Equipment Financing — definition
Financing arrangement in which a lender provides funds specifically to purchase machinery or equipment, typically secured by the equipment itself as collateral.
Equipment financing commonly takes the form of a term loan or finance lease structured around the expected useful life and residual value of the equipment. Because the equipment serves as collateral, terms are often more accessible than unsecured corporate borrowing.
Why it matters to industrial buyers
Equipment financing allows buyers to acquire production assets while spreading cost over the asset's productive life, preserving working capital for other operational needs.
Key reference points
Typical tenor
Equipment financing terms are commonly aligned with the asset's useful life, often ranging from 3-10 years for industrial machinery.
Commonly confused with
Working capital facility
Equipment financing funds a specific asset purchase; a working capital facility funds day-to-day operating needs and is typically not tied to a specific asset.
How it is used in practice
A manufacturer arranges equipment financing to purchase a new packaging line, repaying the loan over a seven-year term.
Frequently asked questions
Is a down payment usually required?
Lenders commonly require a down payment or deposit, often in the range of 10-30 percent of equipment cost, though this varies.
What happens if the borrower defaults?
Because the equipment typically secures the loan, lenders commonly have the right to repossess the asset in the event of default.
Go deeper on the platform
Related terms
Vendor Financing
Financing arrangement in which an equipment supplier or its affiliated finance arm extends credit terms directly to the buyer to facilitate the equipment purchase.
Finance Lease
Lease structure that transfers substantially all the risks and rewards of ownership of an asset to the lessee, typically over a term approximating the asset's useful life.
Loan-to-Value (LTV)
Ratio expressing the amount of a loan as a percentage of the appraised value of the asset securing it, used by lenders to assess collateral risk.
Capital Expenditure (CAPEX)
Funds a company commits to acquiring, upgrading or extending the useful life of long-term physical assets such as machinery, buildings or production lines.
Operating Lease
Lease arrangement under which the lessor retains substantially the risks and rewards of ownership, typically covering a period shorter than the asset's full useful life.
Total Cost of Ownership (TCO)
Sum of acquisition, operating, maintenance and disposal costs of an asset over its useful life, used to compare purchase options beyond initial price.
Working Capital Facility
Short-term financing arrangement, often revolving, that provides a company with funds to cover day-to-day operating expenses such as inventory, payroll and receivables.
More in Project & Equipment Financing
Reference content only. Global B2B Group is independent of equipment manufacturers and financing institutions; definitions are provided for education and do not constitute engineering, financial or legal advice.