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                                                                    EXHIBIT 10.3

                                                                  EXECUTION COPY

                                    GUARANTY

      This GUARANTY, dated as of this 29th day of September, 2004, by
MICROFINANCIAL INCORPORATED, a Massachusetts corporation with its chief
executive office at 10M Commerce Way, Woburn, Massachusetts 01801 (the
"Guarantor"), in favor of THE CIT GROUP/COMMERCIAL SERVICES, INC., having its
head office at 1211 Avenue of the Americas, New York, New York 10036 (together
with its successors and assigns, "CIT"), as agent (in such capacity, the
"Agent") for the Lenders under that certain Revolving Credit Agreement dated of
even date herewith (the "Credit Agreement"). Terms defined in the Credit
Agreement and not defined herein are used herein with the meanings given them in
the Credit Agreement.

      WHEREAS, Leasecomm Corporation, a Massachusetts corporation ("Leasecomm")
and TimePayment Corp. LLC ("TimePayment" and together with Leasecomm, the
"Borrower"), each a wholly owned subsidiary of the Guarantor, and CIT, the
Lenders and the Agent are entering into the Credit Agreement contemporaneously
herewith;

      WHEREAS, the Agent and the Lenders are unwilling to enter into the Credit
Agreement unless the Guarantor shall execute and deliver this Guaranty;

      NOW, THEREFORE, in order to induce the Agent and the Lenders to enter into
the Credit Agreement and to make Loans to the Borrower thereunder, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantor agrees as follows:

      1.GUARANTY. The Guarantor hereby unconditionally guarantees to the Agent
for the benefit of the Lenders the payment and performance by the Borrower of
all Obligations under the Credit Agreement, the Notes and the other Loan
Documents whether direct or indirect, absolute or contingent, due or to become
due or now existing or hereafter arising, including, without limitation, all
fees, costs, expenses and other amounts required to be paid thereunder (the
"Guaranteed Obligations"), whether upon demand, at stated maturity of the Loans,
upon acceleration for default or otherwise, strictly in accordance with the
terms of the Loan Documents as the same may at any time be amended, modified,
renewed or extended. In addition, "Guaranteed Obligations" shall also include
any and all costs and expenses incurred by the Agent and the Lenders in
enforcing this Guaranty, including, without limitation, reasonable attorneys'
fees and expenses incurred in connection therewith. It is understood and agreed
by the Guarantor that this is a guaranty of payment and not a guaranty of
collection only and that the Agent and the Lenders may proceed against the
Guarantor under this Guaranty, in one or more actions, suits or proceedings,
without pursuing or exhausting any right or remedy the Agent or any Lender may
have against the Borrower, any other guarantor or any other Person obligated
with respect to, or against any collateral securing the Guaranteed Obligations
or any part thereof under the Security Documents.

      2.REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents and
warrants to the Agent and the Lenders:

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            (a)   It is duly organized and validly existing and in good standing
under the laws of the Commonwealth of Massachusetts, and has full power,
authority and legal right and all licenses, authorizations, consents and
approvals necessary to own its properties as currently owned and to carry on the
business in which it is engaged or presently proposes to engage, and is duly and
validly qualified to do business and is in good standing in all jurisdictions in
which the character of the properties owned by it or the transaction of its
business requires it to qualify to do business, other than those jurisdictions
where the failure to so qualify does not and will not have a material adverse
effect on its business, operations, properties or condition, financial or
otherwise or its ability to perform its obligations under this Guaranty, or on
the rights and interests of the Agent or the Lenders or their respective
successors and the assigns hereunder.

            (b)   It has the power to execute, deliver and perform its
obligations under this Guaranty and has taken all necessary action, corporate or
otherwise, to authorize the execution, delivery and performance of this
Guaranty. No consent or approval of any Person (including, without limitation,
any stockholder of the Guarantor), and no consent, license, approval,
authorization, declaration, notice to or filing with any governmental authority
or regulatory body, is or will be required in connection with its execution,
delivery or performance, or the validity or enforcement, of this Guaranty.

