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Glossary

Soft Costs

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Definition

Soft Costs is Non-equipment costs of acquisition: delivery, installation, training, sales tax. Often financed alongside the equipment.

Soft costs are the non-equipment costs associated with acquiring and deploying equipment. They include delivery and freight, installation, training, sales tax, software licenses bundled with the equipment, and similar acquisition costs that don’t purchase the physical equipment itself.

What counts as soft costs

  • Freight and delivery charges
  • Installation (electrical hookup, foundation, mounting, networking)
  • Training (for staff to operate the equipment)
  • Sales tax (in states that tax the purchase)
  • Software licenses included with equipment
  • Initial supplies/consumables (tools, fluids, calibration kits)
  • Inspection and acceptance testing
  • Permits and inspection fees for installation

What doesn’t count as soft costs

  • Ongoing maintenance and consumables after placed-in-service
  • Insurance premiums
  • Property tax
  • Loan origination fees and doc fees

How lenders handle soft costs

Most equipment lenders will finance soft costs alongside the equipment, up to a cap:

  • Typical cap: 15-25% of equipment cost
  • Above the cap: soft costs need separate financing or cash payment
  • Sales tax: usually rolled in regardless of soft-costs cap (treated separately by some lenders)

Example: $100,000 CNC machine + $15,000 installation + $8,000 training = $123,000 financed (soft costs total $23,000, under 25% cap).

Tax treatment of financed soft costs

Most soft costs are capitalized into the equipment’s cost basis and depreciated along with it. This includes delivery, installation, sales tax, and “necessary to place the equipment in service” costs.

Some soft costs may be expensed immediately rather than capitalized:

  • Routine training (vs initial setup training)
  • Software licenses with shorter useful life than the equipment
  • Permits with annual renewal

Your CPA can advise on which costs to capitalize vs expense for tax purposes.

Why getting soft costs financed matters

Soft costs can be 10-30% of total acquisition cost. Financing them lets you spread the cash impact over the loan term rather than coming up with $15-30K cash on top of the down payment. Most prime equipment lenders accept reasonable soft costs without issue.

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Editorial review by Ed Stapleton Jr. · Founder & Editor

Related terms

What this means in practice

Why borrowers need to understand Soft Costs

Soft Costs appears in funding documents, application materials, lender disclosures, and ongoing servicing communications. Knowing the term in concept lets you read those documents with comprehension instead of skimming past.

The practical answer to "why does this matter" depends on where you are in the process. Application stage: it affects how the deal is structured. Funding stage: it appears as specific contractual language. Servicing stage: it governs how borrower and lender interact through the term.

Common context where this comes up

The term shows up in three places in most equipment financing transactions. First, at the application stage, where the lender uses the concept to assess the deal. Second, in the funding documents, where it appears as a specific provision tied to the lender obligations or the borrower obligations. Third, at term end or in the event of restructure or refinance, where the term governs how the deal unwinds.

Knowing where the term shows up in your specific paperwork is the practical step that protects you. The funding documents are the source of truth: application materials and verbal conversations do not override what the signed documents say.

Common misconceptions about soft costs

Two patterns of confusion come up regularly around this term. The first is mixing it with a related concept that carries a different practical effect. The second is assuming the lender treatment is standard across the market when it is actually lender-specific. Both are easy to verify in advance: ask us to walk through how the concept applies in your deal, and have the relevant section of the funding documents flagged at signing.

How we structure financing

The financing structure that fits depends on the actual situation. Below are the most common decision branches we walk through with buyers, in plain "if X, then Y" form.

If You are planning a Section 179 election close to year-end
Then Confirm placed-in-service date can be hit before December 31. Equipment ordered but not delivered/commissioned does not qualify for current-year §179, regardless of payment status.
If You plan to keep the equipment past the financing term
Then Use a loan or $1 buyout EFA structure. Operating lease and FMV lease structures cost more on a keep-past-term basis because of the residual buyout.
If Your business operates across multiple states
Then Confirm where to file the UCC-1 (state of incorporation vs state of equipment location). Standard practice files in state of incorporation; check with counsel on edge cases.
If You have existing equipment loans in good standing with us
Then Your application qualifies for relationship pricing. App-only programs often skip financials when you have a clean history with us.
If You are taking a Section 179 election this tax year
Then Use a loan or $1 buyout EFA. Operating lease structures do not qualify for §179 election. Confirm equipment placed in service before December 31.

Timeline expectations

What actually happens day-by-day, from application to equipment in service. Most buyers underestimate one or two of these steps; knowing them up front prevents surprises.

Full financing review on complex deals
5 to 10 business days
Larger transactions ($500K+) or specialty deals (medical imaging, aerospace, mining) often require deeper review. Plan funding date 2-3 weeks out for these.
Lease end-of-term decision deadline
60 to 90 days before term end
Most lease structures require notice of intent (purchase, return, or renew) 60-90 days before term end. Missing the deadline can trigger automatic renewal or other default consequences.
UCC-1 filing and search
Filing: same-day. Search: 1-2 business days
UCC-1 financing statement files electronically same-day in most states. Pre-funding UCC search to confirm no existing liens runs 1-2 business days.
Insurance binder issuance
Same-day to 24 hours
Commercial auto and equipment insurance binders typically issue same-day from existing carriers. New policies for new businesses can run 2-5 business days to bind.
Apportioned plate registration (trucking)
2 to 4 weeks
New-authority trucking operators need apportioned plates before crossing state lines. Plan this into the funding timeline; temporary trip permits bridge the gap at higher per-state cost.
Application submission to decision
24 hours to 5 business days
App-only programs decision same-day or next-day. Full-financials programs run 3-5 business days as the file moves through credit, then operations.

Cost stack: what total ownership actually includes

The equipment purchase price is one line on the financed amount. The actual cost of ownership over the life of a soft costs deal includes the items below. Buyers who only budget for the purchase price often hit cash-flow surprise within the first 12 months.

  • Extended warranty or service contract. Optional but common. Annual cost runs 5 to 15 percent of equipment price on production equipment, 1 to 3 percent on commercial vehicles. Financeable with the equipment.
  • Documentation and dealer fees. Lender doc fee runs $150 to $1,500. Dealer doc fee varies. Both may roll into financed amount or pay at signing.
  • Delivery and freight. Equipment delivery from dealer to operating site. Runs 1 to 5 percent of equipment price on standard equipment, higher on heavy or oversized equipment requiring permits and escorts.
  • End-of-term residual or buyout. Lease structures: fair market value buyout at term end (FMV lease) or stated residual amount (TRAC lease). Loan/EFA structures: $1 buyout or no buyout. Plan for this from day one on lease structures.
  • Pre-payment penalties. Standard early-payoff penalty: 3 percent of payoff in year one declining to zero by year three. Or flat fee of $500 to $2,000. Varies by lender.
  • Title transfer and registration. Titled equipment (trucks, trailers, some construction equipment) requires title transfer and registration. State-specific fees from $50 to $500+.
  • Operating consumables. Recurring costs not included in the equipment purchase: fuel, fluids, filters, tools, parts. Equipment-specific.
  • Equipment purchase price. Base equipment price as quoted by the dealer. Negotiable, especially on used equipment and end-of-quarter new equipment.

Authoritative sources

The rate ranges, structures, and program details on this page are informed by our internal financing book and the public industry resources below. We link out so you can verify any specific claim or go deeper.

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Reviewed by

Ed Stapleton Jr.

Founder & Editor

Ed Stapleton Jr. is a serial entrepreneur who has started or acquired over a dozen businesses. He founded Fund My Equipment as the resource he wished he had along the way.

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