How equipment financing works
A lender pays the seller, and you repay the lender over a set term. You own the equipment, it appears on your balance sheet, and the lender holds a lien until the loan is paid. A down payment may be required depending on your credit, the equipment and the lender.
Because the equipment secures the loan, financing can be easier to qualify for than unsecured credit. When it's paid off, it's yours free and clear.
How leasing works
The leasing company buys the equipment and you make payments to use it. At the end you typically return it, renew, upgrade, or buy it.
Fair-market-value leases tend to have lower payments, with a buyout at whatever the equipment is worth at the end. Nominal-buyout leases have higher payments but let you take ownership for a token amount, which makes them work much like a loan. Read the end-of-term terms closely; that's where leases differ most.
Choosing between them
Finance when the equipment has a long useful life, you plan to keep it, and you want the equity. Trucks, heavy machinery and kitchen equipment often fall here.
Lease when the equipment becomes outdated quickly, you want a lower payment now, or you prefer to upgrade on a schedule. Technology and some medical equipment often fall here.
On taxes, owned equipment may qualify for depreciation deductions, while lease payments may be deductible as an expense. The rules are specific, so confirm with your CPA before deciding on taxes alone.
Already own equipment?
If you own equipment outright, a sale-leaseback can turn some of its value into working capital while you keep using it. It's one way to raise cash without a short-term advance.
What lenders and lessors ask for
For most equipment deals: a quote or invoice from the seller with the make, model, year and serial number if known, recent business bank statements, basic entity information and an owner's ID. Larger requests may add tax returns or financial statements. Used or private-party equipment can require photos, an inspection, or proof that the seller owns it free of liens. A clean, specific quote is the single fastest way to move an equipment file.
Equipment financing vs. leasing
| Financing | Leasing | |
|---|---|---|
| Who owns it | You | The leasing company, until any buyout |
| Monthly payment | Often higher | Often lower |
| End of term | You own it outright | Return, renew, upgrade or buy |
| Best for | Long-life equipment you'll keep | Equipment you'll replace often |
Common questions
Is it easier to qualify for a lease or a loan?
It varies. Both are secured by the equipment, so qualifying is often similar. Some lessors are more flexible on credit, but that flexibility is usually priced in.
Can I finance used equipment?
Often, yes. Lenders may limit the equipment's age or require an inspection or appraisal, and terms may be shorter than for new equipment.
Can I finance equipment from a private seller?
Many lenders allow it with extra documentation, such as proof of ownership, a bill of sale and lien searches. Dealer sales are usually simpler.
Does equipment financing require a down payment?
Sometimes. It depends on your credit, time in business, the type and age of the equipment, and the lender. Strong files may need little down; newer businesses or used equipment often need more.
Related
We're commercial lending advisors based in Lafayette, Louisiana. We look at your business the way a lender will, using what you share plus a free Capital Position Report built from public records, then match you to the best-fit programs across our lender network. We arrange financing for businesses nationwide, except in California.
Pre-qualifying takes about two minutes, has no credit impact and no obligation. Lenders pay our fee when a loan funds; here's exactly how we get paid.
General education, not legal or tax advice. Requirements, terms and timing vary by lender and program. Capco Capital is a commercial lending advisory firm operated by Capco Capital LLC. We arrange financing through third-party lenders as a loan broker and are compensated by the lender when a loan funds. We are not a lender and are not affiliated with the U.S. Small Business Administration.
