Equipment Loan Calculator

Financing business equipment

An equipment loan pays for a specific asset your business needs to operate — an excavator or skid steer for a contractor, a range and walk-in cooler for a restaurant, imaging equipment or dental chairs for a clinic, a planter or combine for a farm — and uses that asset as collateral. Because the lender can repossess and resell the equipment if payments stop, equipment loans can be easier to qualify for than unsecured business credit, and they commonly cover 80% to 100% of the purchase price. Some lenders ask for 10% to 20% down, while others finance the full amount, depending on the borrower's credit and the type of equipment. Once the loan is repaid, the business owns the equipment outright.

Term length follows the equipment's working life. Lenders want the asset to still be worth something as collateral until the last payment, so terms commonly run from about three to ten years. Rates vary widely with the business's credit, time in business, the loan's size and the equipment itself, and for riskier borrowers APRs can reach 30% or higher. For bigger purchases, government-backed programs are worth a look. SBA 7(a) loans can finance equipment for up to 10 years. The SBA 504 program, built for major fixed assets, funds long-term machinery and equipment with a useful remaining life of at least 10 years, offers 10-, 20- and 25-year maturities, and can't be used for working capital or inventory.

Equipment loan or equipment lease?

Leasing is the main alternative, and it comes in two very different forms. With a fair market value (FMV) lease — an operating lease — the leasing company owns the equipment. It typically carries the lowest monthly payment of the common lease types, and at the end you can return the equipment, renew, or buy it at its then-current market value. FMV leases tend to suit equipment you'll use for a short period, often 36 months or less, or technology that goes out of date quickly. A $1 buyout lease, a type of capital lease, is built to transfer ownership: the payments are higher, but at the end you buy the equipment for a nominal $1, so it behaves much like a loan. Leases may not require a down payment, which helps preserve cash. The accounting and tax treatment of a loan, an FMV lease and a $1 buyout lease all differ, so compare the total you'd pay under each and review the treatment with your accountant.

Collateral, liens and guarantees

The collateral structure deserves as much attention as the rate. Equipment lenders typically file a UCC-1 financing statement, a public notice that establishes their claim to the collateral. Ideally that lien is limited to the specific equipment you're financing. Some lenders instead file a blanket lien covering all or substantially all of your business assets, which gives them a claim on far more than the machine and can complicate future borrowing. Many lenders also require a personal guarantee, making the owner personally responsible if the business can't repay. Read the security agreement before you sign, and ask whether a lien limited to the financed equipment is available.

How to use this calculator

Enter the equipment price, plus any delivery, installation or training costs the lender is financing, minus your down payment and trade-in, as the amount financed. Enter the quoted APR and choose a term of two to ten years, or use "Custom" for any number of months. The results show the fixed monthly payment, total interest, payoff date and a downloadable schedule you can share with your bookkeeper. If a lender quotes a lease instead, add up its payments plus any buyout and compare that total with the loan's total of payments.

How it's calculated

The payment uses the standard amortization formula, M = P × r ÷ (1 − (1 + r)⁻ⁿ), where P is the amount financed, r is the APR divided by 12 and n is the number of monthly payments. Interest accrues monthly on the outstanding balance; each payment covers that interest and the rest reduces principal. On an $80,000 loan at 9.25%, about $617 of the first $1,670 payment is interest. The calculator assumes level monthly payments; if your lender offers deferred or step payments, the real schedule will differ, so treat the result as a baseline.

A worked example

A landscaping company buys a used compact excavator package for $88,000 and puts $8,000 down. Financing $80,000 at 9.25% over 5 years costs about $1,670 a month and roughly $20,220 in interest. Over 7 years the payment falls to about $1,297 — $373 a month of breathing room — but interest rises to around $28,970, about $8,750 more. Now check the term against the machine's working life. If the company expects to replace the excavator after five years, the 7-year loan would still carry a balance of about $28,330 at that point, which the trade-in or sale has to cover. On a 10-year term, roughly $49,050 would remain after five years. The monthly savings of a longer term are real, but so is the risk of owing more than the machine is worth when it's time to replace it.

How term length changes the cost

The same $80,000 financed at 9.25% across common equipment terms. Rounded, illustrative figures.

Tips and common mistakes

Make sure the equipment earns its keep: set the monthly payment against the added revenue or cost savings you expect, and use the ROI calculator to test the payback. Get quotes from your bank, the manufacturer or dealer, an SBA lender and an online lender, and compare them on APR rather than on the payment alone. Watch for blanket liens and personal guarantees buried in the paperwork. Don't overlook taxes, but don't guess at them either: Section 179 of the tax code lets many businesses deduct the cost of qualifying equipment in the year it's placed in service, up to annual limits that are adjusted for inflation, and bonus depreciation may also apply — eligibility and the best approach depend on your business, so talk to a tax professional before assuming a deduction will offset the cost. Finally, budget for maintenance, insurance and downtime; a payment that looks affordable can strain cash flow when a machine is in the shop.