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A few months ago, the president of an excavation company came to me looking for financing. A general contractor had just offered her a big job, and she needed a second excavator.
The excavator cost $250,000, and the options were to pay cash, lease it, or buy it. Each choice changed what her cash flow would look like. It also affected how long she could keep the machine and what she could write off at tax time. Ultimately, she decided that equipment financing made the most sense for machinery.
I've spent more than 15 years helping small- to midsize business (SMB) owners finance equipment, and this is a common dilemma. Below, I cover how to decide if equipment financing is right for you, when to lease vs. buy, and the costs of equipment across a range of industries.
If you're ready to see personalized scenarios, apply today with Clarify Capital to see what you qualify for.
| Option | Who owns the equipment | Typical down payment | Best for |
|---|---|---|---|
| Equipment loan | You do | None required; finance up to 100% of the equipment's value | Equipment you plan to use for most of its useful life, with fixed monthly payments over 12 to 72 months |
| $1 buyout lease | The lessor, until you pay $1 at the end of the term | Varies by lessor | Businesses that want to own the equipment but prefer a lease structure |
| Fair market value lease | The lessor | Varies by lessor | Technology that goes out of date quickly, or equipment you may want to swap out |
| U.S. Small Business Administration (SBA) loans | You do | Not required | Large purchases where you can wait for approval (typically 30 to 90 days) |
| Business line of credit | You do | None; you draw only what you need, and collateral isn't required | Smaller, recurring equipment purchases and repairs, with interest charged only on what you use |
How Equipment Financing Works
Equipment financing is a loan used to buy machinery, technology, vehicles, office equipment, or other physical business assets. Some lenders call it an equipment finance agreement (EFA).
There are a few differences between equipment financing and other types of small business loans:
The equipment serves as collateral
The lender typically files a Uniform Commercial Code (UCC) lien, or a public notice that it has a claim to the equipment until you fully repay.
The loan amount is based on the equipment price
A down payment can lower your monthly payments. Some lenders offer 100% financing, which means you don't need to put any money down.
Repayment terms follow the equipment's useful life
The terms of your loan typically match the functional life of the equipment.
You repay in fixed monthly payments
Payments are fixed, which means you pay the same monthly amount throughout the entire repayment term.
New vs. Used Equipment
A common question that I hear from small business owners is whether buying used equipment affects their financing. Here's the difference:
New equipment
New equipment typically qualifies for longer loan terms and lower interest rates because it holds value longer.
Used equipment
You can still get financing for used equipment, but expect a smaller loan amount. Lenders may also cap the term or ask for a larger down payment.
Through Clarify Capital's lender network, you can finance up to 100% of the equipment's value with annual percentage rates (APR) starting at 6% for qualified borrowers.
Step 1:Apply online
It takes about two minutes. You'll need your business's legal name, EIN, time in business, monthly revenue, requested loan amount, owner contact information, and a credit authorization.
Step 2:Connect with a lending advisor
A U.S.-based Clarify Capital lending advisor reviews the application, runs a soft credit pull (no impact to your score), and requests 3 to 4 months of recent business bank statements.
Step 3:Get matched and funded
Clarify Capital works with 75+ vetted lenders and matches your profile with the right financing. Approvals often get a same-day offer (SBA loans can take longer).
Estimate Your Monthly Payment
To figure out your monthly payment, you need to know your loan amount, down payment, interest rate, and repayment period in months.
Plug these numbers into our equipment loan calculator to estimate how much you'll owe per month:
Equipment Financing vs. Equipment Leasing
Equipment leasing means you pay to use the equipment for a set period while the lessor (the leasing company) keeps ownership. At the end of the lease, you can buy it, renew it, or return it.
