Revenue-Based Financing vs Equipment Financing

Quick Answer: Revenue-based financing provides a lump sum of cash you can use for any business purpose, repaid through fixed daily or weekly payments. Equipment financing is a loan specifically for buying equipment, where the equipment itself serves as collateral. RBF is more flexible (use funds for anything) but typically costs more. Equipment financing is cheaper but restricted to equipment purchases only.

You need a new truck. Or maybe it’s a commercial oven, a set of salon chairs, a dental chair, or a fleet of delivery vehicles. Whatever it is, it’s expensive, you need it now, and you’re trying to decide between two options: revenue-based financing or equipment financing.

Both will get you the equipment. But they work very differently, they cost differently, and the right choice depends on more than just the interest rate. Let’s break it down.

What Equipment Financing Actually Is

Equipment financing is a loan or lease specifically used to purchase business equipment. The equipment itself serves as the collateral — if you don’t make payments, the lender can repossess the equipment.

Here’s how it works: you find the equipment you want, you apply for equipment financing, the lender approves you based on your credit and the equipment’s value, and the lender pays the equipment dealer directly. You make monthly payments over a set term (typically 2-7 years), and once the term is complete, you own the equipment outright (in a loan) or have the option to buy it (in a lease).

Equipment financing typically requires a credit score of 600-680+, and the rates are lower than revenue-based financing — usually 6-20% APR depending on your credit and the equipment type.

What Revenue-Based Financing Actually Is

Revenue-based financing gives you a lump sum of capital — $10,000 to $500,000 — that you can use for anything your business needs. Not just equipment. Inventory, payroll, marketing, expansion, repairs, whatever you need.

Approval is based on your monthly revenue ($10,000+), not your credit score. Repayment is fixed daily or weekly over 3-18 months. There’s no collateral — the funding is unsecured.

The Key Differences

Here’s where the two diverge — and why it matters for your decision:

Use of funds. Equipment financing can only be used for equipment. Period. The lender pays the equipment dealer directly. Revenue-based financing gives you cash in your bank account to use for anything — equipment, inventory, payroll, marketing, whatever your business needs most.

Collateral. Equipment financing uses the equipment as collateral. If you don’t pay, they take the equipment. Revenue-based financing is unsecured — no collateral, no equipment repossession risk.

Credit requirements. Equipment financing typically requires 600-680+ credit. Revenue-based financing has no minimum credit score — approval is based on revenue.

Speed. Equipment financing takes 3-14 days depending on the lender and equipment type. Revenue-based financing funds in 24-48 hours.

Cost. Equipment financing is cheaper (6-20% APR). Revenue-based financing costs more (factor rates of 1.1-1.4). But RBF gives you cash for any purpose, not just one piece of equipment.

Repayment. Equipment financing uses monthly payments over 2-7 years. Revenue-based financing uses daily or weekly payments over 3-18 months. Equipment financing gives you more time; RBF gets you done faster.

When Equipment Financing Makes Sense

Equipment financing is the right call when:

• You know exactly what equipment you need and that’s all you need the capital for
• Your credit score is 600+ and you want the lower cost of a secured loan
• You want longer repayment terms (2-7 years) with lower monthly payments
• The equipment you’re buying is essential and you’re comfortable using it as collateral

When Revenue-Based Financing Makes Sense

Revenue-based financing is the right call when:

• You need capital for more than just equipment — inventory, payroll, marketing, repairs
• Your credit score is below 600 and equipment financing isn’t available
• You need the money within days, not weeks
• You don’t want to pledge your equipment as collateral
• You want flexibility to use the funds wherever your business needs them most

The Hybrid Approach

Here’s what many business owners don’t consider: you can use both. If you’re buying a $40,000 truck and you also need $20,000 for inventory and payroll, you could use equipment financing for the truck (lower rate, longer term) and revenue-based financing for the $20,000 in working capital (fast, flexible, no collateral).

This approach minimizes your overall cost while giving you the flexibility to cover all your needs. Not every situation calls for this, but when you have both equipment and non-equipment needs, splitting the funding can be the smartest move.

If you’re trying to figure out which path is right for your business, the form below takes two minutes. No credit check. No obligation. Find out what you qualify for.

See what you qualify for — takes two minutes, no credit check.

Tax Implications to Consider

There’s a financial angle that most comparison articles skip entirely: taxes. The two options have very different tax treatment, and it can affect your real cost more than the interest rate difference.

With equipment financing, the equipment you purchase typically qualifies for Section 179 depreciation — meaning you can deduct the full purchase price from your taxable income in the year you buy it, up to the IRS limit (which is over $1 million for 2026). This can significantly reduce your tax bill, effectively lowering the real cost of the financing.

With revenue-based financing, the cost of the funding (the difference between what you receive and what you repay) is typically deductible as a business expense. You’re not buying a depreciable asset — you’re paying for access to capital. The deduction is still valuable, but it’s structured differently.

The bottom line: if you’re buying equipment, the tax benefits of equipment financing (Section 179 + depreciation) can offset a significant portion of the interest cost. If you’re using the capital for non-equipment purposes, RBF’s simpler expense deduction is the relevant one. Talk to your CPA about which structure gives you the best after-tax outcome for your specific situation.

Frequently Asked Questions

Is revenue-based financing or equipment financing better?

It depends on your needs. If you only need to buy equipment and your credit is 600+, equipment financing is cheaper. If you need capital for multiple purposes, your credit is below 600, or you need funds quickly, revenue-based financing is more flexible and faster.

Can I use revenue-based financing to buy equipment?

Yes. Revenue-based financing gives you cash that you can use for any business purpose, including equipment. You’re not restricted like you are with equipment financing — the funds go to your bank account and you decide how to use them.

Which is cheaper: revenue-based financing or equipment financing?

Equipment financing is typically cheaper (6-20% APR vs factor rates of 1.1-1.4). However, equipment financing requires good credit and can only be used for equipment. Revenue-based financing costs more but requires no minimum credit score and can be used for any business purpose.

Does equipment financing require collateral?

The equipment itself serves as the collateral for equipment financing. If you don’t make payments, the lender can repossess the equipment. Revenue-based financing requires no collateral.

Can I use both equipment financing and revenue-based financing at the same time?

Yes. Many business owners use equipment financing for the equipment purchase (lower rate, longer term) and revenue-based financing for working capital needs like inventory, payroll, or marketing.