In this article
Should I finance or lease business equipment?
Finance equipment you plan to keep for years, because each payment builds ownership and you own the asset at the end of the term. Lease equipment that becomes obsolete quickly, such as computers or phone systems, because payments are typically lower and you return it at the end.
Almost every business needs equipment at some point, and almost every lender will offer you two ways to get it: finance it or lease it. The monthly payments can look similar, but the two structures leave you in very different places at the end. This guide explains the differences so you can pick on purpose.
Ownership vs. access
Businesses that need equipment face a choice: finance the purchase and eventually own the equipment, or lease it and return it at the end of the term. Both approaches have legitimate uses, and the right one depends on how long you will use the asset and how quickly it loses value.
Equipment financing
Equipment financing (a loan or finance lease) means you are building ownership equity with every payment. At the end of the term, you own the asset outright. This works well for equipment you plan to keep long-term, such as trucks, industrial machinery and specialized tools, and for assets that hold their value well.
Because the equipment itself secures the financing, approval often depends more on the asset and your recent revenue than on a long credit history. See our complete guide to equipment financing for how terms and amounts typically work.
Operating leases
An operating lease is different. You use the equipment for a set period and return it at the end. Payments are typically lower, and you do not carry the asset on your balance sheet, which can help with certain financial ratios. This structure suits equipment that becomes obsolete quickly, such as software systems, computers and phone systems.
Side by side
- Ownership: financing ends with you owning the asset; an operating lease ends with you returning it
- Monthly payment: usually lower on a lease, because you are paying for use rather than the full value
- End of term: financing leaves you with an asset to keep, sell or trade in; a lease leaves you choosing between returning, renewing or buying
- Upgrades: leasing makes it easier to refresh technology that dates quickly
- Wear and tear: with a lease, excess wear or usage can bring charges at return
Tax implications
Tax treatment is another variable. Financed equipment typically qualifies for CCA (capital cost allowance) deductions, which spread the deduction over several years according to the asset class. Lease payments are usually fully deductible as an operating expense. The better result depends on your income, your timing and the type of equipment, so ask your accountant before you sign. Our guide to the CCA equipment deduction explains the basics.
How to decide
Ask three questions. How long will I realistically use this? What will it be worth then? And what does my cash flow need right now: the lowest payment, or the lowest total cost? In practice, most business owners simply want the equipment up and running with manageable payments. If that is your priority, equipment financing often offers the best combination of rate and term flexibility.
