Loan versus lease
A loan makes you the owner from day one and you depreciate the asset. A lease keeps ownership with the lessor, may or may not include a purchase option at the end, and is accounted for differently. The right answer depends on the tax position and how long the asset will still be useful - not on which has the lower monthly payment.
A $1 buyout lease is functionally a loan with a different label. A fair-market-value lease really is a rental. Confusing the two is the most common error in this category.
Why the asset class matters so much
Lenders price against resale liquidity. A standard highway tractor or a common CNC machine has a deep secondary market and prices accordingly. Custom-built or highly specialised equipment does not, and pricing reflects that regardless of the borrower's credit.
Commonly used for
- Buying machinery, vehicles, or technology with a clear useful life
- Preserving a line of credit for working capital
- Borrowers whose credit is stronger than their collateral position
What to check before signing
- Financing a term longer than the asset's useful life leaves you paying for something worthless
- Some leases carry substantial end-of-term buyout or return conditions
- Vendor-arranged financing is convenient but rarely the cheapest quote available
Equipment: common questions
- Can I finance used equipment?
- Usually yes, though lenders cap the age and set shorter terms. Auction purchases are harder to finance than dealer purchases because valuation is less certain.
- Should I use an SBA loan for equipment instead?
- SBA 7(a) and 504 both fund equipment and often at a lower rate. Dedicated equipment lenders win on speed and on willingness to lend against the asset alone. The trade is cost against time.