Equipment leasing

What is equipment leasing?

A leasing company buys the equipment and rents it to you. There are two main kinds. A fair market value lease has the lowest payments and lets you return the equipment or buy it at its current value when the term ends. A $1 buyout lease, also called a capital lease, has higher payments and transfers ownership to you for $1 at the end; in practice it is a loan by another name.

Between them sit fixed purchase option leases, often 10% of the original cost. The choice changes the payment, the tax treatment and who owns the asset. Equipment financing is the alternative if you know you want to own it.

Who qualifies for an equipment lease?

Leasing companies approve a wider range of businesses than banks because they own the asset and can take it back. Most want one year in business, owner credit of 600 or higher and bank statements showing the payment is affordable. Startups are often approved with 620 to 680 credit and the first and last payment up front.

• Declined most often: equipment with poor resale value, owners with a prior repossession or lease default, and industries the lessor has lost money in.
• Vendor and manufacturer programs are often the easiest approvals, since the vendor subsidizes the rate to make the sale.
• If credit is the issue, see bad credit options; a larger first payment often turns a decline into an approval.

What does an equipment lease really cost?

A typical example on an $80,000 machine over five years. A fair market value lease might run $1,450 a month, $87,000 in total, after which you return it or buy it for its market value, often $8,000 to $16,000. A $1 buyout lease might run $1,720 a month, $103,200 in total, and you own it. Priced as a loan, that is an implied rate of roughly 10.5%.

Lessors rarely state a rate, so calculate it yourself: total payments plus the buyout, compared with the price. Also check for documentation fees, interim rent before the first full payment, and end of lease charges for wear or late returns. Our lease versus buy comparison has the full math.

How do you qualify, and what documents do you need?

Leases under about $150,000 are usually application only: the vendor quote, your formation documents, an ID and three months of bank statements. Larger leases add two years of business tax returns, interim financials and a personal financial statement for each 20% owner. Startups add a business plan and a resume.

Pull the list from our document checklist. The one document that matters most is the quote: it must state the exact equipment, any soft costs like installation, and the delivery date, because the lessor pays the vendor against it and sets the first payment from the delivery date.

How long does an equipment lease take?

Typically one to seven business days from application to the lessor paying the vendor. Application only leases are often approved within hours. Larger or unusual equipment adds a week for inspection or a second approval.

As with financing, the vendor's lead time is the real limit, since the lease starts when the equipment is delivered and accepted. Sign the delivery acceptance only when the equipment works; once you sign, the lessor pays the vendor and your obligation begins regardless of any defect. See how long business loans take for comparison with other products.

When should you choose something else?

Choose equipment financing if you will keep the asset well past the term, because the total cost of owning is usually lower and you build equity from the first payment. Choose an SBA 504 loan for heavy, long life equipment over $500,000, where a fixed 10 to 20 year rate beats any lease.

Skip leasing if the lessor cannot state the total cost or the buyout in writing. A lease that quotes only a monthly payment is hiding the rate, and some fair market value leases roll into expensive month to month rent if you miss the return window.

How do you apply for an equipment lease?

Apply once on this site with your vendor quote and your application reaches leasing companies and equipment lenders that cover your industry, so you can compare a lease against a loan side by side. It is free for your business, and we are paid the same whichever lender you choose. Or ask your AI assistant to apply through our MCP server: it reads the quote and your statements, fills the application and submits it.