‍

Equipment Financing With Tax, Freight and Soft Costs Included

The machine price is rarely the full amount a business needs to get new equipment operating.

Sales or use tax, freight, rigging, installation, software, training and site work can turn a $200,000 equipment purchase into a $250,000-plus project. The financing question is therefore not just how much the equipment costs. It is which parts of the complete project a financing provider will actually fund.

Quick Answer: U.S. equipment financing can sometimes include sales or use tax, freight, rigging, installation and certain other soft costs. Eligibility is provider- and transaction-specific. Itemize every cost before applying because a provider may finance the machine and some directly related expenses while requiring cash for training, software, construction or other less-collateralized costs.

Can equipment financing include tax, freight and soft costs?

Yes, some U.S. equipment financing programs expressly allow costs beyond the equipment invoice.

For example, U.S. Bank currently states that qualifying equipment financing can include additional costs such as installation, tax and freight, subject to its program limits and approval requirements. Key Equipment Finance separately states that its solutions can finance soft costs, while one of its healthcare financing guides gives installation, taxes and training as examples. Those are provider-specific programs, not universal U.S. rules. U.S. Bank equipment financing details Key Equipment Finance program overview U.S. Bank

The important distinction is between project cost and financeable cost.

Your complete project might include:

• Equipment purchase price.
• Sales or use tax.
• Freight and delivery.
• Rigging and unloading.
• Installation and commissioning.
• Calibration.
• Equipment-specific electrical work.
• Software.
• Operator training.
• Engineering or integration.
• Warranties.
• Facility modifications.

A provider might approve all, some or only the physical equipment.

If you are still comparing the basic structures, Mehmi's equipment financing basics for American businesses explains how loans and leases affect ownership, payments and end-of-term obligations.

Why do providers treat soft costs differently from equipment?

Because the physical equipment usually provides more recoverable collateral value.

Suppose two businesses each need $300,000.

The first project consists of $275,000 of machinery plus $25,000 of freight and installation. The second contains $150,000 of equipment and $150,000 of consulting, employee training, renovations and software subscriptions.

Both projects cost $300,000.

They do not give a financing provider the same collateral.

If the borrower defaults, identifiable machinery may potentially be repossessed and resold. Yesterday's employee training or a consulting engagement generally cannot.

That is why an otherwise acceptable application can still require a larger cash contribution when soft costs make up a significant portion of the project.

Mehmi's guide to equipment financing down payments and borrower contributions explains why collateral value and transaction structure can affect the amount a business must fund itself.

For assets where purchase price and supported collateral value may differ, review how equipment appraisals affect financing.

Can sales tax be included in equipment financing?

Potentially.

Whether a financing provider is willing to include applicable sales or use tax is a financing decision. Whether the tax is legally owed is a separate tax question.

Do not add tax to the requested financing amount until you have established whether the transaction is taxable.

State rules can provide exemptions for certain equipment and uses. For example, the Texas Comptroller describes exemptions for qualifying manufacturing machinery while expressly identifying other equipment that does not qualify. The buyer generally needs to satisfy the applicable exemption requirements rather than simply telling the financing provider that the equipment is tax-exempt. Texas Comptroller manufacturing exemption guidance Texas Comptroller

For a nationwide article, the practical rule is:

Determine taxability for the actual state, equipment and use before finalizing the financing amount.

Do not borrow money for an assumed $15,000 tax bill and discover later that the transaction qualified for an exemption. Likewise, do not budget a tax-free transaction without the required exemption support.

Mehmi Financial Group is not a tax adviser. Your seller, CPA or qualified state-tax adviser should confirm the tax treatment.

Does financing the tax change the equipment's federal tax basis?

Financing and federal tax basis are related but distinct questions.

For purchased depreciable property, the IRS's 2025 revision of Publication 946, posted in March 2026, says cost basis generally includes the purchase cost plus amounts paid for items such as sales tax, freight, installation and testing fees, subject to applicable tax rules and adjustments. IRS Publication 946: How To Depreciate Property IRS

That does not mean every financing provider will finance all of those amounts.

It also does not mean every cost categorized as a "soft cost" automatically becomes part of the equipment's depreciable basis. Software, renovations, training, professional services and other items can require different tax treatment.

Have your accountant classify the actual costs. Financing-provider eligibility and tax capitalization are two different analyses.

Can freight and shipping usually be financed?

Freight can be one of the easier additional costs to connect directly with an equipment purchase because the equipment cannot be used at your location until it gets there.

But "usually connected" is not the same as "always financeable."

Ask whether the proposed amount covers:

• The equipment price only.
• The complete dealer invoice.
• Freight invoiced by a third party.
• International transportation.
• Customs-related amounts.
• An installed project price.

The answer can materially change your cash requirement.

For imported machinery, build the landed-cost budget before signing the purchase contract. International freight, tariffs or duties where applicable, customs brokerage, domestic transportation, rigging and local installation can make the final project substantially more expensive than the manufacturer's equipment quote.

Can rigging and installation be included?

Potentially, particularly when the work is directly necessary to place the financed equipment into operation.

