Direct Capital :
Equipment Lease vs Loan
Equipment Lease vs. Equipment Loan
When your small business needs financing for a piece of equipment, you do have options. After researching those options, you may wind up questioning whether an
equipment lease or loan is best for your business. Direct Capital is proud to present a side-by-side
look at both types of financing to help you make the right decision.
What is a lease?
At its basic level, an equipment lease is a term rental agreement between two parties for the use of equipment. Leases typically do not require down payments, significant collateral or
restrictive covenants. The terms and length of leases can vary according to business needs. Leases also carry extra benefits of tax deductions and reflect better on your balance sheet.
What is a loan?
Equipment loans are essentially borrowed money to use toward goods, equipment or services. Unlike a lease, however,
loans do require down payments, have less flexible payment schedules and less tax benefits.
Which makes more sense for my small business?
While there are variables to consider, a lease is a great fit for any small business. With the lack of restrictive terms and heavy costs early in the payment cycle, an equipment lease can
get your small business the equipment you need without the hassles you do not.
Are there tax benefits to an equipment lease?
Indeed there are. When structured as true leases, the entire payment can be claimed as a tax exemption, which helps a small business when the IRS comes knocking. The Section 179 tax
benefits allow businesses to take a significant deduction on leased equipment, with the entire amount up to $2,000,000 being eligible through standard and bonus deductions.
Here are some examples of the many advantages equipment leases hold over loans: *benefits may vary by type of lease
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Equipment Lease
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Equipment Loan
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Collateral Required?
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The equipment is the collateral.
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Additional collateral is required.
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Burden of Obsolescence?
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The Lessor.
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Yours alone.
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Balance Sheet Impact?
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Reports as expense.
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Reports as liability.
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Payment Schedule?
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Spread out over time.
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Strict payment schedule.
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Tax Deductions?
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Section 179 tax deduction and lease payment writeoff.
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Section 179 only.
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Covers Soft Costs?
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More soft costs allowed.
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Limited soft costs allowed.
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How can I obtain an equipment lease for my small business?
Direct Capital can help. Our professional finance managers can help you figure out what kind of equipment lease would best fit your business and how you can be sure to get the equipment,
supplies and services your small business needs right away.