A machine to buy, a truck to replace, a device for your clinic: before you sign, one question almost always comes up. Equipment lease or equipment loan? Both finance the same equipment. The difference is in ownership, in the end of the contract, and in how your business keeps its cash.
The equipment loan
With a loan, you own the equipment from the start. The lender advances the money, you repay it in regular payments, and the equipment serves as collateral until the loan ends.
- The equipment belongs to you right away.
- At the end of the payments, there is nothing left to do: it is yours, free of debt.
The equipment lease
With a lease, the lender remains the owner of the equipment during the contract. You use it as if it were yours and make regular payments. A lease is also called a finance lease.
At the end of the contract, there are generally three options:
- Buy the equipment at a value set in advance in the contract.
- Renew the contract for a new period.
- Return the equipment if you no longer need it.
What both have in common
In both cases, you keep your cash to run the business, instead of paying for the equipment outright or draining your line of credit. Payments follow the useful life of the equipment.
In both cases too, the file relies largely on the equipment itself and on the shareholders' personal credit. The lenders we target generally ask for a personal score of 600 or more for equipment leasing.
The differences that matter
Ownership. With a loan, the equipment is yours from the start. With a lease, it only becomes yours if you buy it at the end.
The end of the contract. A loan simply ends. A lease leaves you a choice: buy, renew or return. That helps with equipment that ages quickly or that you plan to replace.
Tax treatment. The two are not treated the same way in your financial statements and your taxes. That is often what tips the balance. Check this point with your accountant before you sign.
What the lender looks at, in both cases
- The equipment. Its value, its use for your business and, if it is used, its age. Beyond 5 years, the file becomes more complicated.
- The seller. The equipment must be bought from a business. Purchases from a private individual or at auction are not financed.
- The invoice. Installation and transport can be financed if they appear on the invoice at the time of purchase. Taxes too, under certain conditions.
- Your bank statements. Regular deposits, no NSFs, no late payments.
- Existing financing. The more there already is, the more the file needs to be well presented.
Payments are monthly or weekly. They are not seasonal.
What if the equipment is already paid for?
You paid cash for a machine and are now short on cash? Equipment refinancing turns equipment you already own into available money, by using it as collateral.
Which one to choose?
A loan often suits you when you want to keep the equipment for a long time and own it from the start.
A lease often suits you when you want to keep your options open at the end of the contract, or for equipment you plan to replace after a few years.
In many cases, the best answer depends on your business, the equipment and your accountant. The right reflex: compare the two real offers before deciding.
Key takeaways
- Loan: you own the equipment from the start.
- Lease: the lender remains the owner during the contract, and you can generally buy the equipment at the end.
- In both cases, you keep your cash for the business.
- The equipment must come from a business, and the age of used equipment matters.
- For tax matters, check with your accountant.
Do you have a quote in hand? A single application can be presented to more than 10 partner lenders, the ones that finance this type of equipment. Details are on the Equipment leasing and financing page. To prepare your file, see the guide to the 7 documents.