Profitable businesses run on the right equipment, but purchasing it can throw off your entire budget. If you factor in the upfront costs of equipment while starting or upgrading your business, it might take longer for it to materialize. Therefore, most businesses secure funding for their equipment and repay it over time.

However, securing that financing is a high-stakes guessing game in today’s economy, where interest rates seem to change every week. You must check market shifts, standards, and trends to determine if you’re getting a great deal or a costly burden. 

This guide explains standard equipment financing rates and major trends that impact how much this setting costs you. Keep reading for a fair idea and decide clearly. 

What is Equipment Financing?

Equipment financing is a specialized loan that businesses use to buy the tools, machines, or vehicles when they don’t want to pay for them in full. It’s like buying a large appliance for your home with a payment plan. 

For instance, if you own a catering company and need a $30,000 commercial oven. Spending that much at once will impact your cash flow. That’s when you approach a lender for equipment financing and agree to pay it back with interest over a set time. 

Stats show that nearly 8 in 10 US businesses use some form of financing when acquiring equipment and software. It’s because business equipment is expensive, and tying up your funds in it is risky.

What do Equipment Financing Rates Look Like?

There is no average in equipment financing rates, and they are organized into tiers based on your lender choice and your business’s financial health. Notably, the current overall market range spans from as low as 4% to over 45% Annual Percentage Rate (APR). 

That said, established and creditworthy businesses (they mostly have a personal FICO score of 700 or higher and several years of operation) get the most competitive pricing by banks and SBA loans. Their equipment financing rates stay between 4% to 11% APR  and reflect minimal risk to the lender. 

Then there is the fair credit tier with scores between 600–699 FICO and under two years in business. This tier faces rates starting around 8% and extending up to 18% APR, depending on the equipment being financed. 

Then come businesses that are truly new ventures or are dealing with bad credit (sub-600 FICO). Their equipment financing rates escalate because the risk to the lender is high, so they should expect to pay between 15% to 45%+ APR range. 

What Makes Equipment Financing Rates Go Up or Down?

As mentioned earlier, equipment financing rates depend on multiple factors. The following two factors impact these rates the most:

External Factors

The most dominant force impacting equipment financing rates is the Federal Reserve. When it taps the brakes on the economy to cool inflation, it raises the base cost of money. Consequently, that hike ripples through the entire system, which means that every bank and lender pays more. If that happens, the lender will inevitably charge you more for a business loan. 

Internal Factors

Some internal factors also affect the equipment financing rates a lender asks of you. For instance, your Credit Score (FICO) shows your reliability and your business’s financial reputation. It proves your history of timely payments, and a good score can be your golden ticket to earning a lender’s trust and securing lower rates. 

Then, your time in business also matters because if you’re an established name, it shows that you know that market and can survive in it. While the time in business doesn’t always equate to success, it surely boosts your credibility. 

Trends in Equipment Financing Businesses Should Understand 

The decision to finance new equipment is one of the most critical moves you’ll make all year. But in an unpredictable economic climate, you must pay attention to trends that shape equipment financing charges. They influence whether a bank takes your call or if it’s better to rent equipment instead of owning it. 

The following few trends strongly impact your financial health regarding equipment financing:

High Rates & Credit Tightening

The most immediate challenge is a market squeezed by high interest rates, as this elevated baseline has made traditional banks incredibly risk-averse. They are now only interested in the perfect borrower—and in their view, that’s a company with an immaculate credit (a 700+ FICO score) and several years of established financial history. If you are a high-growth startup or a strong business recovering from a recent credit challenge, you may be automatically rejected by these sources. 

The Rise of Equipment-as-a-Service (EaaS)

There is a fast-growing trend for businesses to move away from owning their equipment. Instead, they prefer to subscribe, as you would for software. This model is called Equipment-as-a-Service (EaaS), and it is expected to grow dramatically by 2030.

This model is gaining ground, particularly for assets that become outdated quickly, like IT hardware and robotics. So instead of putting down a massive investment, you pay a predictable monthly fee for the use of the machine. Meanwhile, the provider handles all the headaches like maintenance, repairs, and scheduled upgrades. So even though this strategy is excellent for cash flow, you never actually own the asset, which limits your control over the equipment.

Volatility in Equipment Values

Your interest rate is influenced by how lenders view the equipment you are buying. Recent market turbulence has caused wild swings in asset values. At the same time, inflation and supply chain issues have pushed the price of new equipment to record highs. Moreover, the resale value of older equipment can drop sharply and unpredictably. 

Therefore, lenders see the equipment as their security (their safety net). And if they predict that your equipment will be difficult to resell or will lose value, they view the loan as riskier. To protect themselves, the lender might offset that risk by charging you a higher interest rate. 

Don’t Tie Up Your Cash, Finance the Machinery 

Cash is your king and your safety net, so don’t let the upfront cost of necessary machinery deplete your vital working capital. 

ROK Financial recognizes that in today’s economy, the biggest challenge is finding smart funding. That’s why, instead of limiting our focus to just perfect credit scores and long business histories, we prioritize your current cash flow and the earning potential of the asset itself. 

So reach out and let us equip you with the right financial structure for your business.

FAQs

Here are some FAQs about equipment financing rates if you still need a little more information. 

Can I pay off my equipment loan early to save on interest?

It depends entirely on the agreement. Some equipment loans include a prepayment penalty or clause that requires you to pay the sum of all remaining payments (not just the principal). So always check the documentation for an early payoff clause.

 What is the benefit of a fixed rate over a variable rate?

A fixed rate is best for budgeting because your monthly payment is locked in and will never change. It’ll protect you if interest rates rise further. On the other hand, a variable rate might start lower, but your payment will fluctuate monthly or quarterly with the Federal Reserve’s benchmark rate.

What if my business cannot make the monthly equipment payment?

The lender may first warn, and if the issue isn’t solved, repossess the equipment. Also, if you signed a personal guarantee, and selling the repossessed equipment doesn’t cover the full remaining balance, the lender can pursue your personal assets for the remaining debt.