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Comparing Equipment Leases and Loans: What You Need to Know

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Why Understanding Equipment Leases and Loans is Crucial

When looking for new equipment for your business, you might come across terms like equipment lease and equipment loan. But what’s the real difference between them?

Equipment Lease vs. Loan at a Glance:
Ownership: Lease = No, Loan = Yes
Upfront Costs: Lease = Low to none, Loan = Higher
Monthly Payments: Lease = Typically lower, Loan = Typically higher
Tax Benefits: Lease = Usually fully deductible, Loan = Section 179 deduction

These are some key distinctions that can influence your decision depending on your financial health, and business needs.

Investing in equipment is a significant decision for any business, especially small businesses. Choosing the right financing method can impact your cash flow, taxes, and overall financial stability. Understanding whether an equipment lease or loan is better for you can save you money and help you grow more sustainably.

I’m Vincent Cerniglia from Noreast Capital Corporation. With years of expertise in equipment financing and leasing, I’ll guide you through this process to help you make an informed decision.

Comparison Infographic: Lease vs Loan - difference between equipment lease and loan infographic pillar-4-steps

Understanding the Basics of Equipment Financing

When your business needs new equipment, you have two main options: leasing or financing. Both have their own set of advantages and disadvantages. Let’s break down what each entails and how they can impact your business.

What is Equipment Leasing?

Equipment leasing works like renting. You get to use the equipment for a set period without owning it. This option usually has lower upfront costs and more manageable monthly payments.

  • Renting, No Ownership: When you lease, you don’t own the equipment. Instead, you pay to use it for a specific time. At the end of the lease, you can either return the equipment or buy it at a predetermined price.

  • Lower Upfront Cost: Leasing often requires little to no down payment. This makes it an attractive option for businesses that need to conserve cash.

There are two types of leases:

  1. Capital Lease: This lease allows you to buy the equipment at the end of the term. You’re responsible for maintenance and taxes, and you can count the equipment as a liability.

  2. Operating Lease: This is more like a rental agreement. You can cancel it as needed, and you’re generally not responsible for maintenance. However, you may not have the option to buy the equipment at the end.

What is Equipment Financing?

Equipment financing works like a loan. You borrow money to purchase the equipment and pay it back over time.

  • Ownership: Once you’ve paid off the loan, you own the equipment outright. This can be beneficial if the equipment has a long useful life.

  • Collateral: The equipment itself usually serves as collateral for the loan, which can make it easier to secure financing.

  • Higher Monthly Cost: Because you’re on the path to ownership, the monthly payments are generally higher than leasing. You may also need to make a down payment, which could be significant.

Financing can be a good option if you plan to keep the equipment for a long time and want to build equity in your assets.

Business Impact

Choosing between leasing and financing can significantly impact your business’s financial health:

  • Cash Flow: Leasing can improve cash flow by reducing upfront costs and offering lower monthly payments. Financing can strain cash flow initially due to down payments and higher monthly costs but may be more cost-effective in the long run.

  • Taxes: Leasing payments are often fully deductible as business expenses. Financing allows you to deduct depreciation and interest, which can also offer tax benefits.

  • Flexibility: Leasing offers more flexibility, especially if you need to upgrade equipment frequently. Financing is better for long-term investments in durable equipment.

Understanding the difference between equipment lease and loan can help you choose the option that best fits your business needs and financial situation.

Key Differences Between Equipment Lease and Loan

Financial Commitment and Costs

When deciding between an equipment lease and a loan, financial commitment and costs are crucial factors.

Down Payments:

  • Leasing: Typically, no down payment is required. This can help you keep more cash in your business for other expenses.
  • Loans: Usually require a down payment, which can be a significant upfront cost.

Monthly Payments:

  • Leasing: Generally, lower monthly payments. This is because you’re paying for the use of the equipment, not its ownership.
  • Loans: Higher monthly payments, as you’re working towards owning the equipment outright.

Total Cost:

  • Leasing: Over time, leasing can be more expensive if you continue to renew the lease or decide to purchase the equipment at the end.
  • Loans: While the monthly payments are higher, the total cost may be lower in the long run since you will own the equipment at the end of the loan term.

Ownership and Asset Management

Ownership and asset management are also significant when comparing leasing and financing.


  • Leasing: You do not own the equipment during the lease term. At the end of the lease, you can choose to purchase, renew, or return the equipment.
  • Loans: Once you repay the loan, you own the equipment outright, giving you full control and the ability to sell it if needed.


  • Leasing: You cannot claim depreciation on leased equipment. However, lease payments can often be written off as operating expenses.
  • Loans: You can claim depreciation on purchased equipment, which can provide tax benefits.

