Ask two business owners what they pay each month for the same model of excavator, and you will probably get two different answers. That is not a sign that one of them was overcharged. An equipment payment is built from several inputs, and two buyers of identical equipment can differ on almost every one.
This post goes through the things that move an equipment payment, roughly in the order they matter, and what you can do about each. It does not quote rates, because a rate without the rest of the deal tells you very little. What it will do is help you read a quote, compare two, and ask the questions that get you a better one.
1. The amount you finance
The starting point is the amount being financed. That is the invoice total, not the sticker price on the brochure, and it can include more than the machine:
- Freight and rigging to get it to you and into position
- Installation, electrical work and commissioning
- Attachments, tooling and software
- Training for your staff and a support contract
Folding these soft costs into the agreement raises the amount financed, and so the payment, but it often makes sense. Paying them in cash takes money out of working capital at exactly the moment you are trying to get a new machine earning. At American Capital Group the minimum transaction is $10,000, and one agreement can cover several machines from one vendor or several.
2. The term
Terms on our agreements run from 18 to 60 months. The trade is simple: a longer term means a lower monthly payment and a higher total paid; a shorter term does the reverse.
The useful question is not which term is cheapest by either measure. It is which payment the equipment can carry out of what it earns. Two rules of thumb:
- Do not outlive the equipment. A term that runs past the machine’s working life means paying for something that has stopped earning.
- Do not crowd it in too fast. A term much shorter than the working life squeezes the whole cost into the years when the machine is only starting to pay for itself.
If the equipment is bought for one contract, the length of the contract is often a better guide than the equipment.
3. The credit tier
Credit rarely decides on its own whether a deal happens. More often, it decides the tier the deal is written at, and the tier moves the payment.
Lenders look at the owners’ personal credit, the business’s credit file, and the payment history on similar debt. A strong file earns a better tier; a thinner one may still be approved, with a payment that reflects the extra risk. If there is something on your report that needs explaining, explain it up front. A late payment with a reason is easier to work with than one without.
Worried about the credit check itself? We use a soft pull that does not affect your score. The details are in Does applying for equipment financing hurt my credit?
4. Time in business
How long the business has been established sits next to credit in every decision. A business with twelve years of history and a day-one startup can buy the same machine and be quoted very differently.
That does not mean a new business is shut out. We have a startup program with no minimum time in business, where the owner’s credit carries more of the weight. Expect the structure to reflect the shorter track record.
5. The equipment itself
The equipment is the collateral, so what it is matters. A machine with a deep second-hand market behind it, such as construction equipment, trucks or common machine tools, supports a different structure than highly specialised equipment that would be hard to resell.
New or used matters too. Used equipment is financed every day, and it can lower the amount financed considerably. The structure may differ, because the machine has less working life left.
6. The structure of the agreement
What you are holding at the end changes what you pay along the way:
- A fair market value lease usually has the lowest payment, because you are paying for use rather than ownership. At the end you return the equipment, buy it at what it is then worth, or extend.
- A $1 buyout lease or an equipment finance agreement costs more each month, because every payment goes toward owning the machine.
If the lowest monthly figure is what matters most and you expect to upgrade, an FMV lease may be the answer. If you know you will keep the equipment for years, paying toward ownership is often the better deal overall. Our post on lease vs. loan vs. EFA works through an example.
7. The shape of the payment schedule
Not every business earns in twelve equal months, and the schedule does not have to pretend otherwise:
- Seasonal schedules pay more in the busy months and less in the quiet ones.
- Step-up schedules start lower and rise as new equipment settles into full work.
- 90 days deferred lets the machine run before the first regular payment is due.
Each shape prices a little differently, but the right one can make a payment far easier to carry. Tell us about your slow months before the documents are drawn, because changing the schedule afterwards means new paperwork.
What you pay before the equipment arrives
The monthly payment is only part of the picture. With American Capital Group there is no down payment: two advance payments are typically due when you sign, and that is the whole of what you pay up front. A bank loan on the same machine often asks for a down payment, which can leave two businesses with similar monthly figures in very different cash positions in month one.
How to bring your payment down
If the first number you see is higher than you hoped, these are the levers, in rough order of how much they move:
- Lengthen the term, as long as it still ends within the machine’s working life.
- Choose an FMV lease if you do not need to own the equipment at the end.
- Use a seasonal or step-up schedule to lower the payment in the months that matter.
- Consider used equipment, which can lower the amount financed.
- Clean up your credit file before you apply, and explain anything unusual up front.
What not to do is chase the lowest monthly number at any cost. A payment that looks small because the term runs well past the equipment’s useful life is not a bargain.
How to compare two quotes
When quotes come back from more than one lender, line them up on the same basis:
- The same amount financed. Does each quote include freight and installation, or only the machine?
- The same term and structure. A 60-month FMV lease and a 36-month EFA are not comparable on monthly payment alone.
- The cash at signing. A down payment, advance payments, documentation fees: ask for all of it in writing.
- The end of the term. What will you own, and what would it cost to keep the equipment?
A quote you understand is worth more than a lower one you do not.
Get a real number
Our payment estimator gives you a rough monthly figure from an equipment cost and a term. It cannot know your credit tier or the structure you will choose, so treat it as a starting point. For a real number, request a free quote: tell us what the equipment is and roughly what it costs, and a specialist will come back with options built around your business. A quote involves no hard credit pull and no obligation.
Prefer to talk? Call (949) 822-3017.
This post is general information, not financial or tax advice.
Frequently asked questions
What determines the monthly payment on equipment financing?
Mainly the amount financed, the term, the credit tier the deal is approved at, how long the business has been established, the equipment itself, the structure of the agreement and the shape of the payment schedule. The first two you control directly; the rest are part of the conversation with the lender.
Does a longer term lower my equipment payment?
Yes, a longer term lowers the monthly payment, but it raises the total you pay over the life of the agreement. The best term is usually the one where the payment fits comfortably inside what the equipment earns, without running past the machine's useful life.
Why did I get a different quote than someone else on the same equipment?
Because a quote prices the business as well as the machine. Time in business, credit tier, the structure chosen and the payment schedule can all differ between two buyers of identical equipment, and each one moves the number.
Can I lower my payment without a longer term?
Often, yes. A fair market value lease usually has a lower payment than a $1 buyout lease or an equipment finance agreement on the same machine, and a seasonal or step-up schedule can lower the payment in the months when cash is tight.
Can freight and installation be included in my equipment payment?
Usually. With American Capital Group, freight, rigging, installation, training and support can be written into the same agreement, so they become part of the monthly payment instead of a separate bill.