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Equipment Loan vs. Lease: Which Is Right for Your Business?
Loan versus lease is the most common equipment-financing question, and the honest answer is: it depends on how long you'll keep the machine and how fast its technology ages. Here's how to decide without a salesperson steering you.
The core difference
With a loan (or Equipment Finance Agreement), you own the equipment from day one and build equity with every payment. With a lease, you're paying to use the equipment; at the end of the term you return it, renew, or buy it out. The buyout terms are where leases quietly diverge — and where buyers get surprised.
The two kinds of lease
- $1-buyout lease (capital lease): functionally a loan. You'll own the machine for $1 at the end. Good for equipment you intend to keep. Usually qualifies for Section 179 expensing.
- Fair Market Value (FMV) lease: lower monthly payments, but at the end you either return the machine or buy it at its then-current market value — which can be thousands. Good only if you genuinely plan to upgrade at term end.
The trap: signing an FMV lease on a machine you plan to keep for a decade. The lower payment feels good until the buyout arrives. For keepers, a loan or $1-buyout lease almost always costs less overall.
When a loan wins
For the majority of business equipment — trucks, trailers, sawmills, CNC machines, dental chairs, restaurant equipment — a loan wins. These machines last 10–20 years, hold value, and you'll keep them well past the payment. Owning builds equity you can borrow against or sell, and Section 179 lets you expense the purchase either way.
When a lease wins
Leasing earns its place with technology that ages out fast: some medical imaging, certain DTG/print equipment, and cardio equipment in gyms (which also takes heavy abuse and gets refreshed on 4–6 year cycles). If you'll want the newer model in three years anyway, an FMV lease's lower payment and built-in upgrade path can beat owning a depreciating machine.
The tax angle in one paragraph
Section 179 generally lets you expense the full cost of qualifying equipment in the year you place it in service — whether you paid cash, took a loan, or signed a $1-buyout lease. That means financing often gets you the full tax deduction now while spreading the payments over years. FMV leases are typically deducted as rent instead. Always confirm specifics with your CPA; our Section 179 guide covers the mechanics.
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Get matched with equipment lenders → Browse equipment guides →Frequently asked questions
Does leasing or a loan get me the tax deduction?
A loan or $1-buyout lease generally qualifies for Section 179 expensing (deduct the whole purchase now). An FMV lease is usually deducted as rent over time. For most buyers who keep equipment, the loan/$1-buyout path gives the bigger, faster deduction — but confirm with your CPA.
Is a lease ever cheaper than a loan overall?
On total cost, rarely for equipment you keep — FMV buyouts erase the lower-payment advantage. Leasing wins on total cost mainly when you upgrade at term end and never pay the buyout, which only makes sense for fast-aging technology.
What's an Equipment Finance Agreement (EFA)?
An EFA is essentially a loan structured as a financing agreement — you own the equipment and it serves as collateral. Functionally it's the 'loan' side of this comparison, common for small-ticket equipment deals.