What is the difference between a factor rate and APR in equipment financing?

APR (Annual Percentage Rate) is the annualized cost of borrowing, factoring in interest and fees. It decreases over time as principal is paid down — on a $100,000 loan at 8% APR over 60 months, total interest paid is approximately $21,600. A factor rate is a multiplier used by alternative/merchant cash advance lenders. A factor rate of 1.25 on $100,000 means you repay $125,000 total — the $25,000 fee is fixed regardless of how quickly you pay it off. Factor rates cannot be directly compared to APR — a 1.25 factor rate on a 12-month term is roughly equivalent to 40–50% APR. Always ask for the equivalent APR when comparing offers.

What documents do I need to apply for equipment financing?

Standard equipment financing applications require: signed application with business and owner information, 2 years of business tax returns (or personal returns for sole proprietors), 3–6 months of business bank statements, driver's license or government ID, and the equipment invoice or dealer quote. Larger loans ($500K+) or bank programs may also require financial statements, accounts receivable/payable aging, business plan, and existing debt schedule. Some equipment lenders offer 'stated income' programs for established businesses with strong credit that require less documentation.

Equipment Financing Guide

How Commercial Equipment Financing Works

Q: How does equipment collateral work in equipment financing?

In equipment financing, the equipment itself is pledged as collateral securing the loan. The lender files a UCC-1 financing statement with the state, giving them a perfected security interest in the specific piece of equipment. This means the lender has a legal claim against that equipment if the borrower defaults. The lender's comfort with the collateral depends on the equipment's brand, age, condition, and resale market. A 2022 Cat 320 excavator is excellent collateral because Cat equipment holds value and sells quickly at auction. An obscure 2010 Chinese brand with no parts network is poor collateral. The better the collateral, the more favorable the loan terms.

Q: What happens if I default on equipment financing?

If you miss payments on equipment financing, the lender typically sends a default notice after 30–60 days past due. After 90+ days, the lender initiates repossession — a recovery agent collects the equipment (usually without warning or confrontation). The lender then sells the equipment at auction or private sale. If the sale proceeds don't cover the remaining loan balance (deficiency balance), the lender can pursue a deficiency judgment against you personally (if you signed a personal guarantee) and against the business. Default also severely damages credit. If you're struggling, contact the lender proactively — most prefer restructuring to repossession.

Q: Can I finance equipment for a business I just started?

Yes, startups can finance equipment, though requirements are stricter. For a brand-new business (under 1 year), lenders typically require 680+ personal credit, 20–30% down payment, and equipment with strong collateral value. Your personal credit history becomes the primary underwriting factor since there is no business history. OEM programs (Kubota, Bobcat, John Deere) are often most accessible for startups. SBA 7(a) loans are another strong option — they're specifically designed to support new businesses and offer terms up to 10 years for equipment. Starting with a smaller, less expensive piece of used equipment dramatically improves approval odds.

From choosing your equipment to taking delivery — the complete mechanics of equipment loans, capital leases, operating leases, interest rate factors, collateral, and what actually happens at every step of the process.

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0–20%Typical Down Payment

36–84 moLoan Terms Available

5–12%Typical APR Range

1–3 daysTypical Approval Timeline

Key Facts: Commercial Equipment Financing

Typical Down Payment0–20%

Loan Terms36–84 months

Interest Rates5–12% APR

CollateralThe equipment itself

Approval Timeline1–3 business days

Factor Rate Alternative1.15–1.45 (fast/alternative lenders)

Step-by-Step Process

The Mechanics: How Equipment Financing Works

Equipment financing is straightforward once you understand the sequence. Here is exactly what happens from the moment you identify equipment to the day you own it outright.

Choose equipment and get a quote from the dealer. Get a written invoice including the exact model, year, serial number, and purchase price. This document is required by the lender.

Apply with a lender. Submit your business name, EIN, time in business, annual revenue, equipment details, and personal information. The lender collects 2 years of tax returns, 3–6 months of bank statements, and ID.

Lender underwrites the application. The lender pulls your personal and business credit, evaluates the equipment's collateral value and resale market, reviews your financial history, and calculates your debt service coverage.

Approval issued with rate and term options. The lender presents an approval showing interest rate, term length, required down payment, and monthly payment. Compare offers from multiple lenders before accepting.

Sign documents; lender funds the dealer directly. You sign the loan or lease agreement and personal guarantee. The lender wires funds directly to the equipment seller — you never handle the money.

Take delivery and make monthly payments. Equipment is delivered. Monthly payments begin (usually 30 days after funding). Payments are fixed for the life of the loan at the agreed rate.

Title transfers at final payment. At the last payment, the lender releases the lien and title transfers to you. For capital leases, you exercise the $1 buyout. You now own the equipment free and clear.