These are the differences to consider before deciding between leasing and financing:
| Factor | Equipment loan | $1 buyout lease | Fair market value lease |
|---|---|---|---|
| Ownership | You own it from the start | You own it for $1 at the end of the lease | The lessor owns it unless you buy it at the end |
| Total cost if you keep the equipment | Lowest | Similar to a loan | Highest |
| Tax treatment | Depreciation plus interest deduction | Typically treated as a purchase | Payments are typically deducted as rent |
| Upgrade flexibility | Low; you sell or trade in | Low; you sell or trade in | High; return and lease newer equipment |
| Best fit | Equipment with a long useful life | Owning equipment on lease terms | Technology that goes out of date fast |
Leasing tends to cost less if you plan to hand the equipment back and upgrade. But if you want to keep the equipment for a longer period of time, financing may make more sense.
Comparing Equipment Leases
Not every lease works the same way. The type of lease you choose affects your monthly payment, whether you own the equipment at the end, and your overall cost.
Operating lease
This type of lease covers a shorter period than the equipment's useful life. At the end of the lease, you can return, renew, or upgrade.
Capital lease
It works similarly to an equipment purchase. Covers most of the equipment's useful life. You usually end up owning the equipment at the end.
$1 buyout lease
A type of capital lease that has ownership built into it. You buy the equipment for $1 at the end of the lease.
Fair market value lease
Typically set up as an operating lease with an option to buy. At the end of the lease, you can buy the equipment for its market value or return it.
In my experience, the tax treatment is often what tips the scales in the lease vs. buy decision. When you own the equipment, you can often take the Section 179 deduction, which lets you write off the full cost in the year you start using the equipment. A $1 buyout lease usually gets the same tax treatment as a loan.
With other types of leases, you deduct the business portion of your lease payments as rent. This spreads the tax deduction across the lease term. Your accountant can tell you which approach applies to you.
Financing a Technology Purchase
Another common question I hear from business owners is whether they should lease or finance a technology purchase. Tools like electronic health record systems or payroll management software update quickly, and by the time your term is up, you may want to switch to a newer model. Equipment that upgrades frequently, like technology, is often better leased than purchased.
Equipment Cost by Industry
The equipment you need and how lenders view it vary by industry. Below, I break down common equipment costs across industries.
Dental
A single dental chair costs $7,500 to $19,000 or more. A cone beam CT system runs $80,000 to $120,000.
Veterinary
Vets use much of the same diagnostic equipment as physicians. A digital radiography system for a vet costs between $25,000 and $50,000.
Medical
A portable ultrasound system can run you between $20,000 and $100,000. MRI machines typically cost more than $1 million.
Food service
A walk-in cooler or freezer can cost $8,000 to $20,000. Advanced cooking equipment like specialized griddles costs $10,000 to $25,000.
Gym and fitness
Commercial treadmills from a major manufacturer cost between $5,000 and $8,000. A new commercial squat rack runs from $2,000 to $6,000.
Construction
The cost of an excavator ranges from $100,000 to $500,000. A compact skid steer will run you anywhere from $15,00 to $30,000.
Transportation
A new sleeper tractor will cost you more than $200,000. A used model can cost as little as $75,000.
Farming
Compact tractors range from $1,000 to $50,000, while most practical working models cost $10,000 to $25,000.
How To Choose an Equipment Financing Provider
Equipment financing companies range from manufacturer financing arms to banks and online lenders. Here's what I compare before reviewing options with a client.
Total cost of borrowing
Compare interest rates and monthly payments. Add up any fees and the end-of-lease purchase price.
Repayment terms
Your repayment terms should match the useful life of the equipment. Ask about prepayment penalties, too.
Speed to financing
Alternative lenders can often make credit decisions the same day. Traditional lenders like banks and credit unions often take longer to finance.
Industry experience
Look for a lender that understands your industry and knows the specialized equipment you need.
What's included
Some lessors bundle maintenance, service, and upgrades. Make sure you understand what's included when comparing prices.
Transparency
Good lenders give clear answers on your interest rate, fees, and repayment terms.
