The New Business Owner’s Guide to Equipment Leasing

Alternative Lending Method: Equipment Financing

Did you know one of the best alternative lending methods is equipment financing? With many banks shrinking away from lending to businesses. Equipment financing companies are still eagerly working with business owners to help them obtain the financing they need to obtain the equipment they need to function.

Whether you are a well-established business or a start-up business, there are equipment financing companies that can get you financed!

Equipment Leasing vs Equipment Loans

With an equipment lease, you are renting to possibly own the equipment. Most equipment leases issued in 2025 were lease to own. Meaning the business owner choose an option that would allow him to own the equipment after a set amount of time and for a either a percentage of the value of the equipment or some are set up that at the end of the lease, the business owner pays $1 and owns the equipment.

You also have the option to turn it in at the end of the lease. Or in some cases you can trade it in for something new.

Documentation required: an application, 3 months business bank statements, if you are a startup you can send 3 months personal bank statements, an invoice of the equipment you want to purchase and if you are a startup you should submit an executive summary

Approval process: Equipment leasing tends to be easier and fasterto get approved for than equipment loans. The credit requirements tend to be more flexible. I’ve had businesses with a 590 credit score approved. Its also open to day 1 startups. To get started, you tend to only need an application and 2 payments down. Turnaround time can be as short as 1 day for deals under $50,000.

Tax treatment: In most cases, lease payments are considered an operating expense, meaning the full payment amount can typically be deducted in the year it is incurred, rather than being depreciated over time. This creates a consistent, predictable tax deduction with each payment. Depending on the lease structure, businesses may also avoid carrying the equipment as a liability on the balance sheet, which can improve financial ratios. For companies that prioritize flexibility and immediate write-offs over long-term ownership, leasing can be an effective strategy for both managing expenses and optimizing tax liability.

Equipment Loan

With an equipment loan you are purchasing it with the express intent to own it. You will generally need to be able to put 20-30% down for your down payment.

Documentation required: everything listed for an equipment lease along with 2 – 3 years business (and sometimes personal) tax returns, P&L, and balance sheet.

Approval process: Since these are generally financed by banks the credit requirements tend to be higher. If you have below a 650 credit score you will find that you will have trouble getting approved. Start ups are generally not approved, unless they have a large downpayment or security. Timeline: Underwriting can take 1-2 weeks, final approval and funding can take another 2 weeks.

Tax treatment: Equipment loans can offer meaningful tax advantages that improve overall cash flow for a business. In many cases, the interest paid on the loan is fully tax-deductible as a business expense, reducing taxable income. Additionally, businesses may be able to take advantage of Section 179 of the IRS tax code, which allows for the immediate expensing of qualifying equipment rather than depreciating it over several years. Bonus depreciation may also apply, enabling even larger upfront deductions in the year the equipment is placed into service. These combined benefits can significantly lower the effective cost of acquiring equipment, making financing a strategic tool not just for preserving capital, but also for optimizing tax liability.

Know the financiers’ qualifications

Not all equipment financing companies are the same. Make sure you take the time to read their website and see if your business matches the type of businesses they finance.

Know Your Credit Score

This is especially true if you have “special circumstances” like bad credit or you are a new business. Don’t waste your time talking to lenders that do not work with your type of credit. And don’t just fill out an application and “hope for the best”.

Take a few minutes to actually look at your credit before you apply. Know where you stand, what your score is, and if there are any obvious issues that could raise red flags—like high balances, recent late payments, or a lot of inquiries. Lenders are going to look at this right away, and you don’t want to be caught off guard.

Once you know your numbers, you can target the right type of financing. Some lenders are built for strong credit profiles, while others specialize in working with startups or challenged credit. Going in with that knowledge saves you time, avoids unnecessary credit pulls, and puts you in a better position to get approved.

It also helps you set realistic expectations. If your score isn’t where you want it to be, you may need to adjust the loan amount, put more money down, or look at different equipment options. The more prepared you are going in, the smoother the process will be—and the better your chances of getting funded.

Hard credit pull vs Soft credit Pull

If you fill out an application for a lender that pulls a hard credit report, you are damaging your credit each time you apply. We use a soft credit inquiry so that it has no impact on our client’s credit score.

What causes confusion is that not all hard pulls are treated the same. If you’re applying for the same type of financing within a short period of time, credit bureaus will often group those inquiries together and treat them as one. This is meant to allow you to shop for the best rate without being heavily penalized.

But that only works when you’re being intentional. When you go through certain platforms that send your application out to multiple lenders at once, it’s not controlled rate shopping. Your credit can be pulled by several different lenders, sometimes across different types of financing, and those inquiries can stack up quickly. That’s when it can start to hurt your score and make you look risky.

A soft pull avoids all of that. It allows a lender to review your credit, see what you qualify for, and give you real options without impacting your score. Then, if you decide to move forward, a hard pull is done once, at the right time—not multiple times while you’re still trying to figure things out.

The key is to stay in control of the process. Know who is pulling your credit, why they’re pulling it, and make sure it’s being done in a way that actually helps you—not hurts you.

Get To Know Your Potential Funder

Follow up with a call or email for details. Some banks say they will finance start-up businesses, but when they mean a business that 6 months or longer time in business. Or they say they work with credit problems. But they may have a minimum credit score of 640! Many people don’t really consider themselves as having a “credit problem” at a 640, but there are some banks that will turn you down.

Make sure you have a clear understanding of their requirements for approval BEFORE you submit your application!

Here at Leasefunders.com. We can work with a day 1 startup and bad credit business owners! Call us for more information 1-888-308-7160

Check credit requirements

Some equipment financing companies grant approval only to businesses with good personal credit. Do NOT expect a lender to look ONLY at your business credit for approval!

Before an equipment financing company will consider doing a “Corp Only” (no personal guarantee) loan. They like to see:

3 – 5 years time in business
Comparable business credit
And while they will not require a personal guarantee. Many will still pull your personal credit to make sure you have good personal credit.

So expect your personal credit to play a big part in the approval process. Take the time to review your credit and fix any inaccurate information.

How to get approved for equipment financing with bad credit

If you have bad personal credit and no time to fix it before you apply. You want to do a few things to help you get approved:

Make sure the company you work with can help someone with credit problems. Call or email them and explain your situation before you fill out the application
Ask them if you can use a co-signer. Many banks will allow you to use a co-signer even if they are not a part of the business
Do you have additional collateral? You can offer to secure the loan with an additional piece of equipment or for larger leases, real estate. We have helped many bad credit business owners using this method.
Do you have a contract or business deal that will make repayment easy? In some cases, we have been able to make the deal stronger for the lender by showing them how the payment will be easily made.
Be ready to provide 3 months of business / personal bank statements and any other financial information that will show you have liquid funds available.

Make your business stand out from the rest.

Lenders are being cautious right now. As the nation comes out of quarantine, they are looking for quite a bit more information than what they have in the past. So make your business stand out!

Have an executive summary available for the lender to review. An executive summary is basically a one or 2 page summary of your business plan. Pay careful attention to your financial projections. It’s a big red flag if your financial projections are unrealistic.

Emphasize how your business will / is making money. Lenders want to know how Covid 19 has affected your business. Be proactive and provide them with the answers before they ask!