Resale Value:

  • Leasing: No resale value concerns since you do not own the equipment.
  • Loans: You can sell the equipment once the loan is paid off, potentially recouping some of your investment.

End-of-Term Options:

  • Leasing: At the end of the lease term, you can either purchase the equipment (often at fair market value), renew the lease, or return the equipment.
  • Loans: At the end of the loan term, you fully own the equipment, with no further financial obligations unless you choose to sell or upgrade it.

Understanding these key differences between leasing and financing can help you make a more informed decision based on your business’s financial situation and long-term goals.

Next, we’ll explore the specific advantages and disadvantages of equipment leasing.

Advantages and Disadvantages of Equipment Leasing

Pros of Leasing


Leasing offers great flexibility for businesses. Short-term needs? No problem. You can lease equipment just for the duration you need it. This is especially useful for projects that require specific machinery for a limited time.

Technology Updates

Technology changes fast. Leasing allows you to keep up with the latest advancements without committing to outdated equipment. When your lease ends, you can simply upgrade to newer models, keeping your business ahead of the curve.

Cost Efficiency

Leasing can be more cost-efficient in the short term. You avoid large upfront costs and can spread payments over time. This helps preserve your working capital for other needs.

Lower Payments

Monthly lease payments are generally lower than loan payments. This can be a big advantage if you’re working with a tight budget.

Tax Deductible

Lease payments are often fully tax-deductible as an operating expense. This can provide significant tax benefits, making leasing a financially smart choice for many businesses.

No Down Payment

Unlike loans, leases often require no down payment. This means you can get the equipment you need without a large initial outlay, freeing up cash for other business expenses.

Cons of Leasing

No Equity

One major downside is that you don’t build equity. At the end of the lease term, you don’t own the equipment. This can be a disadvantage if you prefer to have ownership and the potential resale value of the equipment.

Potential Higher Long-term Cost

While leasing can be cheaper in the short term, it might cost more in the long run. The total amount paid over the lease term can exceed the equipment’s purchase price, especially if you keep renewing the lease.

Balloon Payments

Some leases come with a balloon payment at the end of the term. This is a large, final payment if you decide to purchase the equipment. It can be a financial strain if not planned for.

Understanding these pros and cons of equipment leasing can help you decide if it’s the right choice for your business. Next, we’ll dive into the advantages and disadvantages of equipment loans.

Advantages and Disadvantages of Equipment Loans

Pros of Loans

Long-term Benefits

One of the key benefits of equipment loans is the long-term advantage. When you finance equipment through a loan, you own the equipment outright once the loan is paid off. This can be a significant benefit if you plan to use the equipment for many years, as you avoid ongoing rental payments.


With an equipment loan, you gain full ownership of the equipment. This means you can use it as you see fit, modify it, and eventually sell it if needed. Ownership can be especially important for businesses that rely on specialized machinery that doesn’t become obsolete quickly.

Tax Benefits

Equipment loans offer various tax benefits. For example, your business can write off loan interest payments and asset depreciation on its taxes. This can reduce your taxable income and save your business money in the long run.


When you own equipment, you can depreciate its value over time. Depreciation is a non-cash expense that can be deducted from your taxable income, providing additional tax relief. This is particularly beneficial for expensive machinery that retains its value over several years.

Resale Potential

Owning the equipment also means you can resell it when it’s no longer needed. This can help recoup some of your investment. If the equipment retains its value well, you might even make a significant portion of your money back.

Cons of Loans

Higher Monthly Costs

Equipment loans generally come with higher monthly payments compared to leases. This is because you are paying off both the principal and interest. For businesses with tight cash flow, these higher payments can be a strain.

Down Payment

Many equipment loans require a down payment, which can be a significant upfront cost. This can be a hurdle for businesses that do not have a lot of cash on hand.

Obsolescence Risk

One of the risks of owning equipment is that it can become outdated or obsolete. Technology and industry standards change rapidly, and you might find that your equipment no longer meets your needs before you’ve finished paying off the loan.

Understanding these pros and cons of equipment loans can help you decide if this financing method aligns with your business goals. Next, we’ll discuss how to choose the right option for your business.

Choosing the Right Option for Your Business

When deciding between an equipment lease and a loan, it’s important to consider several factors that impact your business. Let’s break these down to help you make an informed choice.

Factors to Consider


First, assess your business’s financial health. Look at your cash flow, credit score, and current financial obligations. This will help you determine if you can handle the upfront costs of a loan or if a lease’s lower monthly payments are more manageable.

Industry Needs

Different industries have unique equipment needs. For instance, tech companies might benefit more from leasing due to rapid advancements in technology. On the other hand, construction firms might prefer loans to own heavy machinery that has a long lifespan.

