Almost every growing business eventually needs a piece of equipment it cannot pay cash for outright — a delivery van, a commercial oven, manufacturing machinery, computers for a new hire. The question is whether to finance the purchase or lease it instead. The right answer depends less on which option feels cheaper up front and more on how you plan to use the equipment.
Equipment Financing (Loans)
With equipment financing, you borrow money to buy the equipment outright, using the equipment itself as collateral. You own it from day one, and once the loan is paid off, it is a fully owned asset on your balance sheet.
- You build equity in the equipment as you pay down the loan.
- You can typically depreciate the asset for tax purposes, and Section 179 often allows you to deduct a large portion of the cost in the year you buy it.
- Down payments are common, often 10-20% of the purchase price.
- You are responsible for the equipment's maintenance and its eventual resale or disposal.
- Best suited for equipment with a long useful life that will not become obsolete before the loan is paid off — vehicles, ovens, industrial machinery.
Equipment Leasing
With a lease, you pay to use the equipment for a set period without owning it outright. At the end of the term, you typically return it, renew the lease, or buy it for a predetermined price.
- Lower or no down payment, which preserves cash for other needs.
- Lease payments are often fully deductible as a business operating expense.
- You can upgrade to newer equipment at the end of the term instead of being stuck with something outdated.
- Total cost over time is often higher than buying outright, since you are paying for the convenience and flexibility.
- Best suited for equipment that changes quickly — computers, medical devices, restaurant technology — where obsolescence is a real risk.
Questions to Ask Before Deciding
- How long will you actually use this equipment? If it will still be useful in 7-10 years, buying usually wins. If it will be outdated in 2-3 years, leasing usually wins.
- How is your cash position right now? Leasing typically requires less cash upfront, which matters if you are conserving capital for other priorities.
- Do you want the tax deduction now or spread out? A financed purchase with Section 179 can create a large deduction in year one; lease payments spread the deduction evenly over the term.
- Will the equipment need to be upgraded regularly? Fast-changing technology tends to favor leasing so you are not stuck maintaining aging equipment.
- Does the equipment have meaningful resale value? If it holds value well, ownership lets you recapture some of that cost later. If it depreciates to near zero, leasing avoids that loss.
A Simple Rule of Thumb
If the equipment is durable, central to your operations, and unlikely to become obsolete, financing to own it usually makes more financial sense over the long run. If the equipment is technology-driven, changes quickly, or you need to preserve cash flexibility, leasing is often the smarter move even at a higher total cost. Either way, run the actual numbers — total cost of financing versus total lease payments, including any end-of-term buyout — before deciding. The cheaper-looking monthly payment is not always the cheaper choice once you look at the full term.
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