Equipment financing lets you purchase or lease vehicles, machinery, and technology using the asset itself as collateral; loan rates typically run 6–15% APR with 0–20% down, and many lenders approve at 580–620 credit because the equipment secures the deal. The core decision is lease vs. loan: lease for rapidly obsolete gear (computers, POS systems) to keep payments low and preserve upgrade flexibility; buy with a loan for durable equipment (trucks, commercial ovens, machinery) where long-term ownership is cheaper. Section 179 lets businesses deduct the full purchase price of qualifying equipment in the year it's placed in service, substantially reducing the after-tax cost of buying.
Equipment Financing: Lease vs. Buy, Loan Types & Tax Breaks
You need a new oven, a delivery truck, a CNC machine, or a fleet of laptops — but the price tag would wipe out your cash cushion. That’s the exact problem equipment financing solves. Instead of paying for a big-ticket asset all at once, you spread the cost over the years you’ll actually use it, and the equipment usually serves as its own collateral.
This chapter walks through the lease-vs-buy decision, the main types of equipment financing, the tax breaks worth knowing about, and how to pick a lender. The numbers here are typical ranges, not quotes — your actual terms depend on your credit, the asset, and the lender.
Lease vs. Buy: Which One Fits
There’s no universally “right” answer. It comes down to how long you’ll keep the equipment, how fast it goes obsolete, and how tight your cash is right now.
Leasing keeps your upfront cost low. You make smaller regular payments to use the equipment for a set term, and maintenance is sometimes bundled in. It’s a good fit when technology changes fast (computers, medical imaging, POS systems) and you’d rather upgrade than own something outdated. The downside: over the full term, lease payments often add up to more than the purchase price, and you don’t own the asset at the end unless you buy it out.
Buying (usually with an equipment loan) costs more upfront but builds equity. Once the loan is paid off, the asset is yours for the rest of its useful life — which is far cheaper over time for durable equipment like ovens, trailers, or industrial machinery. You also get to depreciate it for tax purposes. The tradeoff: a down payment ties up cash, and you’re on the hook for repairs and any obsolescence.
| Leasing | Buying (loan) | |
|---|---|---|
| Upfront cost | Low (little or no down payment) | Higher (down payment common) |
| Ownership at end | No (unless you buy out) | Yes |
| Best for | Fast-aging tech, short-term needs | Durable, long-life equipment |
| Maintenance | Sometimes included | Your responsibility |
| Long-run cost | Often higher total | Usually lower if kept long-term |
| Tax treatment | Payments often deductible | Depreciation + Section 179 |
A simple rule of thumb: if the equipment will be obsolete or worn out before you’d finish paying for it, lean toward leasing. If it’ll still be earning you money years after it’s paid off, lean toward buying.
The Main Types of Equipment Financing
Equipment loans
The most common option. The lender finances the purchase, and the equipment itself is the collateral — which is why these are often easier to qualify for than unsecured loans. Terms commonly run a few years up to roughly the useful life of the asset, and many lenders ask for some money down, though some offer near-100% financing for strong borrowers.
Equipment leases
You pay to use the equipment over a term. Leases generally fall into two buckets: shorter-term leases where you return the gear at the end, and lease-to-own arrangements that work much like a loan and transfer ownership when the term ends. The accounting and tax treatment differs between them, so confirm which structure you’re signing.
SBA loans
SBA-backed loans (the 7(a) program in particular) can fund equipment and tend to offer longer terms and competitive rates because the government guarantee lowers lender risk. The tradeoff is more paperwork and a slower process — better for planned purchases than urgent ones.
Term loans
A standard bank or credit-union term loan can also buy equipment, with fixed payments and predictable cash flow. These usually want stronger credit and time in business than equipment-specific lenders do.
Equipment line of credit
A revolving line you draw on to buy equipment as needs come up, paying interest only on what you use. Handy for businesses that add or replace gear frequently rather than in one big purchase.
The right choice depends on your credit, how fast you need the money, and whether this is a one-time buy or an ongoing need. It’s worth comparing a couple of options side by side before you commit, since the cheapest headline rate isn’t always the cheapest total cost once fees and terms are factored in.
Tax Breaks Worth Knowing About
Financing equipment can come with real tax advantages. The details and dollar limits change year to year and depend on your situation, so treat the items below as the categories to ask your accountant about — not as a guarantee of what you’ll save.
- Depreciation. When you buy equipment, you can generally deduct its cost over its useful life, lowering taxable income each year.
- Section 179 deduction. This lets qualifying businesses deduct the full purchase price of eligible equipment in the year it’s put into service, up to an annual limit set by the IRS. It can dramatically front-load your tax savings.
- Bonus depreciation. A separate provision that can let you deduct an additional portion of an asset’s cost in the first year. The percentage has been changing under current tax law, so confirm the figure for the year you buy.
- Lease payment deductions. Lease payments are often deductible as a business expense, which is part of what makes leasing attractive for some owners.
The interplay between Section 179, bonus depreciation, and leasing can meaningfully change the after-tax cost of a purchase. A short conversation with a tax professional before you sign usually pays for itself.
Choosing a Lender
You’ll generally find equipment financing through four channels, each with different tradeoffs:
- Banks and credit unions — typically the lowest rates, but stricter requirements and slower approvals. Best if you have strong credit and time.
- Online lenders — faster applications and more flexible requirements, usually at a higher cost. Good when speed matters.
- Equipment finance companies — specialists who understand specific asset types and can structure deals around them.
- SBA lenders — banks and nonprofits that participate in SBA programs, offering government-backed terms for qualifying borrowers.
When you compare offers, look past the advertised rate at the total cost over the full term, the down payment required, any fees, and what happens at the end of a lease. Asking two or three lenders for terms on the same equipment is the simplest way to see who’s actually competitive.
Bottom line
Equipment financing is right for you if you need a specific, identifiable asset that will earn its keep, and you’d rather preserve cash than pay all at once. Lease when the gear ages fast or you want to upgrade often; buy (with a loan) when it’s durable and you’ll use it long after it’s paid off. It’s a poor fit if the “equipment” is really just general working capital — for that, a line of credit or term loan is a better tool. Whatever you choose, run the total-cost math and check the tax angle before you sign.