Loan vs Lease

Types of Equipment Financing

Type	Ownership	Section 179	Monthly Payment	Best For
Equipment Loan	You own from day 1	Full deduction eligible	Moderate	Long-life equipment; building equity
Capital Lease ($1 Buyout)	$1 buyout at end	Full deduction eligible	Slightly higher than loan	Equipment you intend to own; structured as lease for accounting
Operating/FMV Lease	Return or buy at FMV at end	Not eligible	Lower (20–30% less)	Technology that becomes obsolete; fleet upgrades every 3–4 years
Sale-Leaseback	You sell then lease back	Lease payments deductible	Based on equipment value	Freeing equity in equipment you already own

Equipment Loan

The most common structure. You own the equipment from day one. The lender files a UCC-1 lien giving them a security interest until the loan is paid. You make fixed monthly payments over 36–84 months. At payoff, the lien is released and you own the equipment free and clear. Full Section 179 deduction available in year of purchase.

Capital Lease ($1 Buyout)

Structured as a lease but functions identically to a loan. At the end of the term, you exercise a $1 buyout option. Monthly payments are typically slightly higher than a comparable loan. Full Section 179 deduction eligible. Some businesses prefer this structure for accounting or tax reasons. See our detailed equipment financing vs lease guide.

FMV (Fair Market Value) / Operating Lease

You lease the equipment and at the end of the term, you can return it, renew the lease, or purchase at its then-current fair market value. Monthly payments are lower (20–30%) because you're only financing the depreciation portion, not the full value. NOT eligible for Section 179 deduction — you can deduct monthly payments as an operating expense. Best for technology equipment (medical imaging, computers, CNC lathes with new software dependencies) that becomes obsolete in 3–5 years. Learn more at our lease vs loan comparison.

Sale-Leaseback

You own equipment free and clear. You sell it to a lender at current market value (typically 70–85% of appraised value), then immediately lease it back at a fixed monthly payment. You receive a cash lump sum and continue using the equipment. Example: You own a Cat 320 worth $185,000. You sell it to a lender for $150,000, lease it back at $2,800/month for 60 months. You get $150,000 in working capital while retaining use of the machine. Total payments: $168,000. Effective borrowing cost: approximately 7.5% APR.

Rate Factors

How Interest Rates Are Determined

Equipment financing rates are not arbitrary. Lenders use a risk-based pricing model that evaluates multiple factors simultaneously.

Factor	Lower Rate	Higher Rate
Personal Credit Score	720+ (best rates)	Under 620 (+3–5%)
Time in Business	5+ years (best rates)	Under 2 years (+1–3%)
Annual Revenue	3x+ annual debt service	Under 1.5x debt service
Equipment Brand/Collateral	Cat, Komatsu, John Deere, Haas	Obscure/Chinese brands
Loan Term	Shorter terms (36–48 mo)	Longer terms (72–84 mo)
Loan Size	$250K+ (better rate leverage)	Under $25K (smaller loans)

Review the detailed credit requirements guide to understand exactly what scores and revenue levels unlock better rates.

Default & Collateral

Collateral and What Happens If You Default

Understanding how collateral and default work helps you make smarter financing decisions — and understand what you're signing.

The equipment is the primary collateral in equipment financing. The lender files a UCC-1 financing statement, giving them a perfected security interest in that specific piece of equipment. A personal guarantee is also typically required, meaning the business owner personally guarantees the debt.

If you default, the sequence is:

Lender sends a written default notice (typically after 30–60 days past due)
A cure period may be available (opportunity to pay past-due amounts)
If uncured, lender engages a recovery company for repossession (typically after 90+ days past due)
Equipment is sold at auction or private sale
If sale proceeds don't cover remaining balance, lender may pursue a deficiency judgment
With personal guarantee, the lender can pursue your personal assets

This is why equipment brand matters significantly. Cat and Komatsu excavators sell at predictable auction prices within days. An obscure brand may take months to sell at a fraction of the original value — creating larger deficiency exposure for everyone involved.

If you're struggling financially, contact your lender before missing payments. Most lenders prefer restructuring, deferral, or modification to the cost and complexity of repossession.

Lender Types

OEM Financing vs Banks vs Equipment Finance Companies

Lender Type	Examples	Rates	Speed	Brand Restriction
OEM Financing	equipment lenders, equipment lenders, Haas Financial	Best (promo rates available)	Fast (same-day for dealers)	Yes — brand only
Banks	Wells Fargo, Bank of America, local/regional banks	Excellent (prime-based)	Slow (1–4 weeks)	No
Equipment Finance Co.	DLL, Beacon Funding, Stearns Bank	Good (slightly above bank)	Fast (1–3 days)	No
Alternative/Fintech	TimePayment, Balboa Capital, Crest Capital	Highest (factor rates possible)	Fastest (hours)	No

For new equipment, always get a quote from the OEM financing program alongside at least one equipment finance company. For used equipment or multi-brand purchases, equipment finance companies and banks provide the most flexibility.

