Updated September 6, 2026
Quick answer
An Equipment Finance Agreement (EFA) is a loan dressed in lease language: you are the owner from day one, the lender files a UCC-1 lien on the machine, and there is no buyout because there is nothing to buy out. Typical terms run 24-84 months at 6-22% APR with 0-20% down and 600+ FICO. Because you own it, you can claim Section 179 and depreciation in year one. Most US equipment desks write EFAs rather than true leases.
If you have been quoted "equipment financing" by a specialty lender in the United States, there is a good chance the paper in front of you is an EFA, even if the word lease appears on it. The distinction matters for who owns the machine, who claims the depreciation, and what happens at the end of the term.
What Is an Equipment Finance Agreement?
An EFA is a two-party financing contract between you and the lender to purchase a specific piece of equipment. You take title on day one. The lender does not own the machine and never does — it takes a security interest by filing a UCC-1 financing statement against it, exactly as a bank would against any collateral.
The structure exists because it gives an equipment lender the speed and documentation simplicity of a lease with the legal clarity of a secured loan. There is no residual to calculate, no return condition to argue about, and no end-of-term negotiation. You make the last payment and the lien is released.
EFA vs Lease vs Loan
| EFA | True lease (FMV) | Bank loan | |
|---|---|---|---|
| Who owns it | You, day one | The lessor | You, day one |
| End of term | Lien released | Buy, return or renew | Lien released |
| Section 179 | You claim it | Lessor claims it | You claim it |
| Speed | 1-3 days | 1-3 days | 2-6 weeks |
| Credit bar | 600+ typical | 600+ typical | 680+ typical |
The practical difference between an EFA and a true lease is ownership and therefore tax treatment. Under an FMV lease the lessor owns the machine and takes the depreciation, which is why lease payments are usually lower. Under an EFA you own it, so the machine sits on your balance sheet and the Section 179 deduction is yours to claim.
Typical EFA Terms
Across US equipment desks an EFA on business-critical iron generally runs 24 to 84 months, most commonly 48-60, at roughly 6-22% APR depending on credit, machine age and time in business. Down payment is typically 0-10% on new and 10-20% on used. Documentation is light: many lenders write these application-only up to $250,000, meaning no financial statements — just the application, a quote and bank statements. See equipment financing requirements.
Why Most Lenders Write EFAs Rather Than Leases
Three reasons. No residual risk — the lender never has to predict what the machine is worth in five years, which is the hardest part of pricing a true lease. Simpler enforcement — a UCC-1 on a titled or serialised asset is well-trodden legal ground in every state. Fewer disputes — there is no return condition, no excess wear clause, no end-of-term surprise.
For the borrower the trade is straightforward: payments are usually a little higher than an equivalent FMV lease because you are amortising the whole machine rather than just the use of it, and in exchange you own an asset at the end and take the tax benefit along the way.
EFAs and Section 179
Because an EFA makes you the owner on day one, equipment financed this way is generally eligible for Section 179 expensing and bonus depreciation in the year it is placed in service — even though you have only made one or two payments. That is the single most commonly cited reason contractors choose an EFA over a lease. Always confirm the specifics with your CPA; deduction limits and phase-outs change year to year.
What Lenders Look At on an EFA
The machine first. Age, hours, brand, serial number and resale value set the terms, sometimes more than your credit does — strong collateral buys real credit tolerance. Then personal credit (600+ to be considered, 680+ for best pricing, with the owner personally guaranteeing), time in business, and bank statements showing the payment is serviceable. See what lenders look at for approval.
What to Check Before You Sign
Is the lien limited to the equipment? A blanket UCC-1 over all business assets can block your next approval. Ask for a specific-collateral filing. Is there a prepayment penalty, and is it a percentage or full remaining interest? What are the documentation and origination fees, and are they financed or due at signing? Is insurance required and at what coverage level? Is there an end-of-term fee — there should not be on a true EFA, and if there is, you may be looking at a lease with an EFA label.
Next Step
Get matched with lenders that write EFAs on your machine. See also equipment sale-leaseback financing if you already own the iron, and can you finance used equipment.
If you are weighing this against the wider product set, our equipment financing overview lays out the options. An asset loan pays for iron, not for the weeks before a customer pays. Where that is the real gap, working capital loans fit better.
Frequently Asked Questions
What is an equipment finance agreement?
An EFA is a two-party financing contract to buy a specific machine. You take title on day one and the lender files a UCC-1 lien as security. There is no lessor, no residual and no end-of-term buyout.
Is an EFA a lease or a loan?
Legally it behaves like a secured loan even though lenders often describe it in lease language. You are the owner throughout; the lender only holds a security interest in the equipment.
What is the difference between an EFA and an FMV lease?
Ownership, and therefore tax treatment. Under an EFA you own the machine and claim depreciation and Section 179. Under a fair market value lease the lessor owns it and takes the depreciation, which is why FMV payments are usually lower.
Can I claim Section 179 on an EFA?
Generally yes. Because an EFA makes you the owner when the equipment is placed in service, it is normally eligible for Section 179 expensing and bonus depreciation in that tax year. Confirm the specifics with your CPA.
What credit score do I need for an EFA?
Most equipment desks consider 600+ FICO, with the best pricing at 680 and above. Strong collateral buys meaningful credit tolerance, so a well-documented machine can carry a weaker score.
What are typical EFA terms?
Usually 24 to 84 months, most commonly 48 to 60, at roughly 6-22% APR. Down payment runs 0-10% on new equipment and 10-20% on used.
Is there a buyout at the end of an EFA?
No. You already own the machine, so there is nothing to buy out. When the final payment clears, the lender releases its UCC-1 lien. An end-of-term fee on paper labelled EFA is a sign it may actually be a lease.
Do EFAs require financial statements?
Often not. Many lenders write EFAs application-only up to around $250,000, requiring just the application, an equipment quote and recent business bank statements.
Does an EFA put a lien on all my business assets?
It should not. Ask for the UCC-1 to be limited to the specific equipment. A blanket filing over all assets can block your next equipment approval.