Leasing versus buying equipment

What is the difference?

With equipment financing you borrow to buy the equipment, the lender takes a lien on it, and you own it outright when the loan is repaid. With equipment leasing the leasing company owns the equipment and you pay to use it for a set term. At the end you return it, renew, or buy it for a fair market value or a fixed amount.

Leases come in two main types. A fair market value lease has lower payments and a real choice at the end. A $1 buyout lease is a loan in all but name: you pay the full cost plus interest and own the equipment for a dollar at the end.

When is buying the better choice?

When the equipment will keep working and holding value long after the financing ends. Trucks, construction machinery, manufacturing lines, medical equipment and restaurant kitchens typically last ten years or more, so owning them after a five year loan means years of use with no payment.

In the US, Section 179 lets most businesses deduct the full purchase price of qualifying equipment in the year it is placed in service, up to an annual limit, which also applies to $1 buyout leases. Canada uses capital cost allowance instead. Confirm the treatment with your accountant before you choose.

When is leasing the better choice?

When the equipment will be obsolete before it wears out, or when the monthly payment matters more than the total cost. Computers, software licenses, medical imaging, fitness equipment and vehicles that need replacing every few years fit a fair market value lease, because you return them and move to the next model without owning something outdated.

Leasing also helps a young business with little cash, since many leases need no down payment and the payments are lower than a loan's. Lease payments on a true operating lease are usually deductible as an expense. The downsides are a higher total cost if you keep the equipment, mileage or usage limits, and fees for wear and early return.

What do they cost side by side?

Take a $100,000 machine. An equipment loan at an illustrative 9% over 60 months costs about $2,076 a month and about $124,550 in total, and at the end you own the machine.

A fair market value lease on the same machine over 60 months, priced at a similar rate with a 15% residual, costs about $1,877 a month and about $112,600 over the term. Return it and you have paid $12,000 less than the loan but own nothing. Buy it at the end for about $15,000 and you have paid about $127,600, slightly more than the loan. A $1 buyout lease would land close to the loan. The business loan calculator runs any combination.

Can you use both?

Yes, and many businesses do: buy the long lived equipment that holds value and lease the technology that does not. A construction company might finance its excavators over seven years and lease its office computers and phones over three. The two do not conflict, since each lender's lien covers only its own equipment.

Lenders will look at the combined payments in your cash flow, and an equipment lease shows up on your debt schedule like a loan, so keep the total within what your revenue supports. If you later need working capital, owned equipment with equity can be refinanced through a sale leaseback or an asset based loan, which a leased asset cannot.

How do you apply?

Apply once here with the vendor quote and your business details, and your application reaches both equipment lenders and leasing companies, so you can compare a loan offer with a lease offer on the same machine. Most equipment deals need only the quote, three to six months of bank statements and a credit check for amounts under $150,000; the document checklist covers larger deals. It is free for your business.

If you prefer, ask your AI assistant to prepare and submit the application through our MCP server; it can read the quote and your statements and show the loan and lease payments side by side. See the agents hub.