The basic structure
A lessor buys the equipment and you pay to use it over a fixed term. The contract sets payments, maintenance duties and end-of-term options.
You choose the equipment, the lessor purchases it and you make monthly payments. Terms often run two to five years. Insurance, maintenance and taxes are usually your responsibility.
Compare leasing with equipment financing, where you generally own the asset from the start and the equipment secures the financing.
Common lease types
Capital leases and finance leases resemble buying. Operating leases resemble renting, with lower payments and a return at the end.
| Type | End of term | Fits when |
|---|---|---|
| Finance or capital lease | You usually buy it, often for a small amount | You want to own it |
| Operating lease | Return, renew or upgrade | Technology changes fast |
| Fair market value lease | Buy at the then-current value | You are unsure about long-term use |
Accounting and tax treatment differ by lease type, so ask your CPA before you sign.
Leasing versus buying: a numbers example
Leasing lowers monthly cost but often costs more in total than buying. The right choice depends on how long you will use the asset.
Illustrative example: a machine costs $40,000. A 48-month lease at $950 a month totals $45,600. If a buyout at the end costs $4,000, ownership costs $49,600. Financing it with a loan could total about $47,000 and you own it from the start.
If you will use the machine for ten years, buying wins. If the machine is outdated in three, the lease gives you an exit. See the equipment payback period calculation and cost to lease gym equipment for a real-world case.
What to look for in a lease contract
Check the total cost, buyout terms, early termination penalties, maintenance duties, insurance requirements and return conditions.
- Total of all payments plus fees
- Purchase option and price at the end
- Penalties for ending early
- Who maintains and repairs the equipment
- Required insurance
- Return condition and wear charges
- Automatic renewal clauses
Automatic renewals and wear charges are common surprises. Read every page, and ask a lawyer to review a large lease.
Before you sign, ask the lessor for a full amortization of the lease, including the implied rate. Lessors often quote only the monthly payment. Knowing the implied rate lets you compare a lease to a loan on equal terms and spot a lease whose true cost is far above the market.
Who leasing suits
Leasing suits businesses that need current technology, want smaller upfront outlay or have short-term projects.
Good fits include medical offices with fast-changing devices, offices with technology refresh cycles and contractors on one-off projects. Poor fits include equipment you will run for a decade, or highly customized machines the lessor cannot reuse.
Leasing can also preserve cash for working capital. Remember a lease is a fixed obligation, so test whether you can pay it in a slow month. See stress test payments if revenue drops.
ROI Funder's equipment route
ROI Funder places equipment financing, where you generally own the equipment, with funding in 2 to 7 days for qualified files.
If you decide owning suits you better, equipment financing is the closest product. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. We show the true cost, payback period and monthly-equivalent payment before you sign, and we say plainly when a purchase does not pencil out.
Applying takes a few minutes with a soft credit pull and no obligation to accept an offer. Also see equipment financing with bad credit.
Frequently asked questions
Is leasing cheaper than buying?
Monthly payments are often lower, but the total cost is often higher over time. It depends on the term and the buyout.
Can I deduct lease payments?
Often, but treatment depends on the lease type and tax rules. Ask your accountant.
What happens at the end of a lease?
You may return the equipment, renew, upgrade or buy it, depending on the contract.
Does ROI Funder offer equipment leases?
ROI Funder places equipment financing, where the equipment is purchased and secures the financing.