Executive summary
Under an equipment loan, the lender takes a security interest in the machine and the loan is repaid over a term generally aligned with the asset's useful economic life, commonly three to ten years depending on equipment type. Because the collateral is tangible and often has an established resale market, lenders can extend financing to buyers who would not otherwise qualify for unsecured corporate credit, though a down payment of a meaningful minority of the purchase price is standard. If the buyer defaults, the lender's primary recourse is repossession and resale of the equipment, which shapes both the down payment requirement and the interest rate relative to the asset's expected resale value.
Where this instrument fits
- Purchase is for standard, resaleable industrial equipment rather than highly bespoke tooling
- Buyer prefers preserving working capital lines for other uses
- Equipment has a well-established secondary market, supporting lender collateral valuation
- Down payment capacity exists but full cash purchase is not preferred
- Buyer's credit profile is stronger for asset-backed than unsecured lending
- Depreciation and tax treatment of ownership favour financed purchase over lease
How the structure typically works
Term loan secured on the equipment
Standard structure; fixed or floating rate repaid over a term tied to asset life.
Balloon payment structure
Lower periodic payments with a larger final payment, matching lumpier cash flow expectations.
Sale-and-leaseback of existing equipment
Buyer sells owned equipment to a financier and leases it back, releasing capital for new investment.
Vendor-arranged equipment loan
The equipment supplier arranges financing through a partner lender as part of the sale process.
Cross-collateralised facility
Multiple equipment items are financed under a single facility, useful for phased plant build-outs.
Comparison table
| Structure | Ownership during term | Best fit |
|---|---|---|
| Standard term loan | Buyer owns, lender holds lien | Standard resaleable equipment |
| Balloon structure | Buyer owns, lender holds lien | Seasonal or ramp-up cash flow |
| Sale-and-leaseback | Financier owns, buyer leases | Releasing capital from owned assets |
| Vendor-arranged loan | Buyer owns, lender holds lien | Single-supplier equipment packages |
Equipment financing structures compared
Risks and governance considerations
- Highly customised or bespoke equipment has weaker resale value, which can raise rates or reduce loan-to-value ratios
- Currency of the loan should generally match the currency of the buyer's revenue to avoid unhedged exposure
- Early repayment penalties vary and should be checked before assuming refinancing flexibility
- Equipment insurance is typically mandatory for the life of the loan
- Loan-to-value ratios are usually set below one hundred percent, requiring a cash or trade-in contribution
What to prepare
- Equipment quotation with specification and expected useful life
- Buyer financial statements for the relevant lending period
- Evidence of intended use and site readiness
- Insurance arrangement for the financed equipment
- Comparison of loan versus lease total cost of ownership
What to measure
Frequently asked questions
How much down payment is typically required?
It varies with equipment type and buyer credit, but a meaningful minority of the purchase price, often in the range of ten to thirty percent, is common.
Is equipment financing available for used machinery?
Yes, though loan-to-value ratios are usually lower and terms shorter than for new equipment, reflecting age and remaining useful life.
How is this different from leasing?
With financing the buyer takes ownership from the outset and builds equity in the asset; with leasing, ownership stays with the lessor for some or all of the term.
Related investment and financing knowledge
Project Financing Knowledge
Leasing Industrial Equipment Instead of Buying Outright
Project Financing Knowledge
How Vendor Financing Works in Equipment Purchases
Project Financing Knowledge
Working Capital Planning Around Capital Projects
CAPEX Intelligence
Equipment Replacement Strategy
Executive Briefing
What Factory Owners Own in Industrial CAPEX
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Global B2B Group does not sell equipment and does not represent lenders, export credit agencies or development banks. This material is published to help industrial organisations plan, structure and prepare capital projects. It is general information for decision-making, not financial, legal or tax advice.