Equipment Loan vs LOC vs Credit Card: What’s Best?

So you’re buying equipment—but which tool should you use to pay for it?

• A dedicated equipment loan?
• Your business line of credit?
• Or just put it on the credit card?

Each option serves a purpose, but they’re not interchangeable. Picking the wrong one could cost you thousands in extra interest or strain your cash flow when it matters most.

In this guide, we break down the key differences between equipment loans, lines of credit (LOCs), and business credit cards—so you can choose the smartest funding path for your next purchase.

The Three Main Funding Tools Explained

Let’s start with what each option is:

1. Equipment Loan

A fixed-term loan or lease used to finance specific equipment purchases—often tied to an invoice or asset value.

• Fixed monthly payments
• Terms from 1 to 7 years
• Rates typically 9%–16%
• Collateralized by the equipment itself

Used for: Trucks, trailers, ovens, CNC machines, refrigeration, lifts, diagnostic gear, etc.

Explore Financing & Leasing Options

2. Line of Credit (LOC)

A revolving credit facility that allows you to draw funds up to a limit as needed.

• Interest-only payments or minimums
• Only pay interest on what you use
• Typically renews annually
• Rates can range from 9%–18%+ depending on risk and security

Used for: Working capital, smaller equipment, deposits, multiple purchases, emergency spending

See Equipment Line of Credit

3. Business Credit Card

A high-speed, unsecured form of financing, often used for convenience.

• Limits from $5K–$100K
• Rates typically 17%–29%+
• Often includes cashback or points
• Minimum payments (usually 2%–3% of balance)

Used for: Small items, recurring expenses, short-term float

Head-to-Head Comparison

Use Cases: What to Use and When

✅ Equipment Loan: Best For

• Large, one-time asset purchases (e.g. truck, CNC, oven)
• When you want to own or lease-to-own the asset
• When the equipment is core to your operations
• When you want fixed payments and long terms

Bonus: Equipment loans often offer better tax treatment through Capital Cost Allowance (CCA) and interest deductions.

✅ Line of Credit: Best For

• Covering deposits or partial equipment purchases
• Financing multiple smaller upgrades over time
• Providing emergency access during cash flow dips
• Bridging a short-term equipment replacement

Many clients use a LOC to hold a private-sale asset while finalizing full equipment financing.

✅ Credit Card: Best For

• Items under $5,000 where speed matters more than cost
• Software, small tools, repairs
• Temporary use before paying off quickly (within 30–45 days)
• Emergency spend only when no better option exists

Be cautious: Credit cards are convenient but rarely optimal for major equipment buys due to high rates and compounding interest.

Real Case Study: Mixed Use of Loan + LOC

Business: Owner-operator trucking business expanding to two trucks
Need: One used day cab ($68,000) + new GPS + inspection upgrades

What They Did:

• Financed the truck with a 48-month term loan
• Used LOC to cover GPS, decals, and vendor inspection fees
• Repaid LOC over 2 months after landing a new regional contract

Outcome:
Maximized approvals, kept cash intact, and secured new work—all by using the right product for the right purchase.

Tips for Making the Right Funding Choice

✅ Match the loan term to asset life
✅ Avoid using credit cards for anything you won’t pay off quickly
✅ Use your line of credit for working capital or bridge—not long-term debt
✅ Bundle equipment + install/delivery into one loan if possible
✅ Consider refinancing or consolidation if your mix is getting messy

FAQs: Equipment Financing Tools Compared

Isn’t it easier to just use a credit card?
Sure—but if you carry a balance, it’s often the most expensive way to finance a purchase. It’s best for short-term convenience, not long-term use.

Can I use a line of credit to buy equipment?
Yes, but if the equipment is high-value, consider a dedicated loan. A LOC is better for smaller items, deposits, or add-ons.

Can I use more than one tool at the same time?
Absolutely. Many business owners combine financing tools to handle timing, vendor payments, and cash flow needs.

Which option is easiest to qualify for?
If you already have a credit card or LOC, they’re fast. But Mehmi can get many clients approved for a full equipment loan in 24–72 hours—even on used or private-sale assets.

Final Thought: Use the Right Tool for the Job

Just like you wouldn’t use a wrench when you need a hammer, your financing choice should match the job.

• Use equipment loans for big-ticket upgrades
• Use lines of credit for flexibility
• Use credit cards for speed and small-ticket items

The key isn’t just getting access to funds—it’s using the right funds at the right time.

Need help choosing the best way to finance your next purchase?
Use our calculator or speak to a credit analyst to build a smart, cost-effective strategy.

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