Equipment Financing vs. Leasing: A Decision Guide
Making the right choice between equipment financing and leasing can significantly impact your business's financial health and operational efficiency. This comprehensive guide will help you understand both options and make an informed decision.
Understanding Equipment Financing and Leasing
Key Differences at a Glance:
| Feature | Equipment Financing | Equipment Leasing |
|---|---|---|
| Ownership | You own the equipment | Lessor retains ownership |
| Down Payment | Usually required (10-20%) | Minimal or none |
| Monthly Payments | Generally higher | Generally lower |
| Tax Benefits | Depreciation & interest deductions | Full payment deduction |
Equipment Financing Details
Key Features:
- • Full ownership after loan repayment
- • Fixed interest rates and monthly payments
- • Longer repayment terms available
- • Tax benefits through depreciation
- • Build equity in the equipment
Best For:
- • Long-term equipment needs
- • Equipment with long useful life
- • Businesses wanting to build assets
- • Companies with strong credit profiles
Equipment Leasing Details
Key Features:
- • No ownership (unless lease-to-own option)
- • Lower monthly payments
- • Maintenance often included
- • More flexibility to upgrade
- • Simpler tax deductions
Best For:
- • Technology and equipment that quickly becomes obsolete
- • Businesses wanting lower monthly payments
- • Companies needing frequent upgrades
- • Seasonal or temporary equipment needs
Cost Comparison
Example Scenario: $100,000 Equipment
Financing:
- • Down payment: $20,000
- • Term: 5 years
- • Monthly payment: ~$1,650
- • Total cost: ~$119,000
- • You own the equipment
Leasing:
- • Down payment: $0
- • Term: 5 years
- • Monthly payment: ~$2,000
- • Total cost: ~$120,000
- • Option to buy or upgrade
Tax Implications
Financing Tax Benefits
- • Section 179 deduction
- • Depreciation deductions
- • Interest expense deductions
- • Property tax deductions
Leasing Tax Benefits
- • Full payment deductions
- • Simplified tax reporting
- • No depreciation calculations
- • Potential state tax benefits
Common Mistakes to Avoid
Watch Out For:
- • Not reading the fine print
- • Ignoring maintenance costs
- • Overlooking tax implications
- • Not comparing total costs
- • Choosing based on monthly payments alone
- • Not considering future needs
Decision-Making Questions
Ask Yourself:
- 1. How long will you need the equipment?
- 2. What's your available cash flow?
- 3. How quickly does the equipment become obsolete?
- 4. What are your tax situation and goals?
- 5. Do you want to own the equipment long-term?
- 6. How important is flexibility to upgrade?
- 7. What maintenance capabilities do you have?
Next Steps
Ready to Make Your Decision?
Our equipment funding experts can help you evaluate your options and choose the best solution for your business.
- • Compare specific financing and leasing options
- • Calculate total costs and tax implications
- • Review terms and conditions
- • Structure the best deal for your needs
Get Expert Help with Your Equipment Needs
Let our funding experts help you make the right choice between equipment financing and leasing.
Apply Now