Equipment Financing Guide
Equipment Financing 101: The Terms and the Process, in Plain English
Equipment financing is a loan or lease used to acquire business equipment, vehicles or software, secured by the equipment itself and repaid in fixed monthly payments. Here is every term you will meet along the way, in the order you meet it: the application, the credit decision, what can be financed, the structures, collateral and covenants, rates and terms, the tax deduction, and what happens after you sign. Each definition is followed by how it works at Crest Capital.
Step One
Applying
- Application
- The form a lender uses to decide whether to extend credit. How much it asks for varies: a bank typically wants several years of financial statements and tax returns and takes weeks to answer; a credit card wants little more than a signature.
- At Crest Capital: one simple application covers $10,000 to $500,000, and no financial statements or tax returns are needed up to $250,000. Before applying, you can check your eligibility in about 2 minutes with no personal-credit inquiry and an instant answer.
- Soft credit pull
- A credit check that does not place an inquiry on the applicant’s credit report, as opposed to a hard pull, which does and can lower the score.
- At Crest Capital: the full application uses a soft credit pull, which never places an inquiry on your credit report. Never a hard pull.
Step Two
The Credit Decision
- Approval criteria
- What a lender weighs before saying yes: time in business, payment history, the credit of the business and its owners, cash flow, and the equipment itself. Every lender sets its own lines. The five Cs of credit guide explains the standard framework.
- At Crest Capital: the self-assessment was built for established businesses: 2 or more years under current ownership, bills paid on time, and a personal credit score of 650 or better as the benchmark, with the score one factor among several. Startups and bad-credit financing are not a fit; see Do You Qualify? for the plain-English version of what we look for.
- Time in business
- How long the company has operated under its current ownership. It is the single most important factor for most commercial lenders, because a track record is the best predictor of repayment. The startup guide explains why two years is the common line.
- Credit decision
- The lender’s answer: approved, declined, or approved with conditions such as a different term or amount.
- At Crest Capital: a credit decision within four hours, in most cases.
Step Three
What Can Be Financed
- Equipment, vehicles and software
- The three asset types equipment lenders finance. Many lenders avoid used equipment, private-party sales or software.
- At Crest Capital: equipment, vehicles and software, new and used, including private-party sales. The one exclusion in vehicles is passenger cars for personal use and trucks for transportation companies; business-use cars and SUVs in the company name are financed under the company cars and SUVs program.
- 100% financing
- Financing the whole purchase price with no down payment.
- At Crest Capital: 100% financing is available, and in most cases no down payment is required.
- Soft costs
- The costs around the equipment: sales tax, delivery, installation, training, a maintenance agreement. Because most soft costs cannot be repossessed and resold, many lenders refuse to finance them.
- At Crest Capital: soft costs can be financed too; a full 25% of the loan amount can be soft costs.
Step Four
The Structures
- Equipment finance agreement (EFA)
- The classic equipment loan: the lender pays the seller in full, you own the equipment from day one, and you repay in fixed monthly payments. The lender holds a security interest in the equipment until the last payment, then releases it. Because you own the equipment, you take depreciation and the Section 179 deduction.
- At Crest Capital: the EFA is a fixed-rate agreement whose payment does not move with the market, with no compensating balance and no blanket lien.
- Lease
- An agreement to use the equipment for a term in exchange for payments, with an end-of-term option to buy, renew or return. Who owns the equipment for tax purposes depends on the option: a nominal buyout makes it a conditional sale, so you are treated as the owner; a fair market value option makes it a true lease, so the lessor is. The lease accounting and tax treatment guide covers the tests.
- At Crest Capital: the $1 purchase agreement is the most popular lease, and 10% purchase option, fair market value, guaranteed purchase and operating lease structures are available, along with master agreements, deferred, step-up and seasonal payment plans. See the lease and loan structures page.
- Section 179 qualified financing
- Financing structured so that you own the equipment for tax purposes and can deduct its cost in the year it is placed in service, while making only a few payments that year. The bonus depreciation guide compares the two first-year deductions, and the Section 179 calculator estimates the saving.
