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                                                                    EXHIBIT 10.4

                                                                  EXECUTION COPY

                                PLEDGE AGREEMENT

      This PLEDGE AGREEMENT (this "Agreement" or "Pledge Agreement"), dated as
of the 29th day of September, 2004, is by and between MICROFINANCIAL
INCORPORATED, a Massachusetts corporation (the "Pledgor"), and THE CIT
GROUP/COMMERCIAL SERVICES, INC., as Agent (the "Secured Party"). Capitalized
terms used herein without definition shall have the meanings given to them in
the Credit Agreement (defined below).

                              W I T N E S S E T H:

      WHEREAS, Leasecomm Corporation, a Massachusetts corporation ("Leasecomm")
and TimePayment Corp. LLC, a Delaware limited liability company qualified to do
business in the Commonwealth of Massachusetts ("TimePayment") (together, the
"Borrower"), and the Secured Party have entered into a Revolving Credit
Agreement dated as of the date hereof (the "Credit Agreement"); and

      WHEREAS, the Pledgor is the holder of 100% of the stock ownership interest
in Leasecomm and 100% of the membership interests in TimePayment; and

      WHEREAS, the Pledgor has guaranteed all Obligations of the Borrower as
more particularly described in a certain Guaranty of even date herewith (the
"Guaranty"); and

      WHEREAS, the obligation of the Secured Party to enter into the Credit
Agreement and extend financial accommodations to the Borrower is subject to the
condition, among others, that Pledgor execute and deliver to the Secured Party
this Pledge Agreement, and pledge to the Secured Party all of its right, title
and interest in and to the Interests (as herein defined) to secure the
Guaranteed Obligations (as defined in the Guaranty).

      NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:

      1.    PLEDGE OF INTERESTS.

            (a)   As security for the Guaranteed Obligations of the Pledgor to
the Agent under the Guaranty, the Pledgor hereby pledges and assigns to Secured
Party all of its right, title and interest in and to the following property
(such interest, whether certificated or uncertificated, together with the
property referred to in Section 1(c) below, are herein referred to as the
"Interests") to be held by the Secured Party in accordance with the terms and
conditions set forth herein:

            One Hundred Percent (100%) of the Pledgor's stock ownership
            interest in Leasecomm; and

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            One Hundred Percent (100%) of the Pledgor's membership
            interest in TimePayment.

            (b)   All certificates (if any) representing any certificated
Interests in TimePayment, accompanied by instruments of assignment thereof, and
stock certificate(s) representing ownership of the stock of Leasecomm,
accompanied by stock powers thereof, duly executed in blank by the Pledgor (the
"Pledged Documents"), are simultaneously being delivered to the Secured Party.
The Interests shall be held by the Secured Party to secure the Guaranteed
Obligations, and shall continue to be held pursuant to this Pledge Agreement
until full satisfaction of all Guaranteed Obligations in accordance with the
terms and conditions hereof and the Credit Agreement.

            (c)   In case the Pledgor shall acquire, directly or indirectly, any
additional equity interest in either Borrower or any Affiliate, or any
securities exchangeable for or convertible into interests of any class, by
dividend, split, distribution of capital or otherwise, or shall acquire any
additional marketable securities, whether or not related to the Interests, the
Pledgor shall forthwith pledge, assign and deliver, or cause to be pledged,
assigned and delivered, to Secured Party such interests or other securities to
be held by Secured Party subject to, and in accordance with, the terms and
conditions of this Pledge Agreement.

      2.    GUARANTEED OBLIGATIONS. The Interests now or hereafter pledged,
assigned and delivered to Secured Party pursuant to the terms and conditions of
this Pledge Agreement shall secure the Guaranteed Obligations of the Pledgor
under the Guaranty.

      3.    DIVIDENDS; DISTRIBUTIONS UPON LIQUIDATION OR RECAPITALIZATION. The
Pledgor agrees that, except as permitted pursuant to Section 7.7 of the Credit
Agreement, (a) any sums paid upon or with respect to any of the Interests upon
the liquidation or dissolution of either Borrower, and all cash or other
dividends or distributions made by the Borrower on or in respect of the
Interests, shall be paid over to Secured Party to be held by it as additional
security for the Guaranteed Obligations, (b) upon the distribution of capital or
principal on or in respect of any of the Interests, or upon the distribution of
any property on or with respect to any of the Interests in connection with the
recapitalization or reclassification of the capital or pursuant to the
reorganization of the Borrower, the property so distributed shall be delivered
to the Secured Party to be held as additional security for the Guaranteed
Obligations, and (c) all sums of money and property paid or distributed on or in
respect of the Interests upon such a liquidation, dissolution, recapitalization
or reclassification, and all cash or other dividends or distributions made by
the Borrower on or in respect of the Interests, which are received by the
Pledgor shall be held in trust for Secured Party as additional security for the
Guaranteed Obligations by Pledgor until paid or delivered to Secured Party.