A large CNC machine, press, laser cutter, medical system or automation cell may need specialized contractors to unload, move, level, connect, calibrate and commission it.

Those expenses have a clearer connection to the asset than unrelated building renovations.

The SBA provides another useful point of reference. Its current 7(a) program documentation lists the purchase and installation of machinery and equipment as an eligible use of proceeds for qualifying SBA transactions. That does not require conventional equipment lenders to adopt the same policy. SBA 7(a) is a separate federal program with its own eligibility requirements and participating-lender underwriting. SBA 7(a) eligible uses of proceeds Small Business Administration

The closer an expense is to putting a specific machine into productive use, the easier the financing case may be to explain.

Examples include initial assembly, equipment-specific electrical connection, factory setup, calibration, testing and commissioning.

A $100,000 facility electrical upgrade serving the entire building presents a different underwriting question.

Which soft costs are more difficult to include?

The harder categories are usually costs with little independent collateral value or economic lives much shorter than the equipment term.

Examples can include:

• Employee training.
• Consulting.
• Temporary engineering services.
• Recurring software subscriptions.
• Consumables.
• Marketing or launch expenses.
• General renovations.
• Extensive building improvements.

A perpetual software license necessary to operate a machine can present differently from a 12-month cloud subscription.

Likewise, $4,000 of manufacturer training attached to a $300,000 production system is different from a project consisting of $150,000 of machinery and $150,000 of consulting.

Do not combine everything under one invoice description such as "equipment package" and expect underwriting to treat every dollar as equipment.

Itemization is stronger.

For additional application preparation, Mehmi's equipment financing buyer document checklist explains how to organize the seller, equipment and borrower information together.

Example: financing a $254,000 installed equipment project

Consider an illustrative established U.S. manufacturer purchasing a production machine.

The project budget is:

• Production machine: $200,000.
• Hypothetical sales/use tax: $14,000.
• Freight: $8,000.
• Rigging and installation: $12,000.
• Equipment software: $6,000.
• Operator training: $4,000.
• Permanent electrical/site work: $10,000.

Total project cost: $254,000 USD.

The assumed 7% tax used in this example is strictly for the calculation. It is not a rate for any particular state, and the transaction could have a different tax obligation or qualify for an exemption.

Now assume, solely for illustration, that a financing provider agrees to treat the equipment, tax, freight, rigging and installation as eligible costs.

Eligible project cost:

$200,000 + $14,000 + $8,000 + $12,000 = $234,000.

Assume the provider requires a 10% contribution against that eligible amount:

$23,400.

Amount financed:

$210,600.

The provider does not finance the $6,000 software, $4,000 training or $10,000 permanent site work.

Assume:

• Nominal fixed annual interest rate: 9.50%.
• Term: 60 months.
• Payment frequency: monthly.
• Balloon or residual: none.
• Financing fee: 1.25% of the financed amount, or $2,632.50, paid separately at closing.

The estimated monthly payment is approximately $4,422.99.

Across 60 scheduled payments, total repayment is approximately $265,379.52, of which approximately $54,779.52 represents interest under these assumptions.

But the monthly payment does not tell the business how much cash it needs to close.

The separately funded cash is:

• Eligible-project contribution: $23,400.
• Excluded software: $6,000.
• Excluded training: $4,000.
• Excluded site work: $10,000.
• Financing fee: $2,632.50.

Total cash required outside the financed amount: $46,032.50.

Including the 60 financing payments, total identified acquisition-and-financing cash outflow becomes approximately $311,412.02.

That equals the $254,000 project cost plus the $54,779.52 modeled interest and $2,632.50 fee.

The example excludes insurance, maintenance, late charges, early-payoff costs and any tax consequences.

These terms are illustrative only. They are not a Mehmi Financial Group rate, approval, offer or customer result.

Mehmi's current equipment calculator is denominated in Canadian dollars and explicitly excludes Canadian GST/PST/HST, so it is not appropriate to use that tool by simply replacing CAD with USD for this U.S. example. U.S. borrowers should calculate the actual proposed USD transaction from its written terms.

How do soft costs affect the monthly payment?

Every extra dollar financed can increase both principal and financing cost.

In the illustration, including qualifying tax, freight and installation means the business is not merely financing the $200,000 machine.

It is financing part of the cost required to deliver and place the asset into productive service.

That preserves more cash at closing, but it also means the company can continue paying for freight or installation years after those services were completed.

That is not automatically a poor decision. Liquidity has value.

The question is whether the benefit of retaining cash exceeds the additional financing cost.

Mehmi's guide to comparing written equipment financing offers explains why total repayment and fees matter alongside the monthly payment.

Should you finance every soft cost the provider allows?

Not necessarily.

Match the financing period with the economic benefit of the expense.

A machine expected to operate for ten years may reasonably support a five-year repayment term. A one-day training course does not have the same useful life. Neither does a one-year software subscription.

Before including a soft cost, ask:

• How long will this expense benefit the business?
• How much cash would paying it upfront consume?
• How much additional financing cost will arise?
• Will the business still be paying after the benefit has ended?
• Would preserving that cash materially improve the working-capital position?

