Equipment loans are used to finance new or used equipment. Whether your business needs to replace faulty machinery or simply wants to upgrade to more modernized and cost-effective equipment, leasing and loans through equipment financing are the smart way to invest. Because the borrower is purchasing equipment as an investment, and therefore, collateral, the risk to the lender is reduced. If the borrower defaults on the loan, the lender still has a way to recoup some of their finances.