Equipment Loan vs. Equipment Lease: What Makes Sense?

Getting the tools you need for business should not leave you cash-strapped.

Equipment financing can equip your business for success by keeping working capital in your hands. Paying cash for a piece of machinery requires paying in full before the machinery is productive and able to contribute to your revenue. Whether you choose to finance equipment with a loan, rent equipment with a lease, or create a custom financing option, there are plenty of ways to avoid a large cash outlay.

Equipment financing allows you to set up customized payment plans, maintain and manage cash flow, and acquire the materials you need to do business. According to the Equipment Leasing and Finance Association, nearly 8 in 10 businesses finance equipment, instead of paying one lump sum upfront. This includes loans, leases and lines of credit. Nationally, $1.02 trillion of the $1.5 trillion spent on equipment and software was financed, instead of purchased outright.

Financing is used by businesses across all industries and service sectors, but the top-five most financed equipment types are: transportation (26 percent of all financed equipment), IT and tech services (23 percent), agricultural (10 percent), construction (9 percent), and office machines (6 percent).

Loan or lease?

Depending on your needs, you might consider an equipment loan or an equipment lease.

Businesses of all sizes—from Fortune 500 companies to mom-and-pop shops—can benefit from these arrangements.

Both loans and leases allow you to purchase equipment immediately, enabling you to generate revenue— while you begin making small, periodic payments.

In general, a loan is better if you have excess money for a down payment and you plan to keep the equipment for a long time. A lease is usually better if you don’t have money to put down, the equipment is only needed for a particular project, or if there is a risk of it becoming outdated.

Here are some items to consider.

Equipment LOAN

(line of credit)

Equipment LEASING

Good for: equipment you want to own immediately and permanently; items that are central to your core business and in constant use in order to generate revenue; inventory purchases, business improvements, capital expenditures Good for: equipment you need to use, but have the option to purchase; items/technology that may become obsolete; project-specific equipment that you don’t need long-term; equipment you expect to use for 36 months or less
Payment: Bank provides a loan and borrower makes payments with interest. Usually requires a down payment. You own the equipment at the end. Payment: Allows 100 percent financing with no down payment. Monthly payments customized to your needs. The lease finances the equipment’s value, which decreases over time.

·         Lending is based on fixed business assets used as collateral.

·         Immediate tax deduction

·         Enables expense planning

·         Generous credit approval, since assets are used as collateral

·         Simpler to obtain than a traditional bank loan


·         The leased equipment serves as the collateral.

·         Related services can be bundled: maintenance, service, installation, etc.

·         Lender can become administrator of equipment management, delivery, maintenance and disposal.

·         For growth companies, multiple lease contracts can fall under a master lease.

Typical industry uses: inventory purchase, business expansion, heavy machinery, power equipment Typical industry uses: machinery, IT hardware and software and services, healthcare technology, medical equipment, security systems

Call Crestmark for a flexible financing solution. 888-999-8050.