Equipment Financing vs. Leasing: The Honest Cost Comparison

Same monthly payment. Very different outcomes.

A $75,000 piece of equipment. Two financing options on the counter:

• Financing — $1,435/month for 60 months, then you own it
• Leasing — $1,290/month for 60 months, then you either buy it out, renew, or hand it back

The monthly payment is almost the same. The tax treatment, the balance sheet impact, the residual value, and the flexibility at year 5 are all wildly different. Get this decision right and you could save (or make) five figures over the equipment's life. Get it wrong and you're locked into the wrong structure for a lot of years.

Here's the honest breakdown.

What equipment financing is

Equipment financing is a loan specifically to buy business equipment — vehicles, machinery, computers, medical devices, restaurant equipment, construction gear. You own the equipment from day one; the lender takes a security interest in it (they can repossess if you default). You make fixed monthly payments; at the end of the term, the loan is done and you own the equipment free and clear.

Structure:

• 100% of equipment cost financed (sometimes with 0–20% down)
• 24–84 month term, typically matched to the useful life of the asset
• 8–15% APR depending on credit and industry
• You keep the equipment at the end — it's yours

What equipment leasing is

Equipment leasing is a rental agreement with a purchase option at the end. You don't own the equipment during the lease; the lessor does. You pay a monthly rental amount for a fixed period, and at the end you have three options:

1. Buy the equipment for a pre-agreed residual price (often 10–20% of original cost)
2. Return the equipment and walk away
3. Renew the lease for another term

There are two main lease structures worth knowing:

• $1 buyout lease (aka capital lease) — you pay $1 at the end to own the equipment. Economically identical to financing, but treated differently on your tax return.
• Fair Market Value (FMV) lease — you pay whatever the equipment is worth at end of term (typically 15–20%) to buy it. Lower monthly payments, but a real residual decision at the end.

The tax angle (this is where the real money is)

Section 179 of the U.S. tax code lets small businesses deduct the full cost of qualifying equipment purchases in the year they're bought — up to $1.16M in 2026 for most small businesses. Combined with bonus depreciation, this is often the biggest lever in the entire decision.

Equipment financing + Section 179: You bought the equipment. You can deduct up to the full purchase price in year one, even though you're financing it over 60 months. On a $75K piece of equipment with a 25% effective tax rate, that's roughly $18,750 back on your taxes in year one.

$1 buyout lease + Section 179: Same treatment — the IRS considers it a purchase, so Section 179 applies.

FMV lease: Different. Since you don't own the equipment during the lease, you can't Section 179 it. Instead, you deduct the monthly lease payments as regular operating expenses over the life of the lease. The total deduction is similar but spread out — no year-one tax windfall.

Rule of thumb: if you're profitable this year and want to reduce your tax bill, finance (or use a $1 buyout lease) and take Section 179. If you're breakeven or losing money and don't need the deduction, an FMV lease can lower your monthly payment.

The balance sheet angle

Since 2019 (ASC 842), leases longer than 12 months have to appear on the balance sheet as both an asset and a liability. So the old-school "lease = off-balance-sheet financing" trick is gone.

That said, the balance-sheet impact is still slightly different:

• Financed equipment: shows as owned asset + loan liability. Depreciated on your schedule.
• Leased equipment: shows as right-of-use asset + lease liability. Amortized over the lease term.

For most small businesses this distinction doesn't matter much. If you're negotiating with banks for future capital, financing typically looks stronger on the balance sheet because you'll build equity as you pay it down.

When financing wins

• You'll use the equipment for its full useful life (7+ years). Owning it beats renting it every time over long horizons.
• You want the Section 179 deduction — big year-one tax hit for your business.
• The equipment holds its value well — good used trucks, quality machinery, medical devices. You'll benefit from the residual when you eventually sell or trade.
• You want to modify or customize the equipment. You can't do that with a lease.
• Your credit qualifies for competitive rates (680+ FICO). Financing pricing is best for prime borrowers.

When leasing wins

• The equipment obsolesces quickly — computers, phones, some medical/tech gear. You'd rather hand it back in 3 years than be stuck with a five-year-old paperweight.
• You value flexibility over ownership — a growing business that will outgrow this specific piece.
• You need the lowest monthly payment possible — FMV leases are typically 10–20% cheaper monthly than financing.
• Your credit is weaker — leases sometimes approve at lower credit tiers than equipment loans.
• You're not profitable enough to use Section 179 — the tax advantage of financing evaporates.

The five-year total cost example

$75,000 piece of equipment. 25% effective tax bracket. Sold at year 5 for market value.

	Finance	$1 Lease	FMV Lease
Monthly payment	$1,435	$1,435	$1,290
5-year total paid	$86,100	$86,100	$77,400
End buyout	$0 (already yours)	$1	~$12,000
Section 179 (year 1)	–$18,750	–$18,750	$0
Lease deduction (5 yr total)	$0	$0	–$19,350
Approx. resale at year 5	+$18,000	+$18,000	+$6,000 (if bought out)
Net 5-year cost	~$49,350	~$49,351	~$63,050

Financing (or the economically-identical $1 lease) wins by roughly $14,000 on this asset — because you own the residual value and got Section 179 up front.

Reverse it — if you'll only need the equipment for 3 years and it depreciates fast, the FMV lease becomes far more competitive.

The five-second decision tree

• Owning it makes sense long-term? → Finance (or $1 lease).
• Tech that obsolesces in 3 years? → FMV lease.
• Profitable and want the tax break? → Finance.
• Not profitable / tax shield doesn't matter? → FMV lease for the cheaper monthly.
• Credit under 620? → FMV lease often approves easier.

The bottom line

Financing and leasing look similar on the counter and behave very differently over five years. The best answer depends on how long you'll use the equipment, whether you can use Section 179, and how quickly the asset depreciates.

We shop both structures for every equipment file we broker. Apply here and we'll model both options for your specific piece before you sign anything.