Equipment Loan vs. Lease: How to Choose

Start with hold period

The single most useful question is how long you plan to run the asset. Equipment you will keep for a decade generally suits a loan. Equipment you expect to trade in three to five years often suits a lease structure.

Hold period is a business question, not a finance question, and it is one you can answer without a reviewer's help.

Ownership and end of term

Under a loan, you own the equipment from the start and the lien is released when the balance is paid. Under a lease, the lessor holds title during the term and your end-of-term options — purchase, renew, or return — depend on the contract.

Read the end-of-term language before signing anything. That section, not the payment, is where lease structures differ most from one another.

Where the two overlap

Both structures can often include soft costs when they appear on the vendor's itemized quote. Both are secured by the equipment. Both require human review, and neither can be priced before that review.

• Soft costs: often includable in either structure
• Collateral: the equipment in both cases
• Documentation: substantially similar starting package

Questions for your CPA

Tax and accounting treatment shifts with standards and with your specific circumstances, so this belongs with your accountant rather than a lender's website.

• How would each structure appear on our financial statements?
• How does each interact with depreciation elections we plan to take?
• Does either structure affect covenants on our bank line?

What we will not tell you

No page can tell you which structure is cheaper for your business, what rate you would receive, or whether you would be approved. Those come from review of an actual file by a person.