Equipment Finance Agreement Template: 9 Terms to Check

What should an equipment finance agreement template include?

A complete equipment finance agreement has a few predictable parts: the parties, a description of the equipment (make, model and serial number), the amount financed, the payment schedule, a grant of a security interest, insurance and maintenance duties, default terms, remedies, and the signature block, which often includes a personal guaranty. Many lenders split this into a master agreement plus a short schedule for each piece of equipment, so the terms you need may sit in two documents.

There is no official or standard federal form. Each lender writes its own, and the forms are drafted to protect the lender. That is not a reason to refuse one, but it is a reason to read the nine terms below against the version you are offered. If you are adapting a template for a private deal, for example buying used equipment from another business on installments, our free business loan agreement template shows the loan side of a balanced secured deal that you can pair with a bill of sale.

Equipment finance agreement vs loan: what is the difference?

Legally, an EFA is a loan. You borrow the purchase price, you own the equipment, and the lender takes a security interest under Article 9 of the Uniform Commercial Code, usually perfected by filing a UCC-1 financing statement with your state. The practical differences from a bank term loan come from how the product is packaged.

An EFA is usually tied to one specific piece of equipment, funds directly to the vendor, and is approved quickly based on the equipment's value and your credit. A bank term loan is more often general purpose, may require a larger down payment, and can come with financial covenants such as minimum cash balances or debt ratios that you must meet every quarter. Banks also commonly take a blanket lien on all business assets rather than a lien on one machine. EFAs trade those burdens for a higher rate in many cases, a hell or high water payment clause, and less room to negotiate the form.

Terms 1 to 3: the money terms

• 1. Amount financed and total of payments. The agreement should state the equipment price, any taxes, documentation or origination fees rolled in, and the total you will pay over the term. Multiply the payment by the number of payments yourself. If the form shows only a monthly figure, ask for the total in writing.
• 2. The rate, or the lack of one. Many EFAs state no interest rate at all, only a payment amount. Federal Truth in Lending rules do not cover credit extended primarily for business purposes (15 U.S.C. 1603(1)), so there is no federal requirement to show an APR. California requires cost disclosures, including an estimated APR, for many commercial financing offers of $500,000 or less (Cal. Fin. Code 22800 to 22805), and New York requires them for many transactions of $2.5 million or less. Elsewhere, compute an implied rate from the cash price and the payment stream.
• 3. Fees outside the payment. Look for documentation fees, interim rent or interest charged before the first payment, late fees (10% of the missed payment is common), returned payment fees, and a property tax or insurance charge added monthly. Each is small; together they can move the effective rate by several points.

Terms 4 to 6: ownership, collateral and early payoff

• 4. What the security interest covers. A fair EFA grants a lien on the financed equipment and its proceeds. A risky one adds "all other equipment, inventory and accounts now owned or hereafter acquired," which is a blanket lien that can block your next loan. Ask for the collateral to be limited to the equipment listed in the schedule.
• 5. Cross-collateral and cross-default. Some forms make every agreement you have with the lender secure every other one, and treat a default on one as a default on all. If you finance several machines with the same company, that can turn one missed payment into a demand on everything. Ask to delete cross-collateral language or limit it to monetary defaults that stay uncured after notice.
• 6. Prepayment. Some EFAs let you pay off early with an interest rebate. Others require "all remaining payments" even if you pay in month six, which means paying off early saves you nothing. Others charge a premium, such as 3% of the balance. If you might sell the equipment or refinance, negotiate a payoff formula now: principal outstanding plus a modest fee that declines over time.

Terms 7 to 9: default, guaranty and the equipment itself

• 7. Default, acceleration and repossession. Expect a clause allowing the lender to accelerate the full balance and repossess on default. Check what counts as a default: missed payments, yes, but some forms also list a "material adverse change" in your business or the lender feeling "insecure." Ask for written notice and a 10 to 15 day cure period before acceleration. Under UCC 9-610, a lender that repossesses must dispose of the equipment in a commercially reasonable manner, and under UCC 9-615 you may still owe any shortfall.
• 8. Personal guaranty. Most small business EFAs require the owner to guarantee the debt personally. Read whether the guaranty is unlimited, whether it covers future agreements with the same lender, and whether it includes a waiver of notice and defenses. Ask for a cap, or for the guaranty to fall away after 24 on-time payments.
• 9. Hell or high water and vendor problems. The form will almost always say payments are due regardless of how the equipment performs, and that the lender is not responsible for the vendor's warranty or delivery. That means a defective machine does not pause payments. Before signing, get written delivery and acceptance terms from the vendor, make sure the manufacturer's warranty runs to you, and do not sign a delivery and acceptance certificate until the equipment is installed and working.

Red flag clauses to strike from any EFA

Some provisions show up in lender forms that are worth striking outright rather than negotiating at the margins. A confession of judgment lets the lender obtain a court judgment against you without a hearing; several states restrict these, and New York has barred filing them against out-of-state debtors since 2019. A jury waiver plus exclusive venue in the lender's home state makes any dispute expensive for you. A clause allowing the lender to change the payment if its "cost of funds" rises turns a fixed deal into a floating one. And a waiver of defenses clause, which lets the lender sell your contract to a buyer who takes it free of your complaints, is permitted in business deals under UCC 9-403, so read it as a sign that disputes about the equipment stay with the vendor.

Is an equipment finance agreement better than a loan?

It depends on what you value. An EFA is often the better fit when you need one specific asset quickly, do not want covenants, and want your other assets left free for a line of credit. A bank or credit union term loan is often cheaper in rate and more flexible on prepayment, and may be worth the slower process for a large purchase. Tax treatment is usually similar, because with both you own the equipment and may be able to depreciate or expense it, but confirm with your accountant.

The best way to compare is on total cost and flexibility: total of payments, fees, the prepayment rule and the scope of the lien. Get two quotes in writing and put them side by side, rather than comparing a monthly payment against an interest rate. If one offer is an equipment lease rather than an EFA, read about the difference between a true lease and a finance agreement first, because the end-of-term cost changes the math.

How to review the lender form before signing

ClauseAudit's automated review of an equipment finance agreement totals the payments and fees, estimates the implied rate where the cash price is stated, and flags blanket liens, acceleration, guaranty scope and confession of judgment wording, quoting each clause so you can raise it with the lender. For a large amount or a broad personal guaranty, an hour with a business lawyer is money well spent.

• Ask for the complete agreement, including the master terms, schedule, guaranty and any delivery certificate, before the signing appointment.
• Write down the cash price, amount financed, payment, term and total of payments, and estimate the rate.
• Mark the collateral description, cross-default and prepayment clauses.
• Ask for a cure period, a capped or time-limited guaranty, and deletion of any confession of judgment.
• Get every change in a signed amendment or revised schedule; a salesperson's email is not part of the contract.