The fundamental difference in one paragraph

Equipment financing is a loan. You buy the equipment, the lender funds it, you make monthly payments, and after the final payment, you own the asset free and clear with no further obligation. The lender holds a UCC-1 lien on the equipment until paid. Equipment leasing is a rental agreement. The lessor owns the equipment, you pay monthly to use it, and at the end of the term you return it, buy it (often for fair market value or a fixed buyout), or extend the lease. Financing builds equity; leasing does not.

Side-by-side comparison

Equipment Financing
Equipment Leasing
Ownership at end
You own it
Lessor owns it (buy or return)
Typical APR
7-25%
Implied 8-25% (in lease factor)
Typical term
12-72 months
24-60 months
Down payment
10-30% typical
$0 or 1-2 months upfront
Monthly payment
Higher (building equity)
Lower (pay for use only)
Section 179 tax write-off
Yes (you own the asset)
Only on capital leases, not operating
Depreciation deduction
Yes
Only on capital leases
End-of-term flexibility
Own outright, sell anytime
Return, buy, or extend
Maintenance responsibility
Yours
Yours (usually) or lessor's
Best for
Long-life equipment, want to own
Rapidly-obsolete or short-term use
Worst for
Equipment obsolete in 3 years
Equipment you'll use 5+ years

The math: financing $80K of equipment over 5 years

Here is how the two products compare on a real $80,000 piece of equipment (e.g., a commercial freezer, a small truck, a CNC machine).

Equipment financing scenario

$80K financed at 10% APR over 60 months, 15% down

Down payment$12,000
Amount financed$68,000
Monthly payment$1,444
Total paid over 5 years (including down)$98,640
Total interest cost$18,640
You own the equipment after month 60Asset value: market

Equipment leasing scenario (operating lease)

$80K equipment, 60-month operating lease, $0 down, FMV buyout

Monthly lease payment$1,580
Total paid over 5 years$94,800
Fair market value buyout at end (if you keep it)~$15,000-25,000
If you buy at end: total cost$109,800-119,800

The lease has a lower upfront cash requirement (no 15% down) and slightly lower monthly payments, but the total cost over the same period plus the FMV buyout is materially higher if you want to keep the equipment. The lease wins if you do not need ownership at the end (return and lease a new unit), or if Section 179 / depreciation does not benefit you because your business already maxed it out.

When financing wins

Equipment with a 5+ year useful life

Trucks, trailers, restaurant equipment, construction equipment, manufacturing machinery. Built to last 10 plus years with maintenance. Financing builds equity in an asset you'll keep using long after the loan is paid.

You want the Section 179 deduction

Financing lets you expense up to $1.16M of qualifying equipment in year one (2025 threshold). On $80K equipment, that's $80K of taxable income removed at your business's marginal tax rate. At a 25% rate, that's $20K in tax savings, often more than the financing interest cost.

You'll modify or customize the equipment

Lessors restrict modifications because they own the asset and want it returnable. If you'll install racks, paint, or modify for your specific use, financing is the right call so you actually own what you're modifying.

Used equipment with stable resale value

Used trucks, used construction equipment, used commercial kitchen equipment all hold value. Financing the purchase and keeping the asset 8-10 years means amortizing the cost over a much longer period than the original loan term.

When leasing wins

Equipment obsolete in 3-5 years

Tech hardware (servers, networking gear), software-locked equipment, certain medical imaging. Lease, return at end of term, lease the new generation. Avoid being stuck owning a depreciated asset.

You want $0 down and lower monthly payments

Cash-flow-constrained businesses sometimes need the lower monthly payment of a lease vs the down payment + higher loan payment of financing. The lease costs more total, but the monthly cash impact is lower.

You already maxed out Section 179

If your business already expensed $1.16M in equipment this year, additional financed equipment doesn't get the Section 179 bonus. An operating lease deducted as a monthly expense becomes more tax-efficient.

Service-bundled equipment (maintenance included)

Some leases bundle maintenance, software updates, and parts. Copiers, certain medical equipment, fleet vehicles. The bundle can be cheaper than financing plus separate maintenance contracts.

The Section 179 angle most owners miss

Section 179 of the IRS code lets a business expense the full cost of qualifying equipment in the year of purchase rather than depreciating it over 5 to 7 years. For 2025, the deduction limit is approximately $1.16 million with a $2.9 million phase-out threshold (these figures are indexed annually). This applies to financed equipment (you own it) and to capital leases structured as financing in substance. It does NOT apply to operating leases.

The math: on $80,000 of financed equipment, a business in the 25% effective tax bracket saves $20,000 in current-year taxes via Section 179. That savings is often larger than the entire interest cost of the financing. For most owners financing equipment they'll use long term, the Section 179 advantage flips the leasing-vs-financing math decisively in favor of financing. Consult a CPA for your specific situation; rules change.

What we look at on a finance-or-lease call

Frequently asked questions

What is the difference between equipment financing and leasing?
Financing = loan to buy. You own from day 1, UCC-1 lien until paid, free and clear after final payment. Leasing = rental. Lessor owns, you pay monthly to use, end-of-term: return / buy / extend. Financing builds equity; leasing does not.
Is it cheaper to lease or finance equipment?
5+ year useful life = financing usually cheaper (you own at end). 3-5 year obsolescence risk = leasing often cheaper (avoid residual value risk). Total cost depends on equipment type, useful life, and end-of-term value.
Can you write off equipment leases on taxes?
Operating leases: deducted as monthly business expense. Capital leases: deduct interest + depreciate equipment. Financing always allows Section 179 (up to $1.16M in 2025) plus depreciation. Consult a CPA.
What is Section 179 and how does it apply to equipment financing?
Section 179 lets a business expense the full cost of qualifying equipment in year 1 rather than depreciating over 5-7 years. 2025 limit: ~$1.16M, $2.9M phase-out. Applies to financing (you own) and capital leases (structured as financing). NOT operating leases.
Should I lease or buy equipment for my small business?
3 questions: (1) Useful life? 5+ yrs = finance. Under 3 = lease. (2) Obsolescence risk? Yes = lease. No = finance. (3) Want Section 179 write-off this year? Yes = finance. No or maxed = operating lease.
Can I lease used equipment?
Yes, specialty lessors lease used trucks, trailers, construction equipment, kitchen equipment. Shorter terms (24-48 mo), higher monthly payments per dollar of value. For used equipment with stable resale value, financing the purchase is usually the better path.