      4.    REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to
Secured Party that: (a) Pledgor has good and valid title to the Interests, free
of any liens (except in favor of Secured Party), options or restrictions on
transfer; (b) Pledgor is a duly formed Massachusetts corporation, in good
standing under the laws of the Commonwealth of Massachusetts, and as such has
full power, authority and legal right to enter into this Pledge Agreement, to
pledge the Interests to Secured Party and otherwise perform and observe all of
its obligations hereunder, without necessity of any consent or waiver of any
other Person; (c) the execution, delivery and

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performance of this Pledge Agreement by Pledgor does not contravene the terms of
any law, indenture, agreement or undertaking by which it or any of its property
or assets is bound; (d) the execution, delivery and performance by Pledgor of
the terms and conditions of this Pledge Agreement will not result in the
imposition or creation of any lien upon any of its property or assets under any
law or any existing indenture, mortgage, deed of trust, loan or financing
agreement or other agreement or instrument to which it is a party or by which it
or any of its property or assets is or may be bound except for liens in favor of
the Secured Party; and (e) this Pledge Agreement represents Pledgor's legal,
valid and binding obligation, enforceable against it in accordance with the
terms hereof, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and general equitable principles.

      5.    DEFENSE OF RIGHTS AND TITLE. Pledgor shall defend its title in the
Interests, and Secured Party's rights and security interests therein, against
the claims and demands of any other Person.

      6.    VOTING. Unless and until an Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to vote its Interests (if applicable)
and to give consents, waivers and ratifications in respect thereof; provided,
however, that no vote shall be cast, or consent, waiver or ratification given or
action shall be taken which would be inconsistent with or violate any provision
of this Pledge Agreement or the Credit Agreement or any other documents executed
in connection therewith. As used herein, "Event of Default" shall: (i) have the
meaning ascribed to such term in the Credit Agreement; and (ii) mean any breach
by Pledgor of any term or provision of this Pledge Agreement which is not cured
within ten (10) days after written notice thereof from the Secured Party.
Pledgor's rights to vote and give consents, waivers and ratifications with
respect to the Interests, at Secured Party's option, shall cease after the
occurrence and during the continuance of an Event of Default, regardless of
whether notice of such an Event of Default is given by Secured Party.

      7.    RIGHTS AND REMEDIES UPON DEFAULT. Upon and after the occurrence, and
during the continuance, of any Event of Default, Secured Party without notice or
demand (except to the extent required herein) shall have the following rights
and remedies (such rights and remedies being cumulative and enforceable by
Secured Party alternatively, successively or concurrently, and at such times
deemed expedient by Secured Party):

            (a)   All rights and remedies provided by law, including without
limitation, those provided by the Uniform Commercial Code as enacted in the
State of New York;

            (b)   The right to vote any or all of the Interests (if applicable)
and to give all consents, waivers and ratifications in respect thereof and
otherwise to act with respect thereto as though it were the outright owner
thereof (whether or not any or all of such Interests shall have been transferred
into the name of Secured Party), and in connection therewith, Pledgor hereby
irrevocably appoints Secured Party as its attorney-in-fact, with full power of
substitution, to cast such votes and give such consents, waivers and
ratifications;

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            (c)   The right to demand, sue for, collect, or make any compromise
or settlement that Secured Party deems expedient in respect of the Interests,
whether or not any of the Guaranteed Obligations are due;

            (d)   The right to sell, resell, assign and deliver, or otherwise
dispose of any or all of the Interests or other property or assets held as
security hereunder, upon such terms and at such times and at such places to such
Persons deemed convenient by Secured Party, all without demand, notice or
advertisement (except to the extent required herein or by any applicable law);
and

            (e)   The right to cause any or all of the Interests to be
transferred into the name of Secured Party or the names of any of its nominees,
provided that the Interests shall be held by the Secured Party or its nominee as
security for the Guaranteed Obligations subject to and in accordance with the
terms and conditions hereof.

      8.    SALE OF INTERESTS.

            (a)   Secured Party will give Pledgor at least ten (10) days' prior
written notice in accordance with Section 17 hereof of the time and place of any
public sale of any Interests or of the time after which any private sale or any
other intended disposition thereof is to be made. Any such notice shall be
deemed to meet any requirement hereunder or under any applicable law (including,
without limitation, the UCC) that reasonable notification be given of the time
and place of such sale or other disposition. After deducting all costs and
expenses of collection, storage, custody, sale or other disposition and delivery
(including reasonable legal costs and reasonable attorneys' fees) and all other
charges against the Interests, the residue of the proceeds of any such sale or
disposition shall be applied to the payment of the Guaranteed Obligations and
any surplus shall be returned to Pledgor or to any person or party lawfully
entitled thereto (including, if applicable, any subordinated creditors of
Pledgor).

