Equipment Financing vs. Working Capital | 2026 Contractor Guide

Scan the four guides linked below, pick the one that matches your immediate situation—buying or leasing a machine, or bridging a cash-flow gap—and go straight to the qualification steps.

Key differences between equipment financing and working capital

Contractors shopping for construction working capital loans often discover they've been looking at the wrong product. These two funding types share some lenders and some paperwork, but they solve different problems and price very differently.

What each option actually funds

• Equipment financing is tied to a specific asset—an excavator, a crane, a fleet truck. The machine serves as collateral, which is why rates run lower: typically 5.5–9% APR for contractors with a 700+ credit score. Lenders wire funds to the seller, not to your operating account.
• Working capital loans and lines of credit land in your bank account and can cover payroll, subcontractor invoices, material purchases, or any overhead gap. That flexibility costs more: online lenders charge 15–45% APR, while bank lines run 8–20% APR if you qualify.

Who each option fits

Equipment financing makes sense when a single asset purchase is the bottleneck—you have the job, you need the machine, and you'd rather preserve operating cash than write a six-figure check. SBA 7(a) loans can fund equipment up to a 10-year term at 8.5–11% APR, though approval runs 30–45 days, which rules them out for urgent needs. A direct equipment lender can close in 1–3 business days.

Working capital is the right call when the gap is operational: a GC waiting 60–90 days on a pay app, a subcontractor floating materials on a government contract, or any firm running payroll ahead of a slow-paying owner. The construction working capital guide walks through qualification criteria in detail, including the $250,000+ annual revenue floor most unsecured lines require and the 12 months of bank statements lenders will review.

If your situation is somewhere in between—you need capital quickly to mobilize on a new project that also requires new equipment—a construction bridge loan may be the better starting point, since it can cover both mobilization costs and machinery financing in a single facility.

The numbers that separate approval from rejection

Factor	Equipment Financing	Working Capital Loan
Typical APR	5.5–9% (good credit)	15–45% (online lenders)
Credit score floor	~620 with collateral	640–680+ for bank lines
Down payment	10–20%	None (unsecured)
Funding speed	1–3 days	1–5 days
Collateral required	Yes (the asset)	Often none
Tax benefit	Section 179 up to $1,220,000	Interest deduction only

What trips contractors up

The most common mistake is applying for a working capital product to buy equipment, or vice versa. Equipment lenders will decline a request the moment they see funds are meant for payroll. Working capital underwriters will flag an application that's really an equipment deal because the repayment structure doesn't match.

Credit score is the second sticking point. Fair-credit borrowers (FICO 640–679) qualify for both products but pay a meaningful premium—rates run 2–4 percentage points higher than what a 700+ borrower sees. If you're near a credit tier boundary, it's worth checking your report before applying; 1 in 5 credit reports contain errors that can drag a score down unnecessarily.

Lenders reviewing working capital applications also run a debt service coverage check: they want to see that your monthly debt obligations don't exceed 43–50% of gross monthly revenue, and most require a DSCR of at least 1.25x. If your books are tight, the 2026 contractor lending requirements breakdown is worth a read before you submit.

Choose the guide below that fits your situation and follow the qualification steps from there.