5 min read
Equipment Financing vs. Equipment Leasing: What's the Difference?
When a business is ready for a new piece of equipment, the first question is almost never "what brand?" — it's "should we finance it or lease it?" Both options get the asset on your floor. The difference is who owns it at the end, how the payments hit your books, and how the tax treatment plays out.
Equipment financing — you own it at the end
An equipment finance loan works like any other secured loan. The lender funds the purchase, you take delivery and title (with a UCC lien filed against the equipment), and you make fixed monthly payments over 24–84 months. When the last payment clears, the lien is released and the asset is fully yours — free and clear.
Equipment leasing — you pay for use
A lease is a rental agreement. The leasing company owns the equipment; you pay for the right to use it. At the end of the term you have a defined exit. Three common structures:
- FMV (Fair Market Value) lease — return, renew, or buy at market value
- $1 buyout lease — own the asset for one dollar at term end (effectively a loan)
- TRAC lease — used for vehicles, with a guaranteed residual the lessee covers
Pros and cons
Financing typically requires a larger down payment but builds equity, locks in a fixed payoff date, and lets you keep the asset indefinitely. Leasing usually means lower monthly payments and minimal upfront cash, but you don't build equity on an FMV structure and a long string of leases can cost more over time than buying outright.
Tax considerations and Section 179
Section 179 lets businesses deduct the full purchase price of qualifying equipment in the year it's placed in service, subject to annual limits. Financed equipment and $1 buyout leases generally qualify; FMV leases are typically expensed as rent instead. The right structure can shift tens of thousands of dollars in tax timing — talk to your CPA before signing.
Which makes sense for your business
Finance long-lived assets you want to own: trucks you'll run for 500K+ miles, excavators, mills, ovens, dental chairs. Lease equipment that ages out fast or that you'll want to upgrade: technology, imaging machines, copiers, point-of-sale fleets.
Both structures are available on every program at Northwood. Visit our equipment financing overview for current rates and structures, or call (714) 679-8886 to talk through your specific deal.