Equipment Financing Calculator
Created by: Daniel Hayes
Last updated:
Calculate and compare equipment financing options for your business including loan vs lease analysis, monthly payments, total costs, and tax implications. Make informed decisions about equipment acquisition strategies.
What is Equipment Financing?
Equipment financing is a type of business loan specifically designed to help companies purchase machinery, vehicles, technology, and other essential business equipment. The equipment itself typically serves as collateral for the loan, making it easier to qualify for financing compared to unsecured business loans.
Equipment financing options include traditional loans, leases, and lease-to-own arrangements. Each option has different implications for cash flow, tax benefits, and equipment ownership. Understanding these differences helps businesses make informed decisions about equipment acquisition strategies.
Equipment Financing Calculations
Monthly Payment (Loan)
Payment = P × [r(1+r)^n] / [(1+r)^n - 1]
Where P = Principal, r = Monthly rate, n = Number of payments
Total Cost Comparison
Total Cost = Down Payment + (Monthly Payment × Term) + Fees
How to Calculate Equipment Financing: Example
Let's compare financing options for a $100,000 piece of manufacturing equipment:
- Equipment cost: $100,000
- Down payment: 20% ($20,000)
- Loan amount: $80,000
- Interest rate: 6% annual (0.5% monthly)
- Term: 5 years (60 months)
Calculation:
- Monthly payment = $80,000 × [0.005(1.005)^60] / [(1.005)^60 - 1] = $1,547
- Total payments = $1,547 × 60 = $92,820
- Total cost = $20,000 + $92,820 = $112,820
- Total interest = $112,820 - $100,000 = $12,820
Common Applications
- Manufacturing Equipment: Machinery, production lines, and industrial equipment
- Transportation: Commercial vehicles, trucks, and delivery fleets
- Technology: Computer systems, software, and IT infrastructure
- Medical Equipment: Diagnostic machines, treatment devices, and lab equipment
- Construction: Heavy machinery, tools, and specialized equipment
- Restaurant Equipment: Kitchen appliances, POS systems, and commercial furniture
Frequently Asked Questions
Should I lease or buy business equipment?
Buying is better for long-term use and ownership, while leasing offers lower upfront costs and easier upgrades. Consider equipment lifespan, technology changes, tax implications, and cash flow needs when deciding between lease and purchase options.
What are the tax benefits of equipment financing?
Equipment purchases may qualify for Section 179 deduction (up to $1.16M in 2024) or bonus depreciation. Lease payments are typically fully deductible as business expenses. Consult a tax professional for specific advice on your situation.
What credit score is needed for equipment financing?
Most lenders require a minimum credit score of 650-680 for equipment financing. Strong business credit (80+ score) and solid cash flow can help secure better rates. Equipment serves as collateral, making approval easier than unsecured loans.
Sources and References
- Small Business Administration (SBA), "Equipment Financing Guide", Business Loan Resources
- Equipment Leasing and Finance Association (ELFA), "Industry Statistics and Trends", Market Data