Equipment Financing vs Equipment Lease: Buy or Lease?
Equipment Financing
A loan specifically for purchasing business equipment. You own the equipment outright after the loan is repaid and can claim depreciation and Section 179 deductions.
Equipment Lease
A rental agreement for business equipment with options to return, purchase, or upgrade at the end of the term. Lease payments are typically 100% tax-deductible as operating expenses.
Side-by-Side Comparison
| Feature | Equipment Financing | Equipment Lease |
|---|---|---|
| Ownership | You own the asset after payoff | Lessor owns unless you exercise buyout |
| Approval Speed | 1–7 days | 1–5 days |
| Term Length | 2–7 years | 2–5 years |
| Down Payment | 10%–20% typical | First and last month or $0 down |
| Monthly Payments | Higher (building equity) | Lower (no equity buildup) |
| Collateral Required | The equipment itself | None beyond the leased asset |
| Tax Benefits | Section 179 + depreciation deductions | 100% lease payment deduction as operating expense |
| Flexibility | Low — you are committed to the asset | High — upgrade or return at lease end |
| Total Cost of Capital | Lower long-term (you own the asset) | Higher long-term (no residual value) |
| Best Business Stage | Established businesses buying long-life equipment | Growing businesses needing latest technology |
Our Verdict
Finance equipment you plan to use for 5+ years — you build equity and the total cost is lower. Lease equipment that depreciates quickly or becomes obsolete, like technology and medical devices, where upgrading every few years keeps you competitive. Explore both options at /apply to see which saves your business more.
Best For
Equipment Financing
Businesses purchasing durable equipment with a long useful life — construction machinery, commercial vehicles, manufacturing equipment, or restaurant kitchen buildouts that will not become obsolete.
Equipment Lease
Businesses that need to stay current with rapidly evolving technology — IT infrastructure, medical devices, office equipment, or any asset you expect to replace within 3–5 years.
Frequently Asked Questions
What is Section 179 and how does it apply to equipment financing?
Section 179 allows you to deduct the full purchase price of qualifying equipment in the year you buy it, rather than depreciating over time. For 2024, you can deduct up to $1.22 million. This applies to financed purchases but not to standard operating leases.
What happens at the end of an equipment lease?
You typically have three options: return the equipment, purchase it at fair market value (or a predetermined price for $1 buyout leases), or upgrade to newer equipment under a new lease. The terms are defined in your lease agreement at signing.
Which option is better for cash flow?
Leasing preserves more working capital because down payments are lower (often $0) and monthly payments are smaller. However, financing builds equity in an asset you can later sell or use as collateral. If cash flow is tight, leasing keeps more money in your operating account.
Can I lease used equipment?
Yes, though options are more limited. Some lessors specialize in used equipment, but most prefer newer assets because residual values are easier to project. Equipment financing is generally more available for used equipment purchases.
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