Step Five
Collateral, Liens and Covenants
- Collateral
- The asset a borrower pledges to secure the financing. If the borrower stops paying, the lender can take it and sell it.
- Lien
- The lender’s legal claim on the collateral, recorded in a public filing. Think of it as the chain between the collateral and the lender: nothing under a lien can be sold or pledged elsewhere without the lender’s permission.
- Blanket lien
- A lien on every asset the business owns now or acquires later, standard in bank loans. It means a business cannot trade in a truck it has owned for a decade, or finance a new machine on its own collateral, without the bank’s consent. The blanket lien guide explains the consequences.
- At Crest Capital: the equipment being financed is the collateral, and nothing else. No blanket lien.
- Covenants
- Conditions a lender attaches to a loan beyond repayment: keeping a compensating balance on deposit at the bank, requalifying for the loan each year, a bar on new debt without consent, or the right to call the whole loan. Each one reduces the lender’s risk and the borrower’s freedom.
- At Crest Capital: no compensating balance, no annual requalification. Make the payments and the agreement runs to its end.
Step Six
Rates and Terms
- Rate
- The cost of the money, set from the lender’s own cost of funds plus a margin for risk. The conditions attached to a loan, such as a blanket lien, a compensating balance or annual requalification, shift risk to the borrower and are part of what the loan costs, so compare agreements, not only rates. The rates guide covers what moves a rate.
- Fixed rate
- A rate set at signing that does not change for the life of the agreement, so every payment is known in advance.
- At Crest Capital: rates are fixed for the full term and never adjust. For a payment estimate in seconds, use the payment calculator.
- Term
- The length of the agreement in months. Longer terms lower the payment and raise the total cost; the right term usually tracks how long the equipment will earn its keep.
- At Crest Capital: terms typically run from 24 to 60 months, with terms up to 84 months available on larger transactions for businesses with excellent credit.
- Early payoff
- Repaying the balance before the end of the term. Some lenders charge a penalty.
- At Crest Capital: early payoff is allowed, with minimal or no prepayment penalty. One candid note: because the financing cost is fixed at signing, paying off early gives no advantage.
Step Seven
Signing and Funding
- Documentation
- The finance agreement and its schedules: the equipment description, the payment amount and term, the security interest, and your signature.
- At Crest Capital: after the credit decision, you send us the seller’s invoice, we send the finance agreement, and you review, sign and return it. In most cases this can all be done the same day. The signing guide walks through it.
- Funding
- The lender paying the seller. From this point the equipment is yours to put to work and the monthly payments begin.
- At Crest Capital: Crest pays the seller directly, including tax, delivery and setup. The whole process is laid out on the six-step process page.
If You Sell Equipment
Vendor Programs
- Vendor program
- An arrangement under which an equipment seller offers financing to its customers through a lender. The seller makes the sale and is paid in full at funding; the lender handles the credit, the documents and the payments. A monthly payment on the quote closes sales a cash price loses.
- At Crest Capital: the program is free to the seller, enrollment is online, and customers get payment options under the seller’s name. See how the dealer program works.
Common Questions About Equipment Financing
A loan or lease used to acquire business equipment, vehicles or software, secured by the equipment itself and repaid in fixed monthly payments. Under an equipment finance agreement you own the equipment from day one; under a lease, ownership depends on the end-of-term option.
Not at Crest Capital for transactions under $250,000: one simple online application is all that is needed. The application covers $10,000 to $500,000 in total, with larger transactions available by arrangement.
Under an equipment finance agreement you own the equipment and the lender holds a security interest until the last payment. Under a lease you use the equipment for a term and then buy it, renew or return it; a $1 buyout lease ends in ownership for a nominal amount, while a fair market value lease leaves ownership with the lessor.
At Crest Capital, yes. Tax, delivery, installation and similar costs can be included, and a full 25% of the loan amount can be soft costs.
Checking your eligibility involves no personal-credit inquiry, and the full application uses a soft credit pull, which never places an inquiry on your credit report. Never a hard pull.
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