For Release October 25, 2006	Contact:
4:01 pm	Richard F. Latour
	President and CEO
	Tel: 781-994-4800

MICROFINANCIAL INCORPORATED ANNOUNCES
THIRD QUARTER 2006 RESULTS
- Net Income Per Share Grows 100% to $0.06 -
- 100% Increase in Lease Originations -

Woburn, MA – October 25, 2006 — MicroFinancial Incorporated (AMEX-MFI), a financial intermediary specializing in vendor based leasing and finance programs for transactions in the $500 to $15,000 range, today announced financial results for the third quarter and the nine months ended September 30, 2006.

Net income for the quarter was $0.9 million or $0.06 per diluted share based upon 13,942,572 shares, compared to net income of $0.4 million, or $0.03 per diluted share based on 13,910,948 shares in the third quarter of 2005.

Revenue in the third quarter of 2006 was $7.8 million compared to $9.4 million in the third quarter of 2005. Revenue from leases was $1.0 million, rental income was $5.1 million, income on service contracts was $0.4 million and other revenue components contributed $1.3 million for the current quarter.

Total operating expenses for the current quarter declined 26.3% to $6.4 million from $8.7 million in the third quarter of 2005. The third quarter 2006 provision for credit losses increased to $1.9 million from $1.6 million in the third quarter of 2005. Although net charge-offs increased $1.0 million to $3.2 million versus the comparable period of 2005, amounts greater than 31 days delinquent on September 30, 2006 decreased to $9.5 million from $20.1 million on September 30, 2005 and from $13.1 million on June 30, 2006. Selling, general and administrative expenses decreased 25.8% to $3.3 million from $4.5 million in the third quarter of last year. The reduction in SG&A expenses compared to last year includes reductions of $0.6 million in compensation related costs and $0.5 million in legal expenses. Interest expense declined 88.7% to $23 thousand, as a result of lower debt balances. Depreciation and amortization expense declined 51.5% to $1.2 million for the quarter, due to a decline in the number of rental and service contracts as well as the fact that a greater percentage of these assets are fully depreciated.

Cash received from customers for the quarter was $9.0 million compared to $13.1 million during the same period in 2005. Sequentially, cash and cash equivalents declined slightly to $32.6

million at September 30, 2006, compared to $33.1 million at June 30, 2006. New originations doubled to $6.4 million in the third quarter of 2006, compared to the second quarter of 2006, and increased by $4.8 million over the same period in 2005.

Richard Latour, President and Chief Executive Officer said, “We continue to improve our origination efforts on a quarterly basis. In the third quarter of 2006, the Company had a 29% increase in applications processing over 4,900 as compared to approximately 3,800 in the second quarter. We also had a 100% increase in lease originations funding $6.4 million as compared to $3.2 million in the second quarter of 2006. In addition we approved 145 new vendors in the third quarter of 2006. We continue to focus our attention on rebuilding our vendor base and origination business, as well as, looking for portfolios and other opportunities.”

Year to date net income for the period ending September 30, 2006, was $2.2 million versus a net loss of $2.5 million for the same period last year. Net income per diluted share year to date was $0.15 based on 13,928,399 shares.

Year to date revenues for the nine months ended September 30, 2006 decreased 18.0% to $24.9 million compared to $30.4 million during the same period in 2005. New contract originations year to date September 30, 2006 were $12.5 million versus $4.1 million through the same period last year.

Total operating expenses for the nine months ended September 30, 2006 declined 37.2% to $21.3 million versus $34.0 million for the same period last year. Selling, general and administrative expenses declined $5.3 million to $11.4 million and depreciation and amortization expenses declined 37.5% to $4.6 million. Significant factors in the decline of the SG&A expense include a decline in compensation costs of $2.0 million, collection expenses of $1.3 million, and legal expenses of $0.6 million. The provision for credit losses declined $3.7 million to $5.1 million, year to date, as compared to the same period last year. Interest expense declined 86.3% to $0.1 million year to date. Headcount at September 30, 2006 was 66, down from 89 for the same period last year. Year to date net charge-offs declined to $8.3 million as compared to $14.6 million for the same period last year. Year to date cash from customers was $30.8 million.

