Working capital loans fund day-to-day operating expenses (payroll, rent, inventory). Equipment loans fund a specific asset purchase and use that asset as collateral. Working capital is typically unsecured or backed by a personal guarantee. Equipment loans are secured by the equipment itself, which means softer credit requirements and lower rates. Most growing businesses use both at different stages.
| Feature | Working Capital Loan | Equipment Loan |
|---|---|---|
| Use of funds | Payroll, rent, inventory, marketing | Specific equipment or vehicle purchase |
| Collateral | Unsecured or personal guarantee | Equipment itself (UCC lien on asset) |
| Loan amount | $5K to $500K typical | Up to 100% of equipment cost |
| Term length | 3 months to 5 years | 2 to 7 years (matches useful life) |
| Typical APR | 9% to 35% | 6% to 25% |
| Credit minimum | 600+ FICO | 550+ FICO (asset reduces risk) |
| Funding speed | 1 to 7 days | 1 to 14 days |
Sources: lender published rate tables, SBA program guidelines, and industry data as of June 2026. Rates and qualification criteria change frequently. Confirm with each lender before applying.
Choosing the wrong product costs money. Borrowers who use a high-rate working capital loan to buy a $50K piece of equipment pay 10% to 20% more in interest than they would with an equipment loan. Borrowers who use a 7-year equipment loan to fund payroll lock themselves into a long-term payment for a short-term need. Match the loan structure to the use of funds.
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