            (b)   Pledgor recognizes that Secured Party may be unable to effect
a public sale of the Interests by reason of certain prohibitions contained in
the Securities Act of 1933, as amended, and in the rules and regulations
promulgated thereunder (the "Act"). Pledgor agrees that any private sales of the
Interests to a restricted group of purchasers in compliance with the Act shall
not be deemed to have been made in a commercially unreasonable manner solely
because such private sales were made at prices and other terms less favorable to
the seller than if sold at public sales. Secured Party shall be under no
obligation to delay a sale of any of the Interests for the period of time
necessary to permit any issuer of the Interests to register such Interests for
public sale under the Act, even if the issuer thereof would agree to cause their
registration.

      9.    MARSHALLING. Secured Party shall not be required to marshal any
present or future collateral security for or guaranties of the Guaranteed
Obligations (including without limitation the Interests pledged hereunder), or
to resort to such security or guaranties in any particular order. All of Secured
Party's rights hereunder and in respect of the Interests and any other security
and guaranties shall be cumulative and in addition to all other rights of
Secured Party, however existing or arising.

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      10.   FURTHER ASSURANCES. Pledgor shall promptly execute and deliver to
Secured Party upon request such financing statements, certificates, stock
powers, proxies and other documents or instruments as Secured Party reasonably
deems necessary to enable Secured Party to perfect, or from time to time renew
or reaffirm, or perfect, or realize upon, or continue the perfection of, the
security interest granted hereby, including, without limitation, such financing
statements, certificates and other documents as may be necessary to perfect a
security interest in any additional Interests hereafter acquired by Pledgor or
in any replacements or proceeds thereof. Pledgor irrevocably authorizes and
appoints Secured Party as its attorney-in-fact, with full power of substitution,
to execute upon the occurrence, and during the continuance, of an Event of
Default such financing statements, certificates and other documents. The rights
and powers conferred on Secured Party by Pledgor are expressly declared to be
coupled with an interest and shall be irrevocable until all the Obligations are
paid and performed in full. Pledgor further agrees that a carbon, photographic
or other reproduction of a security agreement or financing statement is
sufficient as a financing statement under this Pledge Agreement. With respect to
any Interests hereunder which are book entry or uncertificated securities,
Pledgor authorizes Secured Party to cause the security interest therein to be
noted on the books and records of the issuer thereof or other registrar therefor
and to take such other actions as may be necessary to perfect Secured Party's
security interest therein. Pledgor shall pay to Secured Party on demand all
reasonable out-of-pocket fees, costs and expenses incurred by Secured Party in
connection with the administration of this Pledge Agreement, including, without
limitation, overnight courier fees, lien search fees, and filing and recording
fees.

      11.   TRANSFERS. Pledgor shall not sell, assign, transfer or otherwise
dispose of, grant any option with respect to, or pledge or grant any security
interest in or otherwise encumber any of the Interests or any interest therein
except as provided herein without the prior written consent of Secured Party.

      12.   WAIVERS. To the extent not prohibited by any applicable law that
cannot be waived, the Pledgor hereby waives presentment, demand, notice, protest
and, except as is otherwise provided herein, all other demands and notices in
connection with this Pledge Agreement or the enforcement of Secured Party's
rights hereunder or in connection with any of the Guaranteed Obligations or the
Interests. The Pledgor further consents to and waives notice of the granting of
renewals, any extension or postponement of the time for payment of any of the
Guaranteed Obligations or any other indulgence, and the addition or release of
the Interests or persons primarily or secondarily liable on any Guaranteed
Obligations, the acceptance of partial payments on any of the Guaranteed
Obligations or the Interests and/or the settlement or compromise thereof. No
delay or omission on the part of Secured Party in exercising any right hereunder
or under the Credit Agreement or under any other agreements, instruments or
documents shall operate as a waiver of such right or of any other right
hereunder. Any waiver of any such right on any one occasion shall not be
construed as a bar to or waiver of any such right on any such future occasion.
To the extent not prohibited by any applicable law that cannot be waived,
Pledgor further waives any right it may have under the constitution of the State
of New York or under the Constitution of the United States of America, to notice
(other than any requirement of notice provided herein) or to a judicial hearing
prior to the exercise of any right or remedy provided by this Agreement to
Secured Party and waives its rights, if any, to set aside or invalidate any sale
duly consummated in accordance with the foregoing provisions hereof on the
grounds (if such be the case) that the sale was consummated without a prior
judicial hearing.

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            PLEDGOR'S WAIVERS UNDER THIS SECTION HAVE BEEN MADE
            VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER PLEDGOR
            HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE
            NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.