The Company recently paid a dividend of $0.05 per share on October 16, 2006, to shareholders of record at the close of business on September 29, 2006. This has been the ninth dividend paid by the Company since February 2005. The dividend policy is subject to review by the Company’s Board of Directors on a quarterly basis.

MICROFINANCIAL INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

	December 31,			September 30,
	2005			2006
ASSETS
Cash and cash equivalents	$	32,926		$	32,580
Net investment in leases:
Receivables due in installments		29,139			31,668
Estimated residual value		3,865			2,875
Initial direct costs		98			204
Less:
Advance lease payments and deposits		(35	)		(44	)
Unearned income		(3,658	)		(9,230	)
Allowance for credit losses		(8,714	)		(5,587	)
Net investment in leases		20,695			19,886
Investment in service contracts, net		1,626			771
Investment in rental contracts, net		3,025			708
Property and equipment, net		719			751
Other assets		1,315			731
Deferred income taxes		4,882			3,458
Total assets	$	65,188		$	58,885

LIABILITIES AND STOCKHOLDERS’ EQUITY

	December 31,		September 30,
	2005		2006
Notes payable	$	161	$	38
Subordinated notes payable		2,602		300
Accounts payable		1,099		821
Dividends payable		4,114		690
Other liabilities		2,094		1,825
Income taxes payable		431		—
Total liabilities		10,501		3,674
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at December 31, 2005 and September 30, 2006		—		—
Common stock, $.01 par value; 25,000,000 shares authorized; 13,713,899 and 13,808,942 shares issued at December 31, 2005 and September 30, 2006, respectively		137		138
Additional paid-in capital		43,839		44,281
Retained earnings		10,711		10,792
Total stockholders’ equity		54,687		55,211
Total liabilities and stockholders’ equity	$	65,188	$	58,885

MICROFINANCIAL INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2005		2006		2005			2006
Revenues:
Income on financing leases	$	832	$	1,007	$	3,442		$	2,403
Rental income		6,469		5,121		19,330			16,436
Income on service contracts		792		435		2,818			1,478
Loss and damage waiver fees		681		431		2,251			1,475
Service fees and other		595		848		2,559			3,124
Total revenues		9,369		7,842		30,400			24,916
Expenses:
Selling, general and administrative		4,461		3,312		16,699			11,445
Provision for credit losses		1,576		1,887		8,870			5,124
Depreciation and amortization		2,465		1,195		7,414			4,634
Interest		203		23		986			135
Total expenses		8,705		6,417		33,969			21,338
Income (loss) before provision (benefit) for income taxes		664		1,425		(3,569	)		3,578
Provision (benefit) for income taxes		310		573		(1,032	)		1,424
Net income (loss)	$	354	$	852		($2,537	)	$	2,154
Net income (loss) per common share:
Basic	$	0.03	$	0.06		($0.19	)	$	0.16
Diluted	$	0.03	$	0.06		($0.19	)	$	0.15
Weighted-average shares:
Basic		13,710,683		13,803,996		13,518,351			13,784,650
Diluted		13,910,948		13,942,572		13,518,351			13,928,399

About The Company

MicroFinancial Inc. (AMEX: MFI), headquartered in Woburn, MA, is a financial intermediary specializing in leasing and financing for products in the $500 to $15,000 range. The Company has been in operation since 1986.

Statements in this release that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes,” “anticipates,” “expects,” “views,” “will” and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Readers should not place undue reliance on forward-looking statements, which reflect the management’s view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. The Company cannot assure that it will be able to anticipate or respond timely to changes which could adversely affect its operating results in one or more fiscal quarters. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of the Company’s common stock. Statements relating to past dividend payments or the Company’s current dividend policy should not be construed as a guarantee that any future dividends will be paid. For a more complete description of the prominent risks and uncertainties inherent in the Company’s business, see the risk factors described in documents the Company files from time to time with the Securities and Exchange Commission.