Whether you're buying a $30,000 commercial oven, a $200,000 piece of medical equipment, or a fleet of vehicles, the question is always the same: do I lease it, buy it outright, or finance it? The right answer depends on your tax situation, your cash position, and how long you actually need the equipment.
Here's a practical breakdown, without the jargon, to help you make the call.
The three options
Buying outright means paying cash for the equipment. You own it from day one, you can use it as long as you want, and there's no monthly payment. The downside is obvious: you're using working capital that could fund other parts of your business.
Equipment financing is essentially a term loan secured by the equipment itself. You make a down payment (often 10-20%, sometimes zero), the lender pays the seller, and you make monthly payments over 2-7 years. At the end, you own the equipment outright. Because the equipment serves as collateral, rates are typically lower than unsecured business loans.
Leasing means you don't actually own the equipment. You're paying for the right to use it for a defined term, usually 2-5 years. At the end, you can return it, renew the lease, or buy it for a residual value (sometimes $1, sometimes fair market value, depending on the lease type).
Tax implications: the part most owners get wrong
This is where the lease vs. finance decision gets interesting. Section 179 of the IRS tax code lets you deduct the full purchase price of qualifying equipment in the year you put it into service, up to a generous annual limit (currently over $1 million). The specifics, including eligibility rules, annual limits, and phase-outs, are laid out in IRS Publication 946 on depreciating property, which is the authoritative source on how Section 179 and bonus depreciation work together.
The key word is "purchase." Section 179 applies to equipment you own, which includes equipment you finance with a loan. If you finance a $100,000 piece of equipment in 2026, you can potentially deduct the full $100,000 against your 2026 income, even though you've only paid a fraction of the loan.
Leasing is treated differently. With a true lease (also called an operating lease), you can only deduct the lease payments as a regular business expense, typically a much smaller amount in year one. With a capital lease (also called a $1 buyout lease), the IRS treats it like a purchase, so Section 179 can apply.
The practical takeaway: if you have taxable income to offset and you want the equipment long-term, financing usually wins on tax treatment. Always confirm with your accountant. Section 179 has limits and phase-outs that depend on your total equipment purchases.
When buying outright makes sense
Cash purchase is the right call if:
- You have substantial cash reserves and the purchase won't strain working capital
- The equipment is critical and inexpensive (under $25,000)
- You want zero monthly obligations for the equipment
- You can deploy the cash with no better return elsewhere
The honest truth: most growing businesses shouldn't tie up cash in equipment. That cash typically generates more value when invested in inventory, marketing, or hiring than it loses to financing costs.
When financing makes sense
Equipment financing is the most common choice for a reason. It works well when:
- The equipment will be used long-term (3+ years)
- You want to preserve working capital
- You have taxable income and want to use Section 179
- The equipment will generate revenue that exceeds the monthly payment (it pays for itself)
Rates for equipment financing are usually lower than unsecured business loans because the equipment is collateral. If you stop paying, the lender takes the equipment. This security lets lenders price more aggressively, and lets borrowers with imperfect credit access financing they couldn't get otherwise.
When leasing makes sense
Leasing has a real role in specific situations:
- The equipment becomes obsolete quickly (technology, certain medical devices)
- You only need it for a defined project
- You want lower monthly payments (leases typically have lower payments than loans for the same equipment)
- You don't want the equipment on your balance sheet
The trade-off: over the full term, leasing usually costs more than financing. You're paying for flexibility and the option to walk away. If you're certain you'll use the equipment for its useful life, that flexibility isn't worth the premium.
A practical comparison
Imagine a $100,000 piece of equipment with a useful life of 8 years.
Buy: $100,000 out of pocket today. Total cost: $100,000.
Finance (5 years, 8% rate): ~$2,030/month for 60 months. Total cost: $121,800. Plus you keep $100,000 of working capital available.
Lease (5 years, fair market value buyout): ~$1,800/month for 60 months, then ~$15,000 to buy. Total cost: ~$123,000. Slightly more than financing, but with the option to walk away in year 3 if your needs change.
For most businesses with growth potential, financing is the sweet spot: preserves cash, captures the tax benefit, owns the asset at the end.
What lenders look for
Equipment financing has some of the most flexible underwriting in small business lending, because the collateral reduces lender risk. Typical requirements:
- 1+ year in business (some lenders accept startups for vehicles or essential trade equipment)
- Personal credit score of 600+
- $100,000+ in annual revenue
- The equipment must hold value over time
Vehicles, restaurant equipment, manufacturing equipment, and medical equipment are easy to finance. Specialty or rapidly depreciating equipment is harder. Custom-built equipment is hardest.
Common categories we fund
At TurboFunding, the most common equipment financing requests we see are commercial vehicles and trucks, restaurant kitchens, construction equipment, dental and medical office build-outs, and IT/computer infrastructure for growing businesses. Each has its own financing nuances, but the underlying decision framework is the same: how long will I use it, what's my tax situation, and how much cash do I want to preserve?
When in doubt, talk to your accountant first. The right answer depends on your tax bracket, your cash position, and your growth plans, and a good accountant can model out the actual after-tax cost of each option for your specific situation.