Equipment Financing vs. Leasing: Key Differences Explained

Ownership

When businesses need new equipment, they often face a choice between financing and leasing. Understanding the key differences can help make the right decision.

Equipment Financing:

• You own the equipment once you pay off the loan.
• You can sell or modify the equipment as needed.

Leasing:

• The leasing company owns the equipment.
• You use the equipment for the lease term but must return it at the end.

Payments

Equipment Financing:

• Monthly payments go towards owning the equipment.
• Payments may be higher but lead to ownership.

Leasing:

• Monthly payments are typically lower.
• You pay for the right to use the equipment, not to own it.

Tax Benefits

Equipment Financing:

• You can claim depreciation on the equipment.
• Interest on the loan may be tax deductible.

Leasing:

• Lease payments can often be deducted as business expenses.
• No depreciation benefits since you don’t own the equipment.

Flexibility

Equipment Financing:

• Better for long-term use.
• You can customize the equipment.

Leasing:

• Ideal for short-term or rapidly changing needs.
• Easier to upgrade to newer equipment.

End of Term

Equipment Financing:

• You own the equipment and can continue using it.
• No further payments are required.

Leasing:

• Options to buy, renew the lease, or return the equipment.
• You may need to negotiate new terms or find a new lease.

Conclusion

Choosing between financing and leasing depends on your business needs, financial situation, and long-term plans. Each option has its own benefits and drawbacks, so consider your specific circumstances before making a decision.