Equipment: lease or buy?
How a loan and a lease differ for the ovens, trucks, tools and registers your business runs on, and how to compare their real cost.
Updated First published Published by BizLoan.now
A walk-in cooler, a service van or a CNC router is a big purchase for a small business. You can pay cash, borrow to buy it, or lease it. This guide compares borrowing and leasing, the two ways most owners finance equipment.
How each works
Equipment loan. A lender pays the vendor and you repay the lender over a set term, often matched to how long the equipment lasts. You own the equipment from the start, and the lender holds a lien on it until the loan is paid off. Many lenders ask for a down payment.
Equipment lease. The leasing company owns the equipment and you pay to use it for a set term. At the end you may be able to return it, renew, or buy it. What you pay to buy it depends on the lease: some set a nominal price, others use fair market value at the end.
Side by side
| Compare | Loan | Lease |
|---|---|---|
| Who owns it | You, with a lien until paid off | The leasing company, unless you buy it at the end |
| Upfront cash | Often a down payment | Often first and last payment |
| Monthly payment | Usually higher | Usually lower for the same term |
| At the end | You own it outright | Return, renew or buy, depending on the lease |
| Best for | Equipment you'll use for many years | Equipment that goes out of date quickly |
Compare total cost, not the monthly payment
A lower monthly payment doesn't mean a cheaper deal. For each quote, add up:
- the down payment or upfront payments;
- every scheduled payment;
- fees: documentation, origination, delivery and installation;
- the end-of-lease purchase price, if you plan to keep the equipment;
- any required insurance or maintenance contract.
Then compare the totals for the same equipment over the same period. Ask each lender or leasing company for the total cost in writing. Some states require a written disclosure of the total cost for many commercial financing offers.
Questions to decide between them
- How long will you use it? Equipment you'll run for ten years usually costs less to buy.
- Will it go out of date? Technology that changes every few years often suits a lease.
- How much cash can you put down? Leases often need less upfront.
- Who maintains it? Some leases include service; loans don't.
Where Section 179 fits
Section 179 of the tax code can let a business deduct the cost of qualifying equipment in the year it's placed in service, instead of depreciating it over several years. Under the 2025 tax law known as the One Big Beautiful Bill Act, the Section 179 limit is $2.5 million for property placed in service in tax years beginning after 2024, reduced once total equipment purchases pass a threshold and indexed for inflation in later years. The same law restored 100% bonus depreciation for qualifying property acquired after January 19, 2025.
Whether you can use these depends on how the equipment is financed, whether a lease counts as a purchase for tax purposes, your income and your state's rules. The exact yearly limits are in the IRS instructions for Form 4562. Talk to your tax preparer before you choose between leasing and buying for tax reasons.
Getting quotes
Most equipment lenders start with the vendor's quote, a few months of bank statements and basic information about the business. Equipment financing explains what lenders check and what to have ready. If you're buying a building and long-life equipment together, an SBA 504 loan may also fit; see SBA 7(a), 504 or Express.