      13.   TERMINATION; ASSIGNMENT. This Pledge Agreement and the security
interest in the Interests created hereby shall terminate when the Guaranteed
Obligations have been paid and irrevocably discharged in full and any Pledged
Documents that were delivered to the Secured Party shall be returned to the
Pledgor. No waiver by Secured Party or by any other holder of the Guaranteed
Obligations of any default shall be effective unless in writing nor operate as a
waiver of any other default or of the same default on a future occasion. In the
event of a sale or assignment by Secured Party of the Guaranteed Obligations
held by it, Secured Party may assign or transfer its rights and interests under
this Agreement in whole or in part to the purchaser or purchasers of such
Guaranteed Obligations, whereupon such purchaser or purchasers shall become
vested with all of the powers, rights and obligations of Secured Party
hereunder, and Secured Party shall thereafter be forever released and fully
discharged from any liability or responsibility thereafter arising hereunder
with respect to the rights and interests so assigned.

      14.   REINSTATEMENT. The provisions of Section 13 hereof notwithstanding,
this Pledge Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any amount received by Secured Party in respect of
the Interests is rescinded or must otherwise be restored or returned by Secured
Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of Pledgor or the Borrower, or upon the appointment of any
intervenor or conservator of, or trustee or similar official for any of them or
any substantial part of their properties, or otherwise, all as though such
payments had not been made.

      15.   GOVERNMENTAL APPROVALS. Upon the exercise by Secured Party of any
power, right, privilege or remedy pursuant to this Pledge Agreement which
requires any consent, approval, registration, qualification or authorization of
any governmental authority or instrumentality, Pledgor will execute and deliver,
or will cause the execution and delivery of, all applications, certificates,
instruments and other documents and papers that Secured Party may be required to
obtain for such governmental consent, approval, registration, qualification or
authorization; provided that neither the Pledgor nor the Borrower shall be
required to effect a public registration of all of part of the Interests
pursuant to the Act or other similar state securities law.

      16.   CERTAIN DEFINITIONS. Capitalized terms used herein without
definition which are defined in the Credit Agreement shall have the respective
meanings ascribed to them therein.

      17.   NOTICES. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be served, given
or delivered by hand, by overnight courier for which a receipt is received, or
by certified mail, and in each case shall be effective upon actual receipt or
refusal of delivery addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, as follows:

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      (A) if to the Secured Party, at:

            The CIT Group/Commercial Services, Inc., as Agent
            1211 Avenue of the Americas, 12th Floor
            New York, New York 10036
            Attn:  Stephen Leavenworth, Senior Vice President

      (B) if to the Pledgor at:

            MicroFinancial Incorporated
            10-M Commerce Way
            Woburn, MA  01801

With a courtesy copy of any material notice to the Pledgor's counsel at:

            Edwards & Angell, LLP
            101 Federal Street
            Boston, MA 02110
            Attn:  Gerald P. Hendrick, Esq.

And to the Secured Party's counsel at:

            Gadsby Hannah LLP
            225 Franklin Street
            Boston, MA  02110
            Attn:  Burton Winnick, Esquire

provided, however, that the failure of the Secured Party to provide the
Pledgor's counsel with a copy of such notice shall not invalidate any notice
given to the Pledgor and shall not give the Pledgor any rights, claims or
defenses due to the failure of the Secured Party to provide such additional
notice.

      18.   OTHER MATTERS. This Pledge Agreement incorporates all discussions
and negotiations between Pledgor and Secured Party concerning this Pledge
Agreement. This Pledge Agreement shall inure to the benefit of and be binding
upon Secured Party and Pledgor and their respective successors and assigns. No
provision hereof may be altered, amended, waived, canceled or modified, except
by a written instrument executed and acknowledged by a duly authorized officer
of Secured Party. In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. The
section headings in this Agreement are for convenience of reference only and
shall not be considered in construing this Pledge Agreement. This Pledge
Agreement may be executed in counterparts and by the different parties hereto on
separate counterparts, each of which shall be an original, but together shall
constitute one instrument.

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      19.   GOVERNING LAW; JURY TRIAL; WAIVERS OF SERVICE AND DAMAGES. THE
VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.

THE PLEDGOR AND THE SECURED PARTY EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREUNDER. THE PLEDGOR HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE
OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE SECURED PARTY BE LIABLE FOR LOST
PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.

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      IN WITNESS WHEREOF, Pledgor and Secured Party have each executed this
Pledge Agreement as a sealed instrument as of the date first above written.

                             PLEDGOR:

                             MICROFINANCIAL INCORPORATED

                             By: /s/ Richard F. Latour
                                 ----------------------------
                                 Richard F. Latour, President

                             ACCEPTED AND AGREED

                             SECURED PARTY:

                             THE CIT GROUP/COMMERCIAL SERVICES, INC.
                             AS AGENT

                             By: /s/ Daniel B. Ciotti
                                 --------------------------------
                                 Daniel B. Ciotti, Vice President

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