If you're buying a piece of equipment that costs more than you want to write a check for, you have two primary financing paths: a loan (equipment financing) and a lease. Both keep cash in your business; they differ in what you own at the end.
Equipment financing in one line
You borrow money to purchase the equipment outright. You own it from day one; the lender takes a lien until the loan is paid off. At the end of the term, the lien releases and the equipment is fully yours.
Leasing in one line
You pay to use the equipment over a set term. At the end, you either return it, renew the lease, or buy it for a residual price.
How to choose
| Question | Better choice | | --- | --- | | Will I use this equipment for 5+ years? | Financing — you'll save vs. paying lease residuals. | | Does this equipment become obsolete fast? | Leasing — return and upgrade at end of term. | | Do I want to maximize Section 179 in year one? | Financing — full deduction possible. | | Is my cash flow seasonal? | Either works, but lease payments are often lower in early years. |
A note on hybrid products
Many lenders offer lease-to-own structures that look like a lease but vest title at the end for $1. These are economically equivalent to financing — the IRS treats them as such — and are sometimes the cleanest path when title transfer paperwork is complicated.
When in doubt, run a 5-year total-cost-of-ownership on both options. The right answer tends to be obvious once you see the numbers side by side.