Buying equipment is often the single largest near-term capital need for a small business—whether it’s manufacturing machinery, restaurant ovens, delivery vehicles, or computers. Equipment financing lets you acquire essential assets without draining cash reserves.
This year, the market is shaped by higher base interest rates (compared with the low-rate era), evolving lease products, and a major tax law change that restored full bonus depreciation for qualifying purchases. This makes the timing and structure of equipment finance more important than ever.
Equipment loans vs. equipment leases—the core differences
Equipment loan (term loan/equipment loan)
-
You borrow to buy the equipment and own it once you’ve repaid the loan.
-
Typical uses: long-term assets (vehicles, heavy machinery) where ownership and eventual residual value matter.
-
Balance-sheet treatment: asset + loan liability.
-
Rates: often lower than alternative financing but depend on credit, collateral, and term.
Equipment lease (operating lease or capital lease)
-
You pay to use the equipment; ownership may remain with the lessor or be optional at term-end.
-
Typical uses: short-lifecycle assets (IT, medical equipment) where upgrades are frequent.
-
Off-balance-sheet possibilities (depending on lease type and accounting rules).
-
Leases often require little or no down payment and provide predictable, typically higher monthly payments vs. a similarly priced loan.
Which to pick?
-
Buy (loan) if you plan long-term use, want ownership and resale value, and can take advantage of depreciation