What is equipment financing?
Equipment financing is a business funding option structured to acquire physical assets used in operations. Lenders provide funds to buy or lease equipment, and the equipment itself often serves as collateral. Terms and structures vary by lender and by whether the transaction is a loan, lease, or rental agreement.
Common uses for eCommerce businesses
- Fulfillment and warehousing: Financing for shelving, conveyors, sortation systems, and automated packing equipment used in order fulfillment centers.
- Packaging and labeling: Machines that print, fold, seal, or label products and packages to meet shipping and compliance needs.
- Computers and IT infrastructure: Servers, workstations, barcode scanners, and network hardware required to manage inventory and sales platforms.
- Point-of-sale and retail hardware: If the eCommerce business also operates pop-up shops or stores, POS terminals and card readers can be financed.
- Delivery vehicles and logistics equipment: Vans, trucks, or last-mile vehicles acquired to support fulfillment and delivery operations.
- Production equipment: Machinery used to manufacture or customize products sold on eCommerce channels.
Typical eligibility considerations
Eligibility depends on lender criteria and the specific product. Common factors lenders review include:
- Business history: Time in business and operational stability are often considered.
- Revenue and cash flow: Recent sales and cash flow figures help assess repayment capacity.
- Credit profile: Business and sometimes personal credit histories are commonly evaluated.
- Equipment type and condition: New vs. used equipment and its resale value can influence terms.
- Collateral and lien position: The financed equipment is typically secured; other collateral may be required.
- Documentation: Invoices, equipment specifications, and financial statements are frequently requested.
- Industry factors: Lenders may consider industry risk and the intended use of the equipment.
Key risks and considerations
- Depreciation and obsolescence: Technology-heavy equipment can lose value quickly, potentially leaving you with outdated assets before the financing term ends.
- Maintenance and operating costs: Repairs, upkeep, and downtime affect total ownership cost and cash flow.
- Secured interest and repossession risk: Since equipment commonly serves as collateral, missed payments can lead to repossession.
- Mismatch with business cycles: Fixed repayment schedules may not align with seasonal revenue fluctuations typical in eCommerce.
- Hidden or additional fees: Origination, documentation, or end-of-term charges can increase the effective cost; contract terms should be reviewed carefully.
- Tax and accounting treatment: Leasing versus purchasing can have different tax and balance-sheet implications; consult a tax professional for specifics.
Alternative financing options
Equipment financing is one of several ways to fund business assets. Alternatives include:
- Equipment leasing: Operational or capital leases that transfer different levels of ownership and accounting treatment.
- Lines of credit: Revolving credit for short-term equipment purchases or working capital needs.
- Invoice financing or factoring: Access to cash tied up in receivables to fund operations or purchases.
- Vendor financing: Manufacturer or supplier programs that offer payment plans tied to equipment purchases.
- Business credit cards: Short-term funding for smaller purchases or deposits; typically used for low-cost items.
- SBA or traditional loans: Bank or government-backed loans that can be used for equipment purchase among other needs.
Explore financing options
The following link provides general information about available financing products.
This content is for informational purposes only and does not constitute financial advice or a loan offer. Loan eligibility, terms, and approval are determined by lenders based on individual review.
Part of our complete guide to equipment financing — compare programs, costs and lender requirements across every industry.