            (c)   This Guaranty has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable in accordance
with its terms.

            (d)   The execution and delivery of this Guaranty by it will not (i)
violate or conflict with any provision of its certificate of incorporation or
by-laws or (ii) violate or conflict with any provision of, or constitute a
default under or breach of, or result in acceleration of any of its obligations
under any contract, mortgage, note, lien, lease, franchise, license, permit,
agreement, instrument, judgment, decrees, order, writ or award of any court or
arbitrator to which it is a party or by which it or its property is bound.

      3.OBLIGATIONS ABSOLUTE; REVIVAL. The liability of the Guarantor under this
Guaranty shall be absolute and unconditional irrespective of the validity,
legality or enforceability of the Loan Documents, or any collateral for, or
securing any of the Loans or any other Guaranteed Obligations or any part
thereof or any other circumstance or circumstances which might otherwise
constitute a legal or equitable discharge of, or a defense available to, a
surety or guarantor and regardless of any law, rule, regulation, order, writ,
judgment, decree, award or other administrative or judicial pronouncement now or
hereafter in effect in any jurisdiction purporting to affect in any manner any
of the terms of the Loan Documents. The Agent and the Lenders may at any time or
times, in their absolute discretion:

            (a)   upon application of the Borrower, extend or change the time,
manner, place or other term of payment of any of the Loans, as applicable, or
any part thereof;

            (b)   waive compliance by the Borrower or any other guarantor with
any term, covenant, agreement or condition on its part to be complied with under
the Loan Documents;

            (c)   obtain or release any collateral, or any guarantor (including
the Guarantor) obligated with respect to, the Loan Documents or any of the Loans
or any part thereof, for

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failure to file, record, re-file, re-record or otherwise perfect, or for
allowing to lapse any financing statements, pledge or other security interest,
covering or relating to any collateral for, or securing, any of the Loans or any
part thereof;

            (d)   settle or compromise with the Borrower, as applicable, or any
other Person obligated with respect to any of the Loans, or any part thereof,
and subordinate upon any terms the Lenders' rights to receive payment of the
Loans or any part thereof, and

            (e)   amend or otherwise modify the Loans or any part thereof or the
Loan Documents, or the liability of the Borrower or any other person or entity
obligated with respect thereto, in any manner;

all without notice to or the assent of the Guarantor and without affecting this
Guaranty or the liability of the Guarantor hereunder, which shall continue with
respect to the Guaranteed Obligations as extended, changed, modified, settled or
compromised, until fully paid in cash or payment is otherwise duly provided for
in a manner satisfactory to the Agent and the Lenders. This Guaranty, and the
liability of the Guarantor hereunder, shall be reinstated and revived, and the
Agent's and the Lenders' rights under this Guaranty shall continue, with respect
to any amount (or portion thereof) at any time paid to or received by the Agent
or any Lender on account of any of the Loans or the Loan Documents that shall,
at any time after the Agent's or such Lender's receipt of such payment, be
required to be restored or returned by the Agent or such Lender upon the
bankruptcy, insolvency or reorganization of the Borrower or any other Person
obligated with respect to any of the Loans, or for any other reason, all as
though such amount (or portion thereof) had not been so paid or received by the
Agent or such Lender.

      4. WAIVER OF SUBROGATION CLAIMS; SUBORDINATION.

            (a)   The Guarantor hereby waives any claims, rights or remedies
which it may now have or hereafter acquire against the Borrower that arise
hereunder and/or from the performance by it hereunder, including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification or participation in any claim, right
or remedy of the Agent or any Lender against the Borrower or any security which
the Agent or any Lender now has or hereafter acquires, whether or not such
claim, right or remedy arises in equity, under contract, by statute, under
common law or otherwise, and if any amount shall be paid to the Guarantor on
account of such rights, each and every amount so paid shall forthwith be paid to
the Agent, to be credited and applied against the Obligations, whether matured
or matured.

