. If you expect to replace the asset within three years, a lease's exit flexibility can be worth its higher lifetime cost. Before signing either one, ask your accountant about tax treatment, because Section 179 and bonus depreciation rules can tilt the math toward buying for qualifying purchases.
Where the SBA fits
SBA programs stretch terms and lower down payments relative to conventional financing, which matters most on large purchases: the 504 program's 90% structure exists so that a heavy-equipment or facility purchase does not swallow your entire reserve. For smaller needs, the SBA microloan program caps at $50,000. A business line of credit covers tools and short-life gear without the paperwork. Whatever the size, compare the equipment financing options and the SBA programs side by side before you commit.
How to Choose: Four Questions That Narrow the Field
1. How long will the asset earn for you? The financing term should match the asset's productive life, not exceed it. Long-lived assets justify long amortizations; short-cycle gear does not.
2. How well does the equipment hold value? Lenders advance more against assets with strong resale markets — construction equipment and commercial vehicles come to mind — and less against specialized or fast-depreciating items. A strong collateral position means a smaller down payment and a wider set of business loan options.
3. How does the asset's cash flow arrive? A machine that generates steady monthly revenue pairs naturally with a fixed monthly payment. An asset built for seasonal work may fit better alongside a facility that flexes with the cycle. Mismatched payment shape is one of the most common reasons good businesses stumble on otherwise affordable purchases.
4. What do the numbers say after tax treatment? Buying and leasing are treated differently, and qualifying purchases can be deducted aggressively. Ten minutes with your accountant frequently decides the structure before a lender ever sees the file.
Before You Apply: The Practical Checklist
- Two years of financial statements or tax returns, plus three to six months of bank statements
- A written quote or invoice for the specific unit — lenders fund against a real asset, not a category
- Your down payment, commonly 10–20% for standard equipment loans
- A quick review of your personal credit report; most errors are fixable in weeks
- Total cost clarity: fees, lease-end options, prepayment terms, insurance requirements
- The two best-fit structures compared side by side, not just the first one you were offered
- Delivery timing confirmed — disbursement usually aligns with delivery or installation
- A lender who has funded your equipment category before; familiarity with the asset shortens the process
- One paragraph on how the equipment will earn its keep — useful for the application and clarifying for you
Equipment decisions are long-term commitments, and the financing around them deserves the same diligence as the machine. When you have a quote in hand, send it to our team at Tesni, LLC, and we will lay the structures side by side — total cost included — so you can choose with clear eyes.