Compare equipment financing loans vs. leases

How do equipment loans and equipment leases compare?

Both equipment loans and leases are ways for businesses to acquire equipment that they might not otherwise have the capital for. However, there is one big difference: An equipment loan is money for your business to buy the equipment you need while an equipment lease is a rental agreement that allows your business to use the equipment for a predetermined period of time. This can have a big impact on how the equipment is used and maintained, so exploring your options both ways is a crucial step in determining which is right for your business.

Equipment financing loans

Like other business loans, equipment loans are financed by banks and other lenders. This means that potential lenders will scrutinize both your personal and business credit reports before extending an offer. Because the lender wants to know that you’ll meet your repayments, your business’s revenue and cash flow will also be evaluated.

Costs will vary based on the type of equipment you’re purchasing, your industry and your interest rate. You should budget regular repayments and have at least 20% of the equipment’s value available to use as a down payment.

Features of an equipment financing loan

• Fully purchase equipment. When you commit to an equipment loan, you’re buying the equipment outright. You can use it how you choose provided you keep making timely repayments towards your loan.
• Lower APR. Your equipment will generally be used to secure your loan. This means your lender may offer you a lower APR than you would receive on an unsecured business loan.
• Regular installments. Repayments are typically charged monthly, quarterly or annually at an agreed interest rate.
• Requires down payment. Though terms vary by lender, you may be required to provide up to 20% of the amount you’re requesting.

Business lenders to consider for equipment loans

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Name	Product	Filter Values	Loan amount	APR	Requirements
First Down Funding business loans			$4,000 – $300,000	5.49% to 22.79%	At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 300	Alternative financing up to $300K with highly competitive rates.	Check eligibility More Info		loading Fetching your data...
Lendio business loan marketplace			$500 – $5,000,000	Starting at 6%	Operate business in US or Canada, have a business bank account, 560+ personal credit score	Submit one simple application to potentially get offers from a network of over 75 legit business lenders.	Check eligibility More Info		loading Fetching your data...
Fundera			$2,500 – $5,000,000	7% to 30%	$300,000+ of annual revenue, 680+ personal credit score, in business for 3+ years	Get connected with short-term funding, SBA loans, lines of credit and more.	Check eligibility More Info		loading Fetching your data...
Kickpay e-commerce loans			$20,000 – $1,000,000	Not applicable	At least $250,000 in the past 12 months of revenue, e-commerce business, use a 3rd party fulfillment center for storing and shipping inventory, at least one US location.	Get a loan for your e-commerce business based on your sales history.	Check eligibility More Info		loading Fetching your data...
Credibly Business Loans			$5,000 – $250,000		6+ months in business, $180K annual business revenue, 500+ credit $15K+ in monthly deposits	Funding to cover business expenses with daily or weekly repayments.	Check eligibility More Info		loading Fetching your data...
SmartBiz			$30,000 – $5,000,000	4.75% to 7.00%	650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years	Get funding for your small business with a government-backed loan and extended repayment terms.	Check eligibility More Info		loading Fetching your data...
LendingClub small business loans			$5,000 – $500,000	9.77% to 35.98%	12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better	With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.	Check eligibility More Info		loading Fetching your data...
Monevo Business Loans			$500 – $100,000	3.99% to 35.99%	Credit score of 500+, legal US resident and ages 18+.	Use this connection service to get paired with a loan you can use for business.	Check eligibility More Info		loading Fetching your data...

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Equipment financing leases

Rather than deal with a bank or lending service, you can sometimes organize a lease directly with the equipment provider. When you lease a piece of equipment, you likely won’t have to put any money down or secure the lease with collateral. This cuts your upfront costs. Along with low monthly payments, equipment leasing is generally the less expensive option if you plan on upgrading your equipment at the end of your lease contract.

In addition, leases may not rely heavily on your credit report or require secured assets and payments are typically tax-deductible. However, you won’t own your equipment at the end of your term and must either return it or buy it — meaning you’ll be taking out a loan, anyway.

Features of an equipment financing lease

• Simple application. Since you’ll only be renting the equipment, you won’t have to fill out the same long application as you would with an equipment loan.
• No deposit needed. Although it can vary by lender, leases tend not to require a deposit. Instead, you’ll just pay a minimal upfront cost.
• Predictable payments. You’ll make fixed monthly payments on your lease.
• Flexible lease terms. At the end of the lease term, you may have the option to renew or terminate the lease. You can also buy the equipment outright at its fair market value — just make sure the option is written into your contract.

Which financing option offers better value?

If you plan to use the equipment for a long time and have access to a consistent cash flow, a loan could be more convenient for your business. Leasing can be better suited to companies with lower revenue and those seeking equipment that comes with a shorter lifespan. Short-term leases even allow for expensive equipment to be upgraded every few years, with some agreements requiring that the provider update products regularly within the lease period.

Frequently asked questions

• How long do equipment loans and leases last?

  Both loans and leases can generally be in effect from three to five years — although loans can be longer and leases much shorter.

• What happens if I can't pay my loan or lease?

  You’ll face additional costs for late payments. But the consequences of defaulting on your loan can be more severe. A lender may be able to seize your secured assets as collateral, and your credit score may be damaged.

• What if my equipment breaks?

  Be it a loan or a lease, you are primarily responsible for ensuring that the equipment is maintained. A lease provider will likely ask you to pay the costs of repairing or replacing the equipment, and you’d be required to continue making repayments on your loan.

  You can check the terms of your financing to see if insurance by the lender is available.