Finance guide
Equipment Financing Guide [2026]
New truck, commercial kitchen, excavator, or server rack — every growing business eventually faces the equipment question: buy it outright, finance it, or lease it? The right answer depends on your cash flow, tax situation, and how fast the equipment becomes outdated. This guide walks through all three paths with real numbers.
Buy vs Lease: The Decision Framework
There's no universal "right" answer. The best choice depends on four factors:
When to Buy
- Equipment has a long useful life (5+ years)
- You have cash for a down payment
- You can benefit from Section 179 immediate expensing
- Equipment doesn't become obsolete quickly
- Examples: heavy machinery, commercial vehicles, building improvements
When to Lease
- Technology changes rapidly (computers, medical devices)
- You want predictable monthly expenses
- Limited upfront cash for down payment
- Lease includes maintenance (full-service lease)
- Examples: IT equipment, copiers, fleet vehicles, restaurant POS
The Math: 5-Year Cost Comparison
Let's walk through a $50,000 piece of equipment, financed over 5 years. The tax illustration assumes 100% business use, an available full $50,000 purchase deduction within the period, fully deductible loan interest and true-lease rent, and a constant 24% federal marginal rate. Actual eligibility and deduction timing can differ.
| Cost Element | Buy (6% Loan) | Lease ($900/mo) |
|---|---|---|
| Upfront payment | $10,000 | $0 |
| Total payments (60 months) | $46,399 | $54,000 |
| Gross total | $56,399 | $54,000 |
| Depreciation tax savings (24% bracket) | -$12,000 | — |
| Interest tax deduction (24% bracket) | -$1,536 | — |
| Lease payment tax deduction | — | -$12,960 |
| Net 5-year cost | $42,863 | $41,040 |
Under these assumptions, the illustrated lease cost is $1,823 lower over five years. The purchase column already includes the full $12,000 tax effect of deducting $50,000: Section 179 or eligible 100% bonus changes deduction timing, not that nominal total. The table excludes resale value and the time value of money. Run your own cash-flow assumptions with our calculator.
Depreciation & Section 179: The Tax Advantage of Buying
When you buy equipment, the IRS lets you recover the cost through depreciation deductions over the applicable tax recovery period. Eligible purchases may instead qualify for Section 179 or bonus depreciation in the year placed in service; the best timing depends on your tax situation.
Section 179 Deduction (2026)
- Maximum deduction: Up to $2,560,000 for tax years beginning in 2026, subject to other limits
- Phase-out threshold: The limit falls dollar-for-dollar when qualifying property costs placed in service exceed $4,090,000
- Eligible property: Tangible personal property used >50% for business: machinery, vehicles, computers, furniture, qualified improvement property
- Business-income limit: Section 179 cannot exceed taxable income from actively conducted trades or businesses, calculated under IRS rules; disallowed amounts can carry forward.
- Bonus depreciation: 100% for certain qualified property acquired and placed in service after January 19, 2025. Exceptions and elections apply; property acquired before January 20, 2025 follows separate phaseout rules.
If a full $50,000 Section 179 or bonus deduction is allowed and offsets income at a constant 24% federal marginal rate, the illustrative tax reduction is $12,000. This is a deduction, not a credit or guaranteed refund. Vehicle caps, business use, state rules, and other tax limitations can change the result. Financing a purchase does not itself prevent depreciation, but a true lessee generally deducts eligible rent instead.
Source: IRS Publication 946 (What’s New for 2026; property ownership, Section 179, and special depreciation rules). Checked October 9, 2026.
Equipment Financing Options
If you decide to buy, you have several financing paths:
Equipment Loan
The equipment itself serves as collateral. Rates typically 4-15% depending on credit. Terms from 2-7 years. Down payment usually 10-20%.
SBA 504 Loan
For major fixed assets over $250K. 10-20 year terms, below-market fixed rates (typically 5-7%). Requires 10-20% down. Best for large equipment purchases or real estate.
SBA 7(a) Loan
General-purpose business loan that can be used for equipment. Terms up to 10 years for equipment, rates typically 7-13%. More flexible but slightly higher rates than 504.
Vendor Financing
Offered by equipment manufacturers or dealers. Often 0% introductory rates or deferred payment. Be careful of balloon payments or higher total cost disguised as low monthly payments.
Business Line of Credit
Revolving credit you draw from as needed. Useful for ongoing equipment purchases rather than a single large buy. Rates typically 7-25%, only pay interest on what you use.
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Industry-Specific Recommendations
Construction
Heavy equipment (excavators, loaders) — buy. Technology (GPS, drones) — lease. Equipment holds value well, but technology evolves fast. Section 179 is especially valuable here.
Restaurant / Food Service
Kitchen equipment — buy. POS systems — lease. Ovens and walk-ins last 10-15 years. POS and ordering tech changes every 2-3 years. Full-service equipment leases that include maintenance can simplify operations.
Medical / Dental
Diagnostic equipment — lease. Office furniture — buy. Imaging technology advances rapidly; leasing gives you an upgrade path. Basic furnishings and cabinetry are long-term assets.
IT / Technology
Almost everything — lease. Servers depreciate to near-zero in 3 years, and laptops in 2. Leasing with refresh cycles keeps your infrastructure current. Only buy if you have predictable, stable requirements.
Transportation / Trucking
Trucks — can go either way. New trucks depreciate 20% in year one, but you build equity. Leasing often includes maintenance, which can be worth $5K-$10K/year. Compare total cost including maintenance for both options.
Salon / Beauty
Styling stations, chairs — buy. Specialized equipment (laser, microdermabrasion) — lease. Furniture lasts years, but aesthetic technology changes quickly and often comes with manufacturer upgrade paths through leasing.
Frequently asked questions
Is leasing equipment a tax write-off?+
Payments under a true tax lease are generally deductible for business use under applicable timing rules. A conditional sale or financing arrangement is treated as a purchase: the tax owner may claim depreciation and eligible interest rather than deducting every payment. Buying may allow Section 179 or 100% bonus for eligible property, so leasing does not automatically provide a larger deduction. Review the contract and tax classification.
What credit score do I need for equipment financing?+
For traditional bank equipment loans: 650+. For SBA loans: 680+ preferred (640 minimum). For online lenders and vendor financing: 600+ accepted, but rates will be higher (15-30%). Startups may need a personal guarantee regardless of credit score.
Can I lease equipment with an option to buy?+
Yes. Some contracts offer a nominal buyout, while others let you buy at fair market value or return the equipment. A nominal buyout can indicate a conditional sale for tax purposes. Contract terms and incidents of ownership determine tax treatment; an accounting lease label alone does not. Confirm whether you should deduct rent or claim depreciation as the tax owner.
What is the difference between Section 179 and bonus depreciation?+
For tax years beginning in 2026, Section 179 has a $2,560,000 maximum, reduced dollar-for-dollar for qualifying property costs placed in service above $4,090,000, and a business-income limit. Certain qualified property acquired and placed in service after January 19, 2025 is eligible for 100% bonus depreciation, generally automatic unless you elect out. Exceptions and transition elections apply; earlier acquisitions follow separate rules. Apply Section 179 first, then bonus to eligible remaining basis. Neither deduction guarantees tax savings.
Should I pay cash, finance, or lease?+
Cash is cheapest (no interest) but ties up working capital that could be used for growth. Financing preserves cash but adds interest cost. Leasing preserves the most cash and offers flexibility but may cost more over the long term. As a rule of thumb: if the equipment helps you generate revenue immediately, finance it; if it's infrastructure that won't directly increase revenue, lean toward cash or leasing.