Finance guide
Equipment Financing Guide [2026]
New truck, commercial kitchen, excavator, or server rack — every growing business eventually faces the equipment question: buy it outright, finance it, or lease it? The right answer depends on your cash flow, tax situation, and how fast the equipment becomes outdated. This guide walks through all three paths with real numbers.
Buy vs Lease: The Decision Framework
There's no universal "right" answer. The best choice depends on four factors:
When to Buy
- Equipment has a long useful life (5+ years)
- You have cash for a down payment
- You can benefit from Section 179 immediate expensing
- Equipment doesn't become obsolete quickly
- Examples: heavy machinery, commercial vehicles, building improvements
When to Lease
- Technology changes rapidly (computers, medical devices)
- You want predictable monthly expenses
- Limited upfront cash for down payment
- Lease includes maintenance (full-service lease)
- Examples: IT equipment, copiers, fleet vehicles, restaurant POS
The Math: 5-Year Cost Comparison
Let's walk through a real example: a $50,000 piece of equipment, financed over 5 years.
| Cost Element | Buy (6% Loan) | Lease ($900/mo) |
|---|---|---|
| Upfront payment | $10,000 | $0 |
| Total payments (60 months) | $46,399 | $54,000 |
| Gross total | $56,399 | $54,000 |
| Depreciation tax savings (24% bracket) | -$12,000 | — |
| Interest tax deduction (24% bracket) | -$1,536 | — |
| Lease payment tax deduction | — | -$12,960 |
| Net 5-year cost | $42,863 | $41,040 |
In this example, leasing saves $1,823 over 5 years. But the result flips if you can use Section 179 to expense the full $50,000 in year one. Run your own numbers with our calculator — every situation is different.
Depreciation & Section 179: The Tax Advantage of Buying
When you buy equipment, the IRS lets you recover the cost through depreciation deductions over the asset's useful life. But Section 179 offers something much better: immediate expensing.
Section 179 Deduction (2026)
- Maximum deduction: Up to $1,220,000 of equipment cost in the year placed in service
- Phase-out threshold: Begins when total equipment purchases exceed $3,050,000
- Eligible property: Tangible personal property used >50% for business: machinery, vehicles, computers, furniture, qualified improvement property
- Bonus depreciation: 60% for property placed in service in 2026 (phasing down: 40% in 2027)
The key takeaway: if you buy $50,000 of equipment and can use Section 179, you deduct $50,000 from your taxable income this year — saving $12,000 in taxes at a 24% rate immediately, rather than spreading $10,000/year over five years. This dramatically improves the buying case.
Equipment Financing Options
If you decide to buy, you have several financing paths:
Equipment Loan
The equipment itself serves as collateral. Rates typically 4-15% depending on credit. Terms from 2-7 years. Down payment usually 10-20%.
SBA 504 Loan
For major fixed assets over $250K. 10-20 year terms, below-market fixed rates (typically 5-7%). Requires 10-20% down. Best for large equipment purchases or real estate.
SBA 7(a) Loan
General-purpose business loan that can be used for equipment. Terms up to 10 years for equipment, rates typically 7-13%. More flexible but slightly higher rates than 504.
Vendor Financing
Offered by equipment manufacturers or dealers. Often 0% introductory rates or deferred payment. Be careful of balloon payments or higher total cost disguised as low monthly payments.
Business Line of Credit
Revolving credit you draw from as needed. Useful for ongoing equipment purchases rather than a single large buy. Rates typically 7-25%, only pay interest on what you use.
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Industry-Specific Recommendations
Construction
Heavy equipment (excavators, loaders) — buy. Technology (GPS, drones) — lease. Equipment holds value well, but technology evolves fast. Section 179 is especially valuable here.
Restaurant / Food Service
Kitchen equipment — buy. POS systems — lease. Ovens and walk-ins last 10-15 years. POS and ordering tech changes every 2-3 years. Full-service equipment leases that include maintenance can simplify operations.
Medical / Dental
Diagnostic equipment — lease. Office furniture — buy. Imaging technology advances rapidly; leasing gives you an upgrade path. Basic furnishings and cabinetry are long-term assets.
IT / Technology
Almost everything — lease. Servers depreciate to near-zero in 3 years, and laptops in 2. Leasing with refresh cycles keeps your infrastructure current. Only buy if you have predictable, stable requirements.
Transportation / Trucking
Trucks — can go either way. New trucks depreciate 20% in year one, but you build equity. Leasing often includes maintenance, which can be worth $5K-$10K/year. Compare total cost including maintenance for both options.
Salon / Beauty
Styling stations, chairs — buy. Specialized equipment (laser, microdermabrasion) — lease. Furniture lasts years, but aesthetic technology changes quickly and often comes with manufacturer upgrade paths through leasing.
Frequently asked questions
Is leasing equipment a tax write-off?+
Yes. Lease payments are generally 100% deductible as a business operating expense in the year paid. This often provides larger and more predictable tax deductions than buying, where depreciation spreads deductions over multiple years (unless you use Section 179). Both options provide tax benefits — the difference is timing.
What credit score do I need for equipment financing?+
For traditional bank equipment loans: 650+. For SBA loans: 680+ preferred (640 minimum). For online lenders and vendor financing: 600+ accepted, but rates will be higher (15-30%). Startups may need a personal guarantee regardless of credit score.
Can I lease equipment with an option to buy?+
Yes. This is called a capital lease or $1 buyout lease. At the end of the lease term, you can purchase the equipment for a nominal amount (often $1). These are treated like a purchase for tax purposes — you depreciate the asset rather than deducting lease payments. A fair market value (FMV) lease gives you the option to buy at market price or return the equipment.
What is the difference between Section 179 and bonus depreciation?+
Section 179 lets you expense up to $1.22M (2026) in the year you place equipment in service, but it's limited to your business's taxable income. Bonus depreciation (60% in 2026) has no income limit and applies automatically. You can use both. Section 179 has more restrictions (must be used >50% for business, income limit) but allows you to choose which assets to expense.
Should I pay cash, finance, or lease?+
Cash is cheapest (no interest) but ties up working capital that could be used for growth. Financing preserves cash but adds interest cost. Leasing preserves the most cash and offers flexibility but may cost more over the long term. As a rule of thumb: if the equipment helps you generate revenue immediately, finance it; if it's infrastructure that won't directly increase revenue, lean toward cash or leasing.