Document:

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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<PAGE>

                                                                    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

<PAGE>

            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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<PAGE>

            (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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<PAGE>

      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.

                                      -5-
<PAGE>

            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:

                                      -6-
<PAGE>

      (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.

                                      -7-
<PAGE>

      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.

        [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURES APPEAR
                              ON FOLLOWING PAGE.]

                                      -8-
<PAGE>

      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

                                      -9-

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