What Are Soft Costs in Equipment Financing?
When you purchase a $100,000 piece of equipment, the invoice for the machine itself is only part of the total cost. Sales tax, freight and delivery, installation, training, extended warranties, and maintenance agreements can add 15 to 30 percent to the total project cost. These additional expenses are known as soft costs.
Many Mesa, Phoenix, and Tucson business owners are surprised to learn that most of these soft costs can be included in equipment financing. Rather than paying $15,000 to $30,000 in soft costs out of pocket, you can finance them alongside the equipment and preserve your working capital for operations.
Types of Soft Costs You Can Finance
Sales Tax
Arizona state sales tax on equipment purchases is 5.6%, and local jurisdictions add additional tax that varies by city. In Mesa, the combined rate is approximately 8.3%. In Phoenix, it is approximately 8.6%. In Tucson, it is approximately 8.7%. On a $100,000 equipment purchase, sales tax alone can range from $8,300 to $8,700.
Most equipment financing programs allow sales tax to be included in the financed amount. This means instead of writing a check for $8,500 in tax at the time of purchase, you spread that cost over the life of the financing.
Freight and Delivery
Shipping heavy equipment to Arizona job sites and facilities can cost $1,000 to $10,000 or more depending on the equipment size, weight, and origin. Specialized equipment often requires flatbed trucks, oversized load permits, and professional rigging. These delivery costs are commonly financeable alongside the equipment.
Installation and Setup
Some equipment requires professional installation that can add significant cost. Medical imaging equipment may require $10,000 to $50,000 in installation including room modifications, electrical work, and calibration. Industrial machinery may require concrete pads, utility connections, and integration with existing systems. These installation costs can typically be included in equipment financing.
Training
Many equipment manufacturers offer training programs for operators and technicians. Training costs for complex medical, manufacturing, or technology equipment can range from $2,000 to $15,000. When training is purchased as part of the equipment acquisition, it can often be included in the financing package.
Extended Warranties and Maintenance Agreements
Extended warranties and preventive maintenance agreements protect your equipment investment and can reduce long-term ownership costs. These agreements are commonly financeable when purchased at the time of equipment acquisition.
How Financing Soft Costs Works
The Process
Soft cost financing is straightforward. When you submit your equipment financing application through Equipment Finance Academy, you provide a complete quote that includes the equipment price plus all applicable soft costs. The lender evaluates the total project cost and structures financing for the complete amount.
The key is that all soft costs must be documented and directly related to the equipment acquisition. Invoices from the equipment dealer, delivery company, installation contractor, and warranty provider are submitted as part of the financing package.
What Lenders Require
Lenders typically require that soft costs are reasonable relative to the equipment cost. A general guideline is that soft costs should not exceed 20 to 25 percent of the equipment value, though some lenders allow higher percentages for equipment categories where installation is inherently expensive, such as medical imaging or industrial production lines.
The Financial Advantage for Arizona Businesses
Consider a Phoenix contractor purchasing a $150,000 excavator. The total project cost including sales tax ($12,900), delivery ($3,500), and an extended warranty ($4,600) is $171,000. Without soft cost financing, the contractor would need $21,000 in cash for soft costs plus the financing payment for the equipment. With soft cost financing, the entire $171,000 is financed, preserving that $21,000 in working capital for payroll, materials, and operations.
For Mesa, Phoenix, and Tucson businesses where cash flow is critical, financing soft costs can be the difference between a comfortable equipment acquisition and a cash crunch.
Apply for equipment financing with Equipment Finance Academy and include your soft costs in the financing package. We work with lenders who understand that the total project cost matters, not just the equipment sticker price.
David Chen
Equipment financing specialist with years of experience helping businesses acquire the equipment they need to grow and succeed.
