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A term loan or equipment finance for the same machine
Both put the machine on your floor. One of them also puts every other asset you own behind the debt, and that is the difference the quotes will not show you.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
One structural fact decides this, and it is not the rate. An equipment funder's security interest attaches to the machine and nothing else — a purchase-money security interest in one identified asset. A general term lender's security interest usually attaches to everything, filed as a blanket lien on a UCC-1 covering all assets now owned and later acquired. Same machine, same money, two completely different claims on your balance sheet.
Everything else follows from that. The equipment funder can advance the full invoice because it knows what the collateral resells for. The term lender needs a down payment because it is lending against your credit and taking a cushion. The equipment funder will not pay for rigging, electrical work or freight, because none of that can be repossessed. The term lender will, because it does not care what the money buys.
Where equipment finance wins
- Equipment finance: $2,447.55 a month, $26,853 of interest, nothing at closing.
- Term loan: $2,457.92 a month on the $96,000 financed, $21,980 of interest, plus $24,000 at closing.
On paper the term loan is $4,873 cheaper over the life of the deal. Now price the lien. Suppose that next year you want a $150,000 line secured on your receivables. With a blanket filing already in place, the receivables lender is in second position on its own collateral and walks away. What you can get instead is an advance against future sales: $150,000 at a factor rate of 1.30 costs $45,000. A receivables line drawn 60% of the year at 11% would have cost about $9,900.
That is a $35,100 swing in one year, against a $4,873 saving on the machine. The term loan was cheaper and the decision was still wrong.
Where the term loan wins
The equipment funder advances 70% of the hard cost only — $64,400. You fund the remaining $55,600 in cash, today, out of working capital. Its payment looks small at $1,313.52 a month, and the quote will be presented that way.
The term lender funds the whole $120,000 over 60 months at 10.5%: $2,579.27 a month, $34,756 of interest, and nothing out of pocket.
If you do not have $55,600 sitting idle, the real comparison is the equipment quote plus whatever the gap money costs. At a 1.32 factor that is another $17,792. The equipment deal that looked cheaper is now the expensive one by a wide margin.
The quotes are not on the same measure
An equipment quote often arrives as a monthly payment or a payment factor per thousand financed. A term loan quote arrives as an interest rate. Those are not comparable and no amount of staring will make them so. Convert both to two numbers before you compare anything:
- Total cash out. Every payment, plus every dollar you bring to closing, plus any documentation, filing or origination fee, plus the end-of-term purchase price if there is one.
- Cash on day one. What leaves your account to get the machine running, including the parts nobody is financing.
A quote that beats the other on total cash out but loses on day one cash is not automatically worse. It depends on what that cash was going to do.
The questions that settle it
- What share of the total project is hardware with a resale market? Get the equipment funder to tell you what it will and will not fund before you sign anything with the vendor. Soft costs are where this deal falls apart.
- Will I need to borrow again before this is repaid? If yes, a blanket filing is expensive in a way no rate sheet shows. Ask the term lender whether it will limit the filing to the machine, and get the answer in the commitment, not on a call.
- Does the cash I would put down have another job inside the term? If it is your buffer, financing 100% and paying more interest is usually the cheaper mistake.
- What happens at the end? An equipment deal written as a lease may have a purchase price at the end that the payment comparison ignores entirely. Ask for the end-of-term options in writing.
What to ask for, and what to refuse
Ask the equipment funder for the funding breakdown by line item on the vendor invoice — what it advances against, and at what percentage. Ask the term lender for the exact collateral description that will appear on the UCC-1, and ask whether it will accept a filing limited to the equipment. Some will; nobody volunteers it.
Ask both for the total of all payments and all fees as a single dollar figure, and for the payoff amount at month 24 and month 36. That last one exposes any precomputed interest and any prepayment penalty faster than reading the clause.
Refuse to compare a payment against a rate. Refuse an equipment quote that will not put in writing which invoice lines it funds. And refuse a blanket filing on a single-asset purchase unless someone has priced what it costs you to have your receivables tied up — because that price is real, and it is usually bigger than the interest you were arguing about.
Where this applies
Related questions
What does this guide cover?
Both put the machine on your floor. One of them also puts every other asset you own behind the debt, and that is the difference the quotes will not show you.
Which funding products does this apply to?
Term Loan, Equipment Financing. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.
Is this specific to construction?
It is written around how a construction business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.
Who writes this?
The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.
How do I know a figure here is right?
Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.
Are the examples real deals?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.
Why do you never say what a typical rate is?
Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.
Is this financial or legal advice?
No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.
Can I reuse this content?
Quote a paragraph with a link back. Do not republish whole articles.