Loan types
Equipment financing, and why the machine is the reason you get approved
The equipment secures the deal, so credit matters less here than anywhere else. A $50,000 machine priced three ways, plus the lease structure that costs you the tax deduction.
Equipment financing is the one product in this market where the thing you are buying does most of the work of getting you approved. The lender takes a lien on the machine. If the deal goes bad, the machine gets picked up and sold. That single fact is why equipment paper prices below almost everything else available to the same borrower, and why a file that cannot get an unsecured loan can often still buy the truck.
Because the collateral carries the risk, underwriting asks a different question. Not just can this business repay, but what is this specific asset worth to somebody else if it has to be sold. A five year old CNC machine with a deep resale market and a five year old piece of restaurant equipment with no resale market get very different answers, even from the same borrower on the same day.
A $50,000 machine, priced three ways
Rate on equipment paper is driven by four things in order: the owner's credit, the age and type of the asset, whether it is titled, and whether the seller is a dealer or a private party. Here is what the same $50,000 purchase looks like across a realistic spread.
At 8 percent over 60 months you pay $1,014 a month and the money costs $10,829. At 12 percent over 48 months you pay $1,317 a month and it costs $13,201. At 24 percent over 36 months, which is a real quote for a used asset and a bruised credit file, you pay $1,962 a month and it costs $20,619. All three of those are approvable deals on the same machine. The gap between the best and the worst is $9,790.
For scale, a $50,000 merchant cash advance at a 1.24 factor also costs roughly $12,000. It just collects that $62,000 total in about six months, which is around $10,300 a month instead of $1,317. When the money is buying a machine, using working capital pricing to do it is a decision that costs you eight times the monthly payment for no reason.
The four structures, and what each one costs you
| Structure | End of term | Who holds title | Typical tax treatment |
|---|---|---|---|
| Equipment finance agreement | You own it, nothing further due | You do, lender holds a lien | You depreciate the asset, subject to current limits |
| $1 buyout lease | You buy it for $1 | Lessor until buyout | Generally treated as a purchase for tax purposes |
| 10 percent purchase option | You pay 10 percent of original cost | Lessor until buyout | Usually treated as a purchase, confirm with your CPA |
| Fair market value lease | Buy at appraised value, renew, or return | Lessor throughout | You deduct the lease payments instead of depreciating |
The fair market value lease usually shows the lowest monthly payment of the four, and that is exactly why it gets sold hardest. What it is really doing is leaving a large unknown balloon at the end and moving the depreciation to the lessor. If your plan was to take a Section 179 deduction on the purchase, an FMV lease can quietly take that off the table. Ask which structure you are signing before you compare payments, and run the answer past your accountant, not your salesperson.
What underwriting actually checks
Most equipment deals under roughly $150,000 are written application only, meaning no tax returns and no financial statements. Above that threshold, expect a full financial package. Either way the checklist is short and it is about the asset as much as about you.
- Owner credit. Roughly 680 and up gets the best tier. The low 600s still funds routinely at a higher rate. Below that it depends heavily on how liquid the equipment is.
- Time in business. Two years is standard for the best pricing. Startups can get equipment done with a larger down payment, often 20 percent, because the collateral is real from day one.
- Age and hours of the asset. Many funders cap used equipment at ten to fifteen years old at maturity. Over the road trucks usually carry mileage caps as well.
- Titled or untitled. Trucks, trailers, and vehicles carry a title and the lender is recorded as lienholder on it. Non titled equipment is perfected with a UCC-1 filing instead. See titled equipment.
- Who is selling it. Dealer sales close fastest. Private party sales require a bill of sale, a lien and title search, sometimes an inspection, and always more time. See title and lien search.
- Insurance. Physical damage coverage naming the lender as loss payee is a condition of funding, not a formality. Slow insurance paperwork delays more equipment closings than credit does.
The mistakes that cost real money
Equipment deals go wrong in predictable ways, and almost all of them are decisions made before anybody looked at a term sheet.
- 01Financing a term longer than the asset lives
A 72 month term on a machine with four good years left leaves you paying for something you already replaced. Match the term to useful life, not to the payment you wish you had.
- 02Paying cash for the machine, then borrowing later
Once you own it outright, pulling that money back out becomes an equipment cash out at a higher rate. Finance the purchase and keep the cash.
- 03Comparing payments instead of totals
Payment, term, down payment, doc fee, and buyout are five separate levers. A quote can win on payment and lose on all four others.
- 04Skipping the private party diligence
A lien that nobody searched for turns your new machine into somebody else's collateral. The search costs very little and it is not optional.
One more thing worth knowing. When a dealer offers you in house financing at a rate that looks too good, the subsidy is usually coming out of the equipment price rather than out of the lender's margin. Ask the dealer for a cash price and a financed price in the same conversation. If the cash price is meaningfully lower, the promotional rate was never free and you should price the deal independently before you decide.
Where it sits against everything else
Equipment paper is faster than a bank term loan and cheaper than everything faster than it, which is an unusual position on this map. That advantage exists only when the proceeds actually buy equipment. The moment you try to use an equipment structure to raise general working capital, you are in a different product with different pricing. If you already own the asset free and clear, that product is equipment cash out rather than equipment finance.
What Exp Capital does with this
Exp Capital Solutions is a broker. We do not fund equipment, hold titles, or set rates. We take the invoice or the private party bill of sale, match the asset and your credit profile to funding partners who actually write that equipment class, and bring back offers with the payment, the term, the down payment, the doc fee, and the end of term buyout stated as dollars. If the smarter structure is a straight term loan or an SBA loan because you are buying several assets at once, we will tell you that even though it is a longer close and a smaller file for us.