Is leasing or financing equipment better for taxes?

It depends on your tax situation. Financing (or a capital lease) lets you take Section 179, up to $2.56M in 2026, plus bonus depreciation, deducting most or all of the purchase price in year one. An operating lease lets you deduct the entire monthly payment as an expense, spreading the deduction across the lease term. High-income years generally favor financing + Section 179. Steady, lower-margin operations may prefer the predictable operating lease deduction. Always confirm with your CPA.

What credit score do I need to lease equipment?

Most equipment lessors look for 650+ FICO for competitive rates and minimal money down. Scores 600-649 still qualify but typically require first/last payment upfront and a security deposit. Below 600, leasing options shrink dramatically, financing through a non-traditional equipment lender (which we have in our 500+ network) is usually the better path for those credit profiles.

How much down payment do I need to finance equipment?

Equipment financing typically requires 10-20% down for A-credit borrowers (700+ FICO). Strong revenue and time-in-business can sometimes unlock $0-down programs on new equipment. B-credit (600-699) usually requires 15-25% down. Alternative-Credit borrowers (500-599) typically need 25-40% down. The down payment is the single biggest lever for both rate and approval odds.

Can I deduct equipment lease payments on my taxes?

Yes, if it's a true operating lease, you deduct the full monthly payment as a business operating expense. If it's a capital lease ($1 buyout), the IRS treats it as a purchase and you depreciate the equipment + deduct only the interest portion of payments. The lease document must be reviewed to determine which type applies.

Do equipment leases have mileage or usage limits?

Many do. Truck and trailer leases commonly cap at 110,000-125,000 miles per year, with overage at $0.05-$0.12 per mile. Construction equipment leases may cap at 1,500-2,000 hours per year. Medical and tech leases usually don't have usage caps. Always read the usage clause, overages can add tens of thousands across a 5-year lease.

Can I switch from lease to finance mid-term?

Sometimes. Most leases include a buyout option at any point, you pay the remaining lease balance plus a buyout amount and the equipment becomes yours. Brobas can often refinance the buyout into a conventional equipment loan, converting your lease into ownership. This makes sense when interest rates have dropped or your credit has improved significantly since the original lease.

Which is better for a startup business, lease or finance?

For startups, leasing usually wins because: (1) it preserves cash for operations, (2) approval is sometimes easier than financing for new entities with limited history, (3) the predictable monthly cost simplifies cash flow planning, and (4) it keeps the asset off the balance sheet, preserving borrowing capacity for working capital lines later. Once the business has 18-24 months of revenue history, refinancing into ownership becomes a smart move.

Equipment Lease vs Finance (2026 Guide)

Side-by-side breakdown

● indicates the winner on that row

Metric	Equipment finance (5-yr loan)	Equipment lease (5-yr $1-buyout)
Down payment	10-20% typical	●$0-first/last (~$5k)
Monthly payment ($150k)	●~$2,900	~$3,300
Approval speed	24-72 hours	●24-48 hours
Credit minimum	●600+ typical (non-traditional to 500)	650+ typical
Ownership at end	●Yes, full title	$1 buyout (capital lease) or FMV (operating)
Section 179 deduction	●Full purchase price (year 1)	Capital lease only, operating lease no
Monthly payment deduction	Interest portion only	●Full payment (operating lease)
Shows on balance sheet	As asset + liability	●Operating: off-balance-sheet
Equity built (5y, $150k)	●~$55,000	$0 unless capital lease
Best fit	Long-hold equipment, high-income years	Tech-obsolescence risk, cash-tight startups

Pros & cons

Option A

Equipment finance (loan)

You build equity, equipment is yours at payoff
Section 179 + bonus depreciation can deduct full price year 1
No mileage/usage restrictions
Lower total cost over 5+ year horizon
Free to sell, modify, or refinance anytime
Alternative-Credit programs available down to ~500 FICO

10-20% down payment ties up working capital
You absorb depreciation and obsolescence risk
Major repair risk after warranty expires
Asset and liability appear on balance sheet, affects future borrowing capacity

Option B

Equipment lease

Minimal cash to start, often $0 down
Lower monthly cost in early years (operating lease)
Full payment may be tax-deductible (operating lease)
Easy refresh, return and upgrade every 3-5 years
Off-balance-sheet treatment for operating leases preserves borrowing capacity
Maintenance often bundled with the lease

No equity unless you exercise buyout
Higher total cost across 5+ years for long-hold equipment
Mileage / usage caps can trigger expensive overage charges
Section 179 only available on capital leases ($1-buyout structure)
Early termination fees can be punishing
Stricter credit requirements (650+) for the best lease rates

5-year cost of capital, lease vs equipment loan

$150k equipment, A-credit borrower, total cash out the door

Equipment loan
$1-buyout lease

Source: Brobas Capital lender panel · ATRI 2025

Cumulative cash deployed over 5 years

Lower line = better near-term cash flow

Equipment loan
Lease (incl. buyout)

Source: Brobas Capital, typical $150k equipment scenario

Equity built after 5 years

Estimated truck value minus loan / residual balance

Source: Brobas Capital, J.D. Power residuals applied

Run the numbers yourself

Lease vs Buy Calculator Truck Payment Calculator Depreciation Estimator

Equipment Lease vs Finance: which is right for your business in 2026?

Pros & cons

Equipment finance (loan)

Equipment lease

Frequently Asked Questions

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