After years of near‑zero rates, borrowing costs rose sharply starting in 2022. Looking at 2026, the Federal Reserve's target range for the federal funds rate remains around 4.25% to 4.50%, keeping commercial loan rates elevated. Small business loans often carry interest rates from 6.6% to over 11%, while SBA 7(a) loans range from roughly 10.5% to 15.5%. Higher rates translate directly into higher monthly payments, which can strain cash flow for companies seeking to invest in machinery, vehicles or technology.
However, opportunities still exist. The equipment finance industry reports high approval rates and strong demand, and new tax incentives offset some of the cost of borrowing. By taking a strategic approach, businesses can secure the capital they need without overextending themselves.
Interest rates affect not only your monthly payments but also the total cost of equipment over its useful life. For example, on a $83,348 equipment loan with a five‑year term, a 1% reduction in the interest rate saves approximately $2,618 over the life of the loan. On a larger $439,339 loan with a seven‑year term, that same 1% reduction translates into savings of about $20,047. These figures highlight the value of shopping around for the best rate and structuring deals thoughtfully.
The One Big Beautiful Bill Act reinstated 100% bonus depreciation and raised Section 179 expensing limits, allowing businesses to deduct the full cost of qualifying equipment in the year it is placed into service. These tax benefits can significantly reduce your effective cost of borrowing. Work with a tax advisor to calculate how much cash flow you will gain from immediate expensing, and factor that into your financing decision. In some cases, the tax savings may exceed the additional interest expense from higher rates.
Lenders price risk. Companies with strong credit profiles — including consistent cash flow, solid debt‑service coverage ratios and positive payment histories — qualify for better rates. Take steps to improve your financial statements before applying for financing. Pay down existing debt where possible, resolve any outstanding tax liens and provide clear, accurate financials. Even a small improvement in your credit profile can shave basis points off your rate.
Don't assume that your primary bank offers the best deal. Equipment finance is a competitive market with banks, captives, independents and fintech lenders vying for business. Use marketplaces to solicit multiple quotes; lenders may have different appetites depending on their portfolios and funding costs. Consider various structures, such as:
High interest rates magnify the impact of fees and processing costs. Research shows that the average equipment finance application costs $427 to process, and that inefficiencies in document collection and funding can delay deals for months. Selecting lenders or platforms that use automated workflows, e‑signatures and AI‑driven underwriting can reduce fees and expedite funding. Lower operating costs for lenders can translate into better rates for borrowers.
Beyond traditional loans and leases, explore options such as:
High rates increase the risk of cash‑flow strain if revenue falls short. Build a cushion by maintaining liquidity and adopting conservative revenue projections. Consider partial equipment upgrades rather than wholesale replacements if budgets are tight. Some companies are extending equipment life through refurbishing and maintenance until rates drop.
Keeping an eye on macroeconomic indicators can inform timing. The equipment finance industry's confidence index has remained elevated, signalling optimism about future demand and access to capital. However, builder sentiment in the housing market remains subdued due to high mortgage rates, suggesting that consumer‑driven segments may remain soft. Monitor Federal Reserve announcements, inflation readings and employment data to anticipate rate movements. If rates begin to decline, refinancing opportunities may arise.
High interest rates present challenges, but they do not have to derail your equipment investment plans. By leveraging tax incentives, improving your credit profile, comparing multiple financing structures and using digital platforms to lower costs, you can secure funding that supports your growth.
At Arkra, we help business owners navigate these decisions by connecting them with a network of lenders and providing tools to compare offers side by side. Whether rates fall or remain steady, informed choices and proactive planning can put your business on solid footing.