            (b)   The Guarantor hereby agrees that any and all of its rights to
the payment of any and all present and future Indebtedness and dividends and
distributions in respect of stock of the Borrower to the Guarantor shall be
subordinate and subject to the rights of the Agent and the Lenders to payment in
full of the Obligations, and if an Event of Default shall have occurred and
payment in full of the Obligations shall have been demanded, all of the
Obligations shall be paid in full and all of the Lenders' Commitments shall have
terminated before any payment or other distribution shall be made by any
Borrower to the Guarantor.

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            (c)   The Guarantor hereby agrees that should any payment or
distribution be received by the Guarantor contrary to the provisions of this
Section or contrary to the provisions of the Credit Agreement, whether in
connection with any insolvency, bankruptcy, liquidation, reorganization,
arrangement, readjustment, composition, dissolution or other similar proceeding
involving the Borrower, or otherwise, such payment or distribution shall be paid
over to the Agent for application to the Obligations or any of the other
Guaranteed Obligations, whether or not then due and in the order set forth in
Section 2.8 of the Credit Agreement, and the Guarantor hereby irrevocably
assigns to the Agent for the benefit of the Lenders all of its claims against
and all rights in and to all Indebtedness due to the Guarantor from the
Borrower, and the Guarantor hereby irrevocably authorizes and appoints the Agent
to effect the collection of any amounts due thereon for application to the
payment of the Guaranteed Obligations.

      5.GUARANTOR'S CONSENT TO SET-OFF. Upon the occurrence of any default in
payment of principal or interest of any Note in accordance with the terms
thereof and after applicable grace periods, if any (whether upon demand, at
stated maturity, upon acceleration for default or otherwise), or upon occurrence
and continuance of a Default, each Lender is hereby irrevocably authorized at
any time and from time to time without notice to the Guarantor, any such notice
being expressly waived by the Guarantor, to set- off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or final),
in any currency, and any other credits, indebtedness or claims, in any currency,
in each case whether direct or indirect or contingent or matured or unmatured,
at any time held or owing by the such Lender to or for the credit or the account
of the Guarantor, or any part thereof, in such amounts as such Lender may elect,
against and on account of the Guaranteed Obligations, in any currency, as such
Lender may elect, whether or not such Lender has made any demand for payment.
The rights of the Lenders under this paragraph are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which the
Lenders may have.

      6.WAIVER. The Guarantor hereby waives (a) acceptance of this Guaranty by
the Agent and the Lenders and notice thereof, (b) presentment for payment,
demand, notice of non payment, protest and notice of protest with respect to
each of the Loans or the other Guaranteed Obligations or any part thereof and
all other notices and (c) promptness by the Agent or any Lender in giving any
notice to or making any claim or demand upon the Guarantor hereunder, but no act
or omission of any kind in the premises shall in any way affect this Guaranty or
impair the Agent's or any Lender's rights hereunder.

      7.NOTICES. Except as otherwise provided for herein, all notices, requests,
reports and other communications pursuant to this Guaranty shall be in writing,
either by letter (delivered by hand or commercial messenger service or sent by
certified mail, return receipt requested), or telecopier (followed by a hard
copy), addressed as follows:

      If to the Guarantor:

                MicroFinancial Incorporated
                10M Commerce Way
                Woburn, Massachusetts 01801
                Attention:  Richard F. LaTour, President
                Telecopier: (781) 994-4710

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      with a copy to:

                Edwards & Angell
                100 Federal Street
                Boston, Massachusetts 02110
                Attention: Gerald P. Hendrick, Esq.
                Telecopier: (617) 439-4170

      If to CIT or the Agent:

                1211 Avenue of the Americas
                New York, New York 10036
                Attention:  Stephen Leavenworth, Senior Vice President
                Telecopier: (212) 382-6875

      with a copy to:

                Burton Winnick, Esq.
                Gadsby Hannah LLP
                225 Franklin Street
                Boston, Massachusetts 02110
                Telecopier: (617) 204-8015

      If to any other Lender, at such Lender's address for notices set forth in
      the Credit Agreement;

or at any other address specified by such party in writing.

Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or commercial messenger
service to such party at its address specified above, or, if sent by mail, on
the third Business Day after the day deposited in the mail, postage prepaid, or,
if sent by telecopier, when electronically or verbally confined. Any party may
change the person or address to whom or which notices are to be given hereunder,
by notice duly given hereunder; provided, however that any such notice shall be
deemed to have been given hereunder only when actually received by the party to
which it is addressed.

      8. APPLICATION OF PAYMENTS AND CONTINUING GUARANTY. All amounts paid
hereunder (other than amounts paid in respect of costs and expenses of the Agent
and the Lenders incurred in enforcing this Guaranty) shall be applied to reduce
the Guaranteed Obligations. This Guaranty shall remain in full force and effect
until the Guaranteed Obligations shall have been indefeasibly paid in full in
cash or payment of the Guaranteed Obligations has been duly provided for in a
manner satisfactory to the Agent and the Lenders, all expenses (which the
Guarantor hereby agrees to pay) incurred by the Agent and the Lenders in
enforcing this Guaranty have been paid, and all of the Commitments shall have
terminated. This Guaranty may not be released, altered, modified or amended
except in a writing signed by the Agent.

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      9. GOVERNING LAW BINDING CHARACTER. This Guaranty shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without reference to its principles of conflict of laws. This Guaranty shall be
binding upon the Guarantor and its successors and assigns and shall inure to the
benefit of the Agent, the Lenders, and their respective successors and assigns.
Notwithstanding the foregoing, the Guarantor shall not be permitted to assign
any of its obligations hereunder (voluntarily, by operation of law or otherwise)
without the prior written consent of the Agent and the Lenders.

      10. CONSENT TO JURISDICTION. The Guarantor irrevocably consents that any
legal action or proceeding against it under, arising out of or in any manner
relating to this Guaranty or any Loan Document may be brought in any court of
the State of New York or any Federal Court sitting therein. The Guarantor, by
the execution and delivery of this Guaranty, expressly and irrevocably assents
and submits to the personal jurisdiction of any of such courts in any such
action or proceeding. The Guarantor further irrevocably consents to the service
of any complaint, summons, notice or other process relating to any such action
or proceeding by delivery thereof to it by hand or by mail in the manner
provided for in Section 7 hereof. The Guarantor hereby expressly and irrevocably
waives any claim or defense in any such action or proceeding based on any
alleged lack of personal jurisdiction, improper venue or forum non conveniens or
any similar basis. The Guarantor shall not be entitled in any such action or
proceeding to assert any defense given or allowed under the laws of any state
other than the State of New York unless such defense is also given or allowed by
the laws of the State of New York. Nothing in this Section 10 shall affect, or
impair in any manner or to any extent the right of the Agent or any Lender to
commence legal proceedings or otherwise proceed against the Guarantor in any
jurisdiction or to serve process in any manner permitted by law.

      11. WAIVER OF JURY TRIAL. THE GUARANTOR WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF,
THIS GUARANTY OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF.

      12. SURVIVAL. The representations and warranties of the Guarantor set
forth in Section 2 hereto shall survive the execution and delivery of this
Guaranty.

      13. REMEDIES. All remedies afforded by reason of this Guaranty are
separate and cumulative remedies and it is agreed that no one of such remedies,
whether exercised or not, shall be deemed to be in exclusion of any of the other
remedies available to the Agent and the Lenders and shall in no way limit or
prejudice any other legal or equitable remedy which the Agent or any Lender may
have hereunder and with respect to the Guaranteed Obligations. The Guarantor
agrees that included within the equitable remedies available hereunder is the
right of the Lenders to elect to have any and all of the obligations and
agreements of the Guarantor hereunder specifically performed.

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                                                                  EXECUTION COPY

                                           MICROFINANCIAL INCORPORATED

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