Related Guides

Go Deeper on Equipment Financing

Loan vs Lease

When to finance vs lease equipment

New vs Used Equipment

Rate differences and age limits

Section 179 Tax Deduction

Deduct the full purchase price in Year 1

Credit Requirements

What score do you need?

Startup Financing

SBA programs and OEM options

Down Payment Guide

How much you actually need

Lease vs Loan

Detailed comparison with examples

Construction Equipment

Excavators, cranes, bulldozers

Equipment Financing

0% Down Available on All Brands

Axiant Partners finances all major equipment brands — Caterpillar, Komatsu, John Deere, XCMG, SANY, and 200+ more. 0% down available for qualified borrowers regardless of brand. Terms 36–84 months.

✓ 0% down for qualified borrowers
✓ All brands including XCMG and SANY
✓ New and used equipment
✓ Startups and established businesses
✓ Decision in 24–48 hours

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Common Questions

Equipment Financing — FAQ

How long does equipment financing approval take?

Equipment financing approval typically takes 1–3 business days with equipment-specific lenders and finance companies. Traditional banks may take 1–2 weeks or longer. OEM programs (equipment lenders, equipment lenders) are often the fastest — sometimes same-day for established customers. Alternative and fintech lenders can approve in hours but charge significantly higher rates. To speed approval, have your business tax returns, bank statements, driver's license, and equipment invoice ready before you apply.

What is a personal guarantee on an equipment loan?

A personal guarantee means that if the business defaults on the equipment loan, the lender can pursue the owner's personal assets — bank accounts, personal real estate, personal savings — to recover the debt. Most equipment lenders require a personal guarantee for businesses under 5 years old and for loans under $500,000–$1,000,000. The lender would first repossess and sell the equipment, and if the sale doesn't cover the remaining balance (deficiency), they can pursue the guarantor personally.

Can I finance equipment with no down payment?

Yes, zero-down equipment financing is available for qualified buyers. Requirements typically include 680+ personal credit, 2+ years in business, strong bank statements, and equipment with excellent collateral value (Cat, Komatsu, John Deere, Haas). OEM financing programs periodically offer 0% down with promotional APR on new equipment. For new businesses or lower credit scores, expect to put 15–30% down. See our down payment guide for full details.

What is a balloon payment on equipment financing?

A balloon payment is a large lump-sum payment due at the end of a loan term, after making smaller regular payments. Monthly payments are calculated on a longer amortization than the actual term, leaving a large remaining balance due at maturity. Balloon payments lower monthly payments but require refinancing, selling the equipment, or paying the lump sum at maturity. Always read loan documents carefully to identify any balloon payment obligation before signing.

How does equipment collateral work in equipment financing?

The equipment itself is pledged as collateral. The lender files a UCC-1 financing statement with the state, giving them a perfected security interest in that specific piece of equipment. The lender's comfort with the collateral depends on the equipment's brand, age, condition, and resale market. A 2022 Cat 320 excavator is excellent collateral — it sells quickly at predictable auction prices. An obscure 2010 Chinese brand with no parts network is poor collateral and commands worse loan terms.

What is the difference between a factor rate and APR?

APR (Annual Percentage Rate) is the annualized cost of borrowing that decreases as principal is paid down. A factor rate is a fixed multiplier used by alternative lenders — a 1.25 factor rate on $100,000 means you repay $125,000 total regardless of how quickly you pay it off. Factor rates cannot be directly compared to APR — a 1.25 factor rate on a 12-month term equates to roughly 40–50% APR. Always ask for the equivalent APR when comparing offers from different lenders.

What happens if I default on equipment financing?

If you miss payments, the lender sends a default notice after 30–60 days. After 90+ days, repossession is initiated — a recovery agent collects the equipment. The lender sells the equipment at auction. If sale proceeds don't cover the remaining loan balance, the lender can pursue a deficiency judgment against you personally (if you signed a personal guarantee). If you're struggling, contact the lender proactively — most prefer restructuring to the cost and complexity of repossession.

Can I finance equipment for a business I just started?

Yes, startups can finance equipment. For a new business (under 1 year), lenders typically require 680+ personal credit, 20–30% down payment, and equipment with strong collateral value. Your personal credit becomes the primary underwriting factor. OEM programs and SBA 7(a) loans are most accessible for startups. Starting with used equipment at a lower price dramatically improves approval odds. See our startup equipment financing guide for complete details.

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Informational resource only. Not an offer of credit or guarantee of approval. Terms vary by lender and equipment type.