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Compare equipment financing loans vs. leases

Find out which could be a better value for your business.

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Editor's choice: First Down Funding business loans

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  • No prepayment penalties
  • Competitive rates
  • Works with bad credit and most industries
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Instead of buying equipment as a single expense, many companies opt to make smaller payments on it over time. This means either gradually taking ownership of the equipment through a loan or using the equipment for a limited time through a lease agreement. Which you choose depends on your business’s needs.

What’s the difference between equipment loans vs. leases?

Both equipment loans and leases are ways for businesses to acquire equipment they might not otherwise have the funds for. The biggest difference is that an equipment loan is borrowing money for your business to buy the equipment, while an equipment lease is a rental agreement that allows your business to use the equipment for a predetermined period of time.

This difference 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.

LoanLease
ConvenienceA loan relies on a lender’s willingness to provide funding. Applications can take a week or more to process.Many manufacturers and retailers of business equipment offer lease deals, meaning you can skip the bank.
ControlYou have control over how and where the equipment is used.The company providing the lease keeps ownership of the equipment, which can result in restrictions on its use.
FlexibilityIf you no longer need the equipment you’ll still need to make repayments until you fully pay off the loan.In most cases, you can choose whether to buy the equipment at the end of the lease period.

Equipment financing loans

Like other business loans, equipment loans are financed by banks and other lenders. This means potential lenders will likely 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 checked.

Costs will vary based on the type of equipment you’re purchasing, your industry and your interest rate. To fully prepare, 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 and it becomes a business asset. You can use it how you choose provided you keep making timely loan repayments.
  • Lower APR than other loan types. 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.

Drawbacks of an equipment financing loan

  • Requires down payment. Though terms vary by lender, you may be required to provide up to 20% of the amount you’re requesting.
  • The loan may outlive the equipment’s worth. Equipment that loses value or goes obsolete quickly may leave you repayments while you’re looking to replace it.
  • Funds can only be used for the equipment. If you’re looking to finance more than just your new equipment, you’ll need to take out an additional loan.

Business lenders to consider for equipment loans

Start comparing your options and see how much equipment financing your business could qualify for.

Data indicated here is updated regularly
Name Product Filter Values Loan amount APR Requirements
First Down Funding business loans
$5,000 – $300,000
Fee Based
At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400
Alternative financing up to $300K with highly competitive rates.
Lendio business loans
$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 300 legit business lenders.
ROK Financial business loans
$10,000 – $5,000,000
Varies
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.
OnDeck small business loans
$5,000 – $250,000
As low as 9.99%
600+ personal credit score, 1 year in business, $100,000+ annual revenue
A leading online business lender offering flexible financing at competitive fixed rates.
Rapid Finance small business loans
$5,000 – $1,000,000
Fee based
Steady flow of credit card sales, bad credit OK
Fundbox business loans
$1,000 – $100,000
4.99
You must have an established business.
Get flat rate, short-term financing based on the financial health of your business, not your credit score.
Kickpay e-commerce business 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.
LendingClub business loans
$5,000 – $500,000
12.15% to 29.97%
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 12 to 60 months, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
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.
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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 seller. 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 or near the end of your lease contract.

In addition, leases may not rely heavily on your credit report, and payments are typically tax-deductible. But you won’t own your equipment at the end of your term and must either return it or buy it — meaning you’ll likely still have to take out a loan if you want to keep it.

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 or significant down payment. Instead, you’ll just pay a minimal upfront cost.
  • Predictable payments. You’ll make fixed monthly payments on your lease.
  • Flexible 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.

Drawbacks of an equipment financing lease

  • Doesn’t count as an asset. You don’t own a leased piece of equipment, which means it doesn’t count towards your business assets. But the monthly payment still counts as a regular liability.
  • Use limitations. The lessor may put restrictions on how you can use the equipment you’re leasing. In the case of a vehicle, this may be a mileage limitation.
  • Additional costs. If you want to renew your lease and continue using the equipment, you may have to pay a renewal fee. And buying it outright may mean having to take out a loan.

Which equipment 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. Having the equipment on your books will also count towards your assets, which can be a big plus when looking for additional funding down the line.

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.

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