Equipment Financing vs. Leasing: Key Differences Explained

Jun 10, 2024

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.
business-flexibility

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.