If your company can comfortably pay a small training or software cost from operating cash without weakening reserves, financing it for five years may add little value.

How should you test the payment against cash flow?

Use normal and slower operating periods.

In the example, suppose the manufacturer normally has $9,000 per month available after ordinary operating expenses and existing scheduled debt, before the new equipment payment.

After the $4,422.99 payment, approximately $4,577.01 remains.

Now assume a slower month leaves only $6,000 available.

The remaining cushion becomes approximately $1,577.01.

That second calculation is more useful for credit analysis.

If the project works only when every expected productivity improvement occurs immediately, the financing may be too aggressive. Installation delays, employee ramp-up, customer payment timing and production interruptions should be included in the downside case.

What should the vendor quote show?

Give underwriting the actual project rather than forcing it to reconstruct costs from several emails.

Ideally, the quote identifies:

• Equipment and accessories.
• Make, model and condition.
• Serial number when available.
• Equipment price.
• Applicable tax separately.
• Freight.
• Rigging.
• Installation.
• Calibration or commissioning.
• Software.
• Training.
• Warranty.
• Site work.
• Deposits already paid.

If several suppliers are involved, provide each quote and a simple project-cost summary.

For used assets, the provider may ask for additional information on condition, hours, mileage, maintenance or remaining useful life. Mehmi's guide to financing older equipment explains why soft costs cannot compensate for a weak underlying asset.

Can you add tax or installation after receiving approval?

Do not assume you can.

A preliminary approval for a $200,000 machine is not automatically a $240,000 approval because the final invoice adds tax, freight and installation.

Increasing the amount can change:

• Payment.
• Advance rate.
• Required contribution.
• Collateral coverage.
• Provider approval authority.
• Documentation.
• Personal guarantee requirements.
• Final credit decision.

Send the complete project budget as early as possible.

Mehmi's preapproval versus final equipment approval guide explains why changes to the asset, vendor, amount or documentation can require additional review.

Does the financing structure matter?

Yes.

An equipment loan, equipment finance agreement and lease should not be assumed to treat tax and soft costs identically.

With a purchase loan, the borrower generally acquires the equipment while the provider takes agreed security.

With a lease, the lessor's ownership and the applicable state tax rules can change how sales or use tax is collected. Do not simply take a purchase-tax calculation and apply it to a lease proposal.

Before comparing structures, review equipment loans versus leases by total cost.

For purchase-oriented lease documents, Mehmi's EFA versus $1 buyout lease comparison explains why similar-looking payments can still have different contractual and tax characteristics.

Frequently asked questions

Can equipment financing cover 100% of tax and freight?

Some provider programs can finance amounts above the equipment's base price. That does not create a universal entitlement to 100% financing. Business strength, asset value, soft-cost percentage and provider policy all matter. Obtain the approved dollar amount rather than relying on a marketing percentage.

Is sales tax always financed upfront?

No. Treatment depends on the transaction structure, provider and applicable state rules. A purchase loan and a lease may handle tax differently. Verify the actual invoice, exemption status and financing documents.

Can I finance customs duties or tariffs on imported equipment?

Potentially, but do not assume they qualify merely because freight does. Provide the financing provider with the full landed-cost breakdown, legal seller, payment schedule and customs-related costs before committing to the purchase.

Can software be financed with machinery?

Sometimes. Software permanently tied to the equipment can present differently from recurring subscriptions. Separate the software cost and licensing terms so the provider can determine whether it fits the proposed structure.

Can training be included in equipment financing?

Potentially, although training generally offers little collateral value. A modest manufacturer training package attached to a large machine can receive different treatment from a project dominated by consulting and training.

What if the lender excludes some of my soft costs?

Determine whether paying them from cash leaves an adequate operating reserve. Alternatives may include reducing the project, delaying nonessential work or using an appropriate separate facility. Avoid automatically putting long-term project costs onto a revolving operating line that the business needs for payroll, inventory and receivables.

Should I pay a vendor deposit before financing is finalized?

Be cautious with large nonrefundable deposits. Confirm whether the provider will recognize or reimburse the deposit, when it funds the seller and what remains subject to final approval. Where possible, understand the financing conditions before making an irreversible commitment.

Finance the complete project, not just the equipment invoice

Before discussing financing, calculate what it will actually cost to get the equipment operational.

Separate the machine, tax, freight, rigging, installation, software, training, site improvements and other expenses. Then identify which costs you want financed and how much cash the business can contribute without weakening necessary operating reserves.

Mehmi Financial Group is a commercial financing brokerage, not a direct lender. Third-party financing providers independently determine approval, eligible costs, pricing, documentation and final terms. Mehmi's current U.S. availability also depends on the state, product and transaction. Review Mehmi's current U.S. terms and state restrictions Mehmi Financial Group

To discuss equipment financing options, call 833-863-4644 or contact Mehmi Financial Group. Share the amount in USD, U.S. state, use of funds and required timing, along with an itemized equipment quote showing tax, freight and soft costs separately.

‍