⚠️ Before you apply for equipment financing—and definitely before you sign an equipment finance agreement—make sure you know the answers to these 7 questions, or you could end up paying thousands more than expected. ⚠️
1. Will your credit be pulled by a hard inquiry or a soft inquiry?
This should be a 2-part question. Ask your equipment finance rep:
“Will the credit inquiry be a hard or soft credit inquiry? Will there also be a hard credit inquiry prior to finalizing the agreement if I decide to move forward?”
In my experience, many private equipment financing companies use a soft credit inquiry, but I have heard of some that will perform a hard inquiry prior to finalizing the deal.
A soft inquiry should not affect your credit score. A hard inquiry is recorded on your credit report and can affect your credit score, particularly if you have multiple hard inquiries within a relatively short period. Hard credit inquiries can also potentially trigger unwanted credit or finance-offer marketing directed to you.
Bottom Line: Know whether you’re authorizing a hard or soft inquiry before allowing a finance company to pull your credit. Avoid a hard credit inquiry if possible.
2. How quickly will you get an actual underwriting decision?
It’s best to ask upfront: “How long does the approval process typically take?”
Many private finance companies can provide an approval update within 1 business day, depending on the complexity of the file.
If you go 2 or more business days without receiving an update from your finance rep, that’s a red flag.
Bottom Line: Ask upfront how quickly you should expect an approval decision—and don’t be afraid to follow up if that timeframe passes.
3. Are all processing, documentation, and other fees clearly disclosed?
Equipment finance and lease agreements can be 15+ pages long, depending on the finance company. Disclosure requirements vary by state and by type of financing.
Don’t assume a fee is acceptable simply because it’s buried somewhere in a lengthy finance agreement. **Ask for a clear, itemized breakdown of every fee and charge before signing, and double-check the agreement to ensure those fees are listed.**
Bottom Line: Make sure you understand every fee you’re charged before you sign the agreement—not after the transaction has closed.
4. Is there an early payoff discount—and exactly how is it calculated?
Make sure to ask whether the financing has an early payoff discount. If it does, ask your equipment finance rep to point out exactly where the early payoff provision is in the agreement so you can review it before signing docs.
Don’t rely solely on a verbal explanation. The actual agreement should clearly explain how your early payoff amount will be calculated, and if you require an explanation, make sure you get it in writing.
Bottom Line: If an early payoff discount is promised, make sure you can find it in the contract and understand exactly how the payoff amount will be calculated. Don’t be afraid to ask questions.
5. Are you signing an Equipment Finance Agreement (EFA), $1 buyout lease, or an FMV lease? Do you understand the pros and cons of each structure?
EFA — Equipment Finance Agreement
With an Equipment Finance Agreement (EFA), you own the equipment from the beginning of the finance period, while the lender retains a security interest in the equipment until the agreement is paid in full. However, early payoff discounts may be limited or unavailable, depending on the lender and agreement. Please note: for titled equipment, certain vehicles, trailers, or other equipment subject to state title laws, the physical title document may be held by the lender or may show the lender as lienholder until the EFA is paid off. That does not necessarily mean the lender owns the equipment. Some states send the title to the lienholder, while others allow the customer to retain it with the lender’s lien noted.
$1 Buyout Lease
A $1 buyout is a common nominal purchase option, but the specific purchase-option amount and end-of-term requirements can vary depending on the lender, agreement, and applicable state law. In some structures, ownership transfers automatically upon completion of the required payments, while others require a nominal purchase payment to exercise the purchase option. Your lease term might be 3+ years – make sure you keep your lease agreement in a safe place and set a reminder for the end of the lease term so that you can contact the finance company to ensure that they initiate the buyout.
FMV Lease — Fair Market Value Lease
Early termination or purchase can be more complicated. The contract may specify an early termination value, remaining rent, residual value, or another calculation. Typically, at the end of an FMV lease you have to pay the current fair market value of the equipment (on top of what you have already paid) if you want to own and keep the equipment.
Bottom Line: If you are entering a FMV lease, make sure you understand what it will take to buy the equipment if you want to keep it after the lease term – get it in writing prior to signing any documents so you can determine if an FMV lease is right for you.
6. Are you being charged “interim rent” (aka per diem)?
Interim Rent (Per Diem): An additional charge that may be imposed under an equipment financing agreement. The amount and calculation method can vary by finance company and agreement.
All else being equal, consider financing options that do not charge interim rent or per diem fees if possible. If a finance company does charge interim rent/per diem, make sure you understand exactly how the charge is calculated, how much it will add to your total cost or total fees, why the charge is there, and how the charge differs from other fees such as documentation or processing fees.
Two financing offers with similar monthly payments can have very different total costs once interim rent and other fees are included.
Bottom Line: Don’t assume that “interim rent” or “per diem” simply means you’re being charged for a few days between the equipment delivery and your first payment. Ask exactly how the charge is calculated, when it applies, how much it will cost you, and why it is necessary – and get that in writing from your finance rep or finance company.
7. If you are working with an equipment finance broker, are they trying to charge you a separate fee?
In many private equipment financing programs, brokers are contractually prohibited from charging the finance customer any separate fees. Any fees you pay will be to the finance company directly, and those fees should be listed in your copy of the finance agreement. The broker is compensated by the equipment finance company through a commission paid after the financing transaction is completed.
If an equipment finance broker asks you to pay a separate broker fee or includes a page that lists compensation owed by you to the broker (broker fee, finder fee, consulting fee, etc.), don’t simply assume it’s required.
Bottom Line: If you read through the finance agreement or a separate document from your equipment broker and you see verbiage that states that you have to pay compensation to the broker, stop what you are doing and contact the equipment finance company directly—not the broker—and ask whether the broker is authorized to charge you a separate fee. If the finance company confirms that the broker is not authorized to charge the fee, do not pay the fee and do not sign the broker compensation page. Ask the finance company to address the broker’s unauthorized fee directly with the broker.
Ready to Finance Your Next Piece of Equipment?
At EFS – Equipment Finance Specialists, we believe equipment financing should be transparent, straightforward, and built around your business—not hidden fees and confusing terms.
When you’re ready to finance your next piece of equipment, we’d love the opportunity to earn your business and show you how we believe equipment financing should be done. Or if you just have general questions about equipment financing, feel free to call, text, or email us and we will be happy to answer any of your questions.
EFS – Equipment Finance Specialists
(512) 888-5721 | efsequip.com I admin@efsequip.com
Equipment Financing Nationwide | $15,000–$2 Million
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