What Are Equipment Loans?

Howard Abrahams
Nov 17, 2025
2 min read

Equipment loans are business loans designed to help companies purchase new or used equipment, ranging from vehicles and heavy machinery to computers and specialized tools. The purchased equipment usually serves as collateral for the loan, making it easier for small businesses to qualify and often resulting in lower down payments and interest rates than traditional unsecured loans.

How Do Equipment Loans Work?

Standard term loans - the business pays down the principal and interest over time, ultimately owning the equipment outright.
Equipment leasing - offering flexibility to upgrade equipment at the end of your lease or buy it outright, especially useful for rapidly advancing tech.

Key Benefits for Small Businesses

Preserved Cash Flow: Upfront cash-outlay can be minimal or nonexistent
Fast Funding: Lenders offer rapid approval and funding.
Flexible Repayment: Fixed monthly payments enhance cash-flow predictability, and loans can be structured over several years to match the life of the equipment.
Tax Advantages: A common structure for equipment loans that maximizes tax benefits is using Section 179 of the IRS tax code, allowing your business to immediately write off the full purchase price of qualifying equipment—even if the equipment was financed and only a single loan payment has been made in the tax year.

Section 179 Deduction Structure Example

Deduct up to 100% of the purchase price in the year the equipment is placed in service, as long as it’s below the 2025 deduction limit ($2,500,000).

You may still finance the equipment; you do not need to pay off the loan to claim the full deduction.

Calculation:

Equipment cost: $120,000

Section 179 deduction (fully claimed in 2025): $120,000

Tax savings: $120,000 × 32% (tax rate) = $38,400

Key Points About the Structure

You do not need to pay the equipment loan in full within the year to claim this deduction—the total amount is deductible as long as the equipment is in service.

This structure can work for both new and used equipment, as well as eligible software or vehicles over 6,000 lbs gross vehicle weight.

The deduction is limited (for 2025, up to $2,500,000 per year) and begins to phase out if over $4,000,000 in purchases are made in one year.

By using this structure, a small business can make significant equipment purchases, claim substantial tax savings upfront, and reduce the effective cost of new assets. Always consult with a tax advisor or CPA to ensure eligibility and optimal tax strategy in your particular case.

For many small businesses, equipment loans are the fastest, easiest, and most cost-effective way to acquire the physical assets that power growth and efficiency. Whether you’re upgrading outdated machinery or expanding your operations, these loans offer a tried-and-true method to invest in your business without putting your cash flow at risk.