When your business needs new equipment — whether it’s machinery, vehicles, or technology — one big question comes up: Should you finance it or lease it?
Both equipment financing and equipment leasing can help you access the tools you need without paying the full cost upfront. But they work very differently — and the right choice depends on your cash flow, long-term goals, and how you plan to use the equipment.
In this guide, we’ll break down the differences, costs, pros and cons, and how to decide which option saves you more money in the long run.
Equipment financing is essentially a loan used to purchase equipment. You borrow money from a lender to buy the equipment outright, then repay the loan (plus interest) over time. Once the loan is fully paid, the equipment is yours.
How it works:
You own the equipment at the end of the term
The equipment itself often serves as collateral
Typical repayment terms: 2 to 7 years
Best for: Businesses that plan to use the equipment long-term or want to build equity.
Pros:
Full ownership after repayment
Potential tax deductions on depreciation and interest
Builds business assets and collateral value
No restrictions on usage
Cons:
Higher upfront costs (often 10%–25% down payment)
Responsible for maintenance and repairs
May become obsolete before loan is paid off
Equipment leasing is more like renting. Instead of purchasing the equipment, you pay a fixed monthly fee to use it for a set period — usually 2 to 5 years. At the end of the lease, you can return it, renew the lease, or sometimes buy the equipment for a residual value.
How it works:
No ownership unless you choose a buyout option
Usually no down payment required
Terms often include maintenance or upgrades
Best for: Businesses that need equipment short-term, want predictable costs, or frequently upgrade to newer models.
Pros:
Lower upfront costs (sometimes $0 down)
Easy to upgrade or replace equipment
Maintenance often included in the lease
Monthly payments may be tax-deductible as an expense
Cons:
You don’t build equity
Long-term cost can be higher than buying
Usage limitations or penalties for excessive wear
Let’s compare a real-world example.
Imagine you need a piece of equipment that costs $50,000.
Option 1: Equipment Financing
Down payment: $5,000 (10%)
Loan amount: $45,000
Term: 5 years at 8% interest
Monthly payment: ~$913
Total paid: ~$54,780
Ownership: Yes
Option 2: Equipment Leasing
Monthly payment: ~$1,050
Term: 5 years
Total paid: ~$63,000
End-of-term options: Return, renew, or buyout (~$5,000–$10,000)
Result: Financing saves ~$8,000 over the lease term and you own the asset at the end. But leasing might still be smarter if you only need the equipment temporarily or plan to upgrade soon.
| Feature | Equipment Financing | Equipment Leasing |
|---|---|---|
| Ownership | Yes (after repayment) | Usually no (unless buyout) |
| Upfront Costs | Often 10–25% down | Usually $0 |
| Monthly Payments | Typically lower | Typically higher |
| Total Cost | Lower (if long-term) | Higher (if long-term) |
| Tax Benefits | Depreciation + interest | Payments deductible as expense |
| Maintenance | Your responsibility | Often included |
| Flexibility | Low (you own it) | High (can upgrade/return) |
| Best For | Long-term use | Short-term use or frequent upgrades |
You plan to use the equipment for 5+ years.
The equipment has a long useful life and won’t become obsolete quickly.
You want to build equity and own valuable business assets.
You’re looking for the lowest total cost over time.
The equipment will lose value quickly or become outdated.
You need low upfront costs or want to conserve cash flow.
You prefer predictable monthly payments with included maintenance.
You want the flexibility to upgrade frequently or avoid ownership risks.
Estimate how long you’ll use the equipment
Compare total ownership cost vs. total lease payments
Consider your cash flow and upfront budget
Factor in tax deductions and maintenance costs
Choose the option that aligns with your business strategy
Both options offer tax advantages, but they differ:
Financing: You can deduct depreciation and loan interest, potentially lowering taxable income over time.
Leasing: Monthly lease payments are typically 100% tax-deductible as a business expense.
Consult a tax professional to determine which approach maximizes savings for your business.
Hybrid lease-to-own options are becoming more common, combining flexibility with ownership.
Revenue-based leases adjust payments based on cash flow, helping businesses with seasonal revenue.
Many lenders now offer instant prequalification for equipment financing online, speeding up approvals.
If you plan to keep the equipment long-term and want the lowest total cost, equipment financing almost always wins. You’ll pay less over time and own the asset outright.
However, if flexibility, lower upfront costs, and frequent upgrades are more important — especially for fast-changing technology — equipment leasing might make more financial sense despite the higher long-term cost.
The best choice depends on your business’s cash flow, growth plans, and how quickly the equipment will become outdated. By weighing cost, ownership, and flexibility, you’ll choose the path that saves you the most money — and keeps your business running efficiently.