Should You Use a Line of Credit or Equipment Financing to Buy Equipment? Comparing Rates, Terms, and Monthly Payments

Key Takeaways

  • Equipment financing works best for major equipment purchases. It comes with longer repayment terms and predictable payments.
  • A line of credit provides you with flexible access to funds and lets you draw what you need, repay it, and reuse the available credit in the future.
  • The best option between a line of credit and equipment financing depends on your cash flow, repayment capacity, the lifespan of your equipment, and the flexibility your business needs. 



Buying new equipment is a big decision for any small business. Maybe you need a new commercial oven, a machine for your shop, a truck fit-out, or a software system that can help you handle more customers. But paying for it upfront could tie up cash you need for payroll, inventory, or unexpected expenses.

That’s where financing can help. Equipment financing and business lines of credit are two common ways to fund a purchase. While both can help fund a major purchase, they differ in how you access the money, repay it, and manage future borrowing.

Equipment financing may provide predictable payments over the long term, while a line of credit offers greater flexibility because you can only draw what you need and reuse the funds later.

So which one makes more sense? It depends on how long you plan to use the equipment, how much you need to borrow, and how much flexibility you want. Here’s what to consider before you choose.

The Mistake Most Owners Make First

The first instinct when buying business equipment is often to pay cash. If the money is already in your account, why borrow?

Because cash does a job beyond paying for equipment.

A large purchase can significantly reduce the working capital available for payroll, inventory, rent, repairs, marketing, and unexpected expenses. For a growing business, having cash available can be just as important as having the equipment itself.

That’s why before writing a check, look at what the payment will do to your operating cash flow. The real question isn’t “Can I afford to pay cash?” It’s “What will paying cash leave me with, and what could that cash be doing for my business?”

What is Each Option?

The easiest way to understand the difference is to think about purpose versus flexibility

Equipment financing is a loan specifically tied to the equipment you’re purchasing. You borrow money to purchase a piece of equipment; the equipment typically serves as collateral, and you repay the loan over a set term. Depending on the lender, financing may cover a significant portion or even the entire equipment purchase.

A business line of credit works more like a financial safety net. It gives you more freedom over how and when you borrow. You have a set credit limit and draw only the amount you need. As you repay the balance, you can generally access the funds again. You can also use the funds for other qualifying business expenses, not just equipment.

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Equipment Financing vs. Line of Credit: Side-by-Side Comparison

Here’s a quick look at how the two options compare:

Equipment Financing

  • Rate starts at: Around 6% per year (APR)
  • Repayment: Up to 7 years
  • Monthly payment: Lower because payments are spread over more years
  • Amount financed: Up to 100% of the equipment cost, with credit available from $10,000 to $20 million
  • Reusable? No. It is generally used for one purchase
  • Best for: One large, long-life equipment purchase

Line of Credit

  • Rate starts at: Just under 1% per month, roughly 12% per year
  • Repayment: Usually 12 to 36 months
  • Monthly payment: Higher because the balance is repaid over less time
  • Amount financed: Whatever you draw, up to a $250,000 limit
  • Reusable? Yes. Draw, repay, and use the available credit again
  • Best for: Ongoing or mixed business needs

The biggest distinction isn’t simply the rate. The repayment period will also have a major effect on your monthly payment.

What Does This Mean for Your Monthly Payment

A lower monthly payment can look like the better deal, but what happens when you look at the full repayment?

Suppose you’d want to borrow $150,000 for the equipment. At 6% over 60 months, equipment financing would mean a payment of about $2,900 a month, with roughly $174,000 paid over five years.


A line of credit for the same $150,000 repaid over 36 months at 0.99% per month would cost about $4,974/month, with roughly $179,000 paid over three years. Both figures are before fees.


The line of credit costs about $2,000 more each month, but the balance clears two years sooner.


The takeaway? A lower monthly payment isn’t necessarily a lower overall cost. You’ll also need to look at the total cost, repayment period, and flexibility together before making a decision.

When Is a Line of Credit the Better Choice?

A line of credit may be the better fit when flexibility matters more than the lowest monthly payment.

Consider it if you:

  • Need quick access to funds
  • Have recurring or smaller equipment expenses
  • Want to borrow only what you actually need
  • Need working capital alongside equipment purchases
  • Expect to replace equipment within a few years
  • Want to reuse your credit as you repay the balance

When Is Equipment Financing the Better Choice?

Equipment financing tends to make more sense when you know exactly what you’re buying and expect to use it for years to come.

It may be the better choice when you:

  • Expect to make a single, substantial equipment purchase 
  • The equipment is expected to last for many years 
  • Prefer a predictable monthly payment
  • A lower monthly payment would help your cash flow
  • The equipment is the only major expense you need to finance

You Don’t Always Have to Pick One

Choosing between equipment financing and a line of credit doesn’t always have to be an either-or decision. In some cases, using both can create a more practical financing strategy.

For example, you could use equipment financing for a large, long-term purchase while keeping your line of credit available for expenses like installation costs, inventory, payroll, repairs, or unexpected or short-term needs.

This approach lets you match the financing to the purpose instead of putting every business expense on the same type of credit.

With QualiFi, you can explore both options and easily compare what may work for your business before arriving at any decision. The goal isn’t simply to borrow money. It’s to structure the financing in a way that will support your cash flow today and your business over the long term.

Real Story

Equipment financing isn’t limited to machinery. QualiFi worked with a $20 million healthcare company that was growing quickly and moving into a 5,000+ square-foot office. The furniture alone cost about $750,000. 

Paying for the furniture upfront would have reduced the cash available for hiring and payroll. Instead, the furniture served as collateral, and QualiFi structured the purchase as equipment financing at just under 6%. 

Before using cash or your line of credit for a purchase, see if it qualifies for equipment financing. Hardware, software, and furniture often do, and you may get a better rate. 

FAQ

  1. How is equipment financing different from a business line of credit?

    ↳ Equipment financing helps you pay for specific equipment through fixed payments over a set term. A business line of credit gives you flexible, reusable funds that can cover equipment and other business expenses. 
  2. Is equipment financing cheaper than a line of credit?

↳ In many cases, equipment financing can be cheaper than a line of credit. The type and age of the equipment help determine the available rate and loan term. 

  1. Does equipment financing have lower monthly payments than a line of credit?

↳ Usually yes, because the repayment period is longer. A 60- to 72-month equipment term spreads the same amount over roughly twice as many payments as a line of credit capped at 12 to 36 months. A lower monthly payment doesn’t always mean a lower total cost, so compare both.

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Should You Use a Line of Credit or Equipment Financing to Buy Equipment? Comparing Rates, Terms, and Monthly Payments

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