Should you buy or lease that equipment?
A loan and a lease charge you for different things, which makes quotes hard to compare. This puts both on the same term and counts all the cash, including what you keep at the end.
Put both on the same term and count every dollar each path takes, then subtract what you walk away with. Tax treatment of a purchase and a lease differs, so confirm that part with your accountant.
The math
How this works
Is it better to buy or lease business equipment?
It depends on how long you will use the equipment and what it is worth when you are done with it. Buying costs more each month and ties up a down payment, but you own an asset you can sell, keep running after the loan ends, or pledge as collateral. Leasing keeps the monthly payment and the upfront cash lower and makes it easy to hand back equipment that goes out of date, but at the end you own nothing. Equipment that holds its value and lasts for years tends to favor buying, while equipment you replace on a cycle often favors leasing. The comparison above puts both on the same term so you can see the gap in dollars rather than in theory.
What is a lease residual value?
The residual is what the lessor expects the equipment to be worth at the end of the lease, usually stated as a percentage of the original price. It is also the price you pay if you want to buy the equipment and keep it. A high residual means a lower monthly payment, because you are only paying for the value the equipment loses during the term, but a larger check if you decide to keep it. Ask whether the buyout is a fixed amount, a set percentage, or fair market value, because that changes what your options are at the end.
What should you ask before signing an equipment lease?
Ask for the total of all payments, not only the monthly figure, and for every fee: acquisition, documentation, delivery and anything due at signing. Ask what happens at the end, whether you buy it, return it or roll into a new lease, and what condition the equipment must be in when it goes back, since wear-and-tear charges can be substantial. Ask who pays for maintenance, repairs and insurance during the term. Ask whether the lease renews on its own if you say nothing, and how much notice you have to give. Finally, ask your accountant how each option would be treated, because that varies and it can change the answer.
Questions people ask
Why is a lease payment lower than a loan payment?
Because a lease charges you for the value the equipment loses during the term rather than for the whole price. The residual is the part you are not paying for, and it is also the price to keep the equipment at the end. Over the same term the lease takes less cash out, but you finish owning nothing unless you pay that buyout.
What happens at the end of an equipment lease?
Usually you can return the equipment, buy it for the residual, or start a new lease on newer equipment. Which of those you have is written into your lease, along with the condition the equipment must be in when you return it. Note the notice deadline, because some leases renew automatically if you do nothing.
Does leasing affect how much I can borrow?
A lease is a commitment, and lenders generally count lease obligations when they look at what your business can carry. That cuts both ways: leasing preserves cash today but shows up as a fixed monthly obligation on your books. If a loan application is coming, tell your banker about existing leases up front.
Does this calculator account for tax treatment?
No. It compares cash out, resale value and buyout price only. Purchases and leases are treated differently for tax purposes, and the rules depend on the equipment and your situation, so ask your accountant to look at both options before you decide.
Tools that pair with this one
Free financial education from Finli
Practical guides, webinars and new tools for small business owners. No sales pitch.
We never sell your information. Unsubscribe any time.
This is an estimate to help you think, not financial, tax or legal advice. Finli is not a bank and does not lend. Your own numbers, and your banker, beat any calculator.