How does an equipment loan work?
With an equipment loan or financing agreement, you buy the equipment and repay the funder over a set term, usually with fixed payments. The funder holds a lien on the equipment until the balance is repaid, and then you own it free and clear. A down payment may be required, depending on the deal.
Because you own the asset, you keep its resale value and can use it as long as it runs. Loans suit durable equipment such as excavators, CNC machines, lifts, tractors and commercial ovens. Learn more on our equipment financing page.
How does an equipment lease work?
With a lease, the funder or lessor owns the equipment and you pay to use it for a set term. At the end, depending on the lease type, you may return it, renew, upgrade, or purchase it. Some leases include a purchase option at a nominal price; others set the price at fair market value.
- Fair market value lease: lower payments, with the option to purchase at market value, return or upgrade.
- Lease with a nominal purchase option: payments closer to a loan, and you typically end up owning the equipment.
Read the end-of-lease terms carefully, because they drive the total cost.
| Factor | Equipment loan | Equipment lease |
|---|---|---|
| Ownership | You own it once repaid | Lessor owns it; options at end |
| Upfront cost | May need a down payment | Often lower upfront |
| Total cost for durable equipment | Usually lower | Often higher over time |
| Upgrades | Sell and buy again | Built into some leases |
| Best for | Long-lived equipment | Fast-changing technology |
Which costs less overall?
For durable equipment kept for many years, a loan usually costs less in total, because you stop paying once it is repaid and then own an asset with remaining value. A lease can cost more over time, especially if you renew or buy at the end, but may have lower payments and upfront costs.
Illustrative approach: add up every lease payment, fees and any end-of-term purchase price, then compare that to the loan's total repayment and down payment minus the equipment's expected resale value. The option with the lower net cost over the period you will use the equipment is cheaper. Our offer comparison guide helps.
When does leasing make more sense?
Leasing makes sense for equipment that loses relevance fast, such as computers, diagnostic scan tools, some medical and office technology, and software-driven systems. It also fits when you need equipment for a limited period, want maintenance bundled in, or need to preserve cash and borrowing capacity for other uses.
An auto shop may lease calibration tools that need regular upgrades while financing lifts it will use for decades. A professional firm may lease computers on a regular refresh cycle. See auto services and professional services for examples.
What about taxes and accounting?
Leases and loans can be treated differently for taxes and financial reporting, and those differences can change which option is cheaper for your business after tax. The rules are specific and change over time. Ask your tax professional or accountant before deciding; we do not give tax advice.
Bring both offers to your tax professional with total payments, term, end-of-term options and the equipment's expected life. That lets them compare the after-tax cost for your situation rather than relying on general rules of thumb.
How do you choose for your equipment?
Ask how long you will use it, how fast it becomes outdated, whether you want to own it at the end, and how much cash you want to put down. Long life and ownership point to a loan. Short relevance and upgrade needs point to a lease. When unsure, compare total net cost.
Requirements vary by product and funder; many look at time in business, monthly revenue and credit. Funders also consider the equipment's age, type and resale value. One application with 50 States Funding can surface both loan and lease options. Farms and manufacturers can see more on our agriculture and manufacturing pages.
Frequently asked questions
Can I end a lease early?
Many leases are difficult or costly to end early and may require paying most or all remaining payments. Read the early termination section before signing, and ask for any flexibility to be written into the lease.
Who maintains leased equipment?
It depends on the lease. Some include maintenance, while many require you to maintain and insure the equipment as if you owned it. Confirm responsibilities, insurance requirements and return-condition standards before signing.
Is used equipment better leased or financed?
Used equipment is more often financed, since you are already buying below new cost and plan to use it for a while. Some lessors do lease used equipment. Funders will look closely at age, condition and resale value either way.
Does leasing affect my ability to get other funding?
Lease payments are obligations that funders consider when sizing new offers, just like loan payments. Some lessors also file UCC notices. Disclose leases on applications so offers reflect your true monthly obligations.
Compare lease and loan options
Share your equipment quote and funders will review what fits.
Updated September 14, 2026 · 50 States Funding Team