Lease or loan?
Four structures, what each does to ownership, cash and your balance sheet, and when each one is the right answer.
| Structure | You own it? | Monthly cost | Best when |
|---|---|---|---|
| Equipment loan | Yes, from day one | Highest | You will keep the machine well past the term and want the residual value |
| $1 buyout lease | Yes, for $1 at the end | Similar to a loan | Effectively a loan with different paperwork — compare the APR, not the label |
| FMV lease | No, unless you buy it at market value | Lower | Equipment you replace on a cycle, or technology that dates |
| Term loan on a blanket lien | Yes | Varies | Rarely the right answer for one machine — it encumbers everything |
The question that actually decides it
How long will you keep the machine, and what will it be worth when you are done with it?
If the answer is "ten years and it will still be worth real money" — a loan or a $1 buyout, every time. You are buying an asset and the residual value is yours.
If the answer is "four years and then it is tired" — an FMV lease deserves a serious look. You pay for the portion of the machine's life you actually use, and the lessor carries the residual risk.
What you should not do is pick the structure because it produced the lowest monthly payment. That is how owners end up leasing equipment they intended to keep forever, and then buying it a second time at the end.
Tax treatment — and the caveat
Loans and $1 buyout leases generally let you depreciate the asset, which is where Section 179 and bonus depreciation come in. True operating leases are generally treated as a deductible operating expense instead.
Which is better for you depends entirely on your tax position this year and next, and the Section 179 limits and phase-out thresholds change. Confirm the current figures and your eligibility with your CPA before a tax treatment drives the decision. We are not your accountant, and a deduction is a discount on equipment you needed — never a reason to buy equipment you did not.
Balance sheet and your other lenders
How the obligation appears matters if you have a working capital line with covenants, or if you plan to sell or borrow against the business. Talk to whoever holds your operating line before you sign equipment paper — particularly if the equipment lender wants a blanket lien rather than a lien on the specific asset. That collision is one of the most common and most avoidable problems we see.
Before you sign, either way
- Convert the payment to an APR with the calculator and compare like for like.
- Read the end-of-term terms on any FMV lease — including automatic renewal and return condition requirements.
- Check for a prepayment penalty.
- Confirm whether the lien is on the asset or on everything you own.
- Get one independent quote. Always.
Talk it through before you commit.
Fifteen minutes with someone who has financed and repossessed this equipment. We will tell you which structure fits.