Business Type

The nature of your business also plays a role. Startups might find leasing more attractive as it requires less initial capital. Established businesses with stable revenue might opt for loans to build equity and ownership.

Equipment Type

Consider the type of equipment you need. If the equipment becomes obsolete quickly, leasing might be the better option. For equipment with a long useful life, a loan could be more cost-effective in the long run.

Financial Stability

Your financial stability is crucial. A strong balance sheet might allow you to handle the higher monthly payments of a loan. If your financial situation is less stable, a lease might provide the flexibility you need.

Role of Noreast Capital

At Noreast Capital, we specialize in commercial equipment finance solutions tailored to your needs. We understand that maintaining cash flow is vital for your business’s growth and stability.

Commercial Equipment Finance Solutions

We offer a range of flexible financing options, including both leases and loans. Our experts work with you to structure the best deal based on your business type, equipment needs, and financial situation.

Maintaining Cash Flow

Our goal is to help you maintain a healthy cash flow. Whether you choose a lease with lower monthly payments or a loan that builds equity, we provide solutions that support your financial stability and long-term success.

By considering these factors and leveraging the expertise of Noreast Capital, you can make a well-informed decision that aligns with your business goals and financial health.

Frequently Asked Questions about Equipment Financing

What are the tax benefits of leasing vs. buying?

Leasing: When you lease equipment, your payments are typically fully tax-deductible as an operating expense. This can provide a significant tax break, especially if your business is in a high tax bracket. Always consult with your accountant to confirm the specifics for your situation.

Buying: When you purchase equipment through a loan, you can take advantage of tax deductions on loan interest payments and asset depreciation. A popular advantage is the Section 179 deduction, which allows businesses to deduct the full purchase price of qualifying equipment up to a certain limit (e.g., up to $500,000 in 2016).

How does the decision affect my business’s balance sheet?

Leasing: Leased equipment is not typically recorded as an asset on your balance sheet because you do not own it. This means leases can keep your liabilities lower and improve your debt-to-equity ratio. However, the lease payments will appear as a liability.

Buying: When you finance equipment through a loan, the equipment is listed as an asset on your balance sheet, and the loan is listed as a liability. This can affect your financial ratios and potentially make your business look more leveraged. However, owning the equipment means you can also list depreciation, which can offer some tax benefits.

Can I switch from a lease to a loan?

Yes, it is possible to switch from a lease to a loan, but it depends on the terms of your lease agreement and your lender. Some leases have a buyout option, allowing you to purchase the equipment at the end of the lease term, often at fair market value or a pre-agreed price. This can effectively turn your lease into a loan.

However, read the fine print and understand any fees or penalties for early termination or buyout. Consulting with your financial advisor can help you navigate this process and determine if it’s the right move for your business.

Next, we’ll dive into how to navigate the application process for restaurant equipment financing, including preparing a business plan, checking your credit, and understanding what lenders are looking for.


Choosing between an equipment lease and an equipment loan is a significant decision that can impact your business’s financial health and operational efficiency. Let’s break down what you need to consider to make the best choice for your business.

Decision Guidance

When deciding between leasing and financing, assess your financial situation and business needs. Leasing might be ideal if you want lower monthly payments and no down payment. It’s also beneficial if you need the flexibility to upgrade equipment frequently.

On the other hand, financing could be the better option if you aim to build equity in your equipment and eventually own it. This choice is particularly useful for businesses investing in long-term, durable machinery that won’t quickly become obsolete.

Strategic Planning

Strategic planning involves forecasting your business’s future needs and financial stability. Consider these factors:

  • Monthly Budget: Can your business afford higher monthly payments now for long-term savings?
  • Equipment Lifespan: Will the equipment remain useful and efficient throughout the loan term?
  • Tax Benefits: Evaluate the tax deductions available for both leasing and financing. Leasing payments are generally tax-deductible as an operating expense, while financed equipment can offer depreciation benefits.

Role of Noreast Capital

At Noreast Capital, we understand that every business has unique needs. We offer customizable financing options that cater to your specific situation. Whether you need to lease cutting-edge technology or finance heavy machinery, our goal is to help you maintain cash flow and achieve your business objectives.

Why Choose Noreast Capital?

  • Flexible Terms: We offer a variety of lease and loan options to fit your budget and business needs.
  • Expert Guidance: Our team provides personalized advice to help you choose the best financing solution.
  • Quick Approval: We streamline the application process, so you get the equipment you need without delays.

Choosing the right equipment financing option is crucial for your business’s success. Let us help you navigate this important decision. Learn more about the difference between leasing and buying equipment and how Noreast Capital can support your business growth.

By understanding your options and strategically planning your financial moves, you can make informed decisions that drive your business forward. Whether you choose to lease or finance, the right equipment can significantly enhance your operational efficiency and profitability.

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