In this guide
The basic difference
With an equipment loan, you buy the equipment and own it from day one. The lender registers security on the equipment until the loan is paid off.
With an equipment lease, the lender owns the equipment and you pay to use it for a set term. At the end, depending on the lease, you may be able to buy it, return it, or upgrade.
Common types of leases
- Buyout lease (often called a $1 or nominal buyout): built to transfer ownership to you at the end for a small amount. In practice it works much like a loan.
- Fair market value (FMV) lease: lower payments, with the option to buy the equipment at its market value at the end, return it, or upgrade. Useful for equipment that goes out of date quickly.
How to decide
| If you... | Consider |
|---|---|
| Want to own it long-term | Loan or buyout lease |
| Upgrade every few years | FMV lease |
| Want the lowest monthly payment | FMV lease |
| Want to keep cash in the business | Lease or loan with little down |
Taxes and accounting
Leases and loans can be treated differently for tax and accounting purposes, for example whether you claim lease payments as an expense or claim capital cost allowance (CCA) on equipment you own. The right choice depends on your business, so check with your accountant before you sign.
Questions to ask any lender
- What is the total cost over the full term, including fees?
- What happens at the end of the term?
- Is there a penalty for paying off early?
- Who is responsible for insurance and maintenance?
- Is a personal guarantee required?
This guide is general information, not legal, tax or financial advice. Speak with your lawyer, accountant or lender about your situation.
See which option fits you
Take the free 60-second Equipment Financing Check.