Equipment Financing: When to Lease, Loan, or Pay Cash
Equipment is the easiest asset to finance because the collateral is self-securing. That said, the structure you pick determines the after-tax cost — and most operators leave 10–20% on the table by defaulting to a lease.
Equipment loan (own at maturity)
Standard amortizing loan, 36–84 months, equipment titled to you. Best when you'll use the equipment beyond the financing term. Full Section 179 / bonus depreciation available year one.
Capital lease (own with $1 buyout)
Mechanically identical to a loan for tax and accounting purposes. Often priced more aggressively than a loan because the lessor retains a security interest. Same depreciation treatment.
Operating lease (return at maturity)
True rental — you don't own the equipment, you expense the payments. Best for equipment that depreciates fast (trucks, tech) or you'll replace on a cycle. Lower monthly payment but no asset on the balance sheet.
Sale-leaseback
You sell owned equipment to a lender and lease it back. Converts trapped equity into working capital while keeping the asset in service. Underrated structure for operators with $200k+ of paid-off equipment.
Section 179 and the financing decision
For 2026, Section 179 lets you expense up to $1.22M of equipment in year one (with phaseout starting at $3.05M of total purchases). Bonus depreciation drops to 40%. The interplay matters: a loan or capital lease lets you take the full deduction even if you finance 100% of the cost — effectively a no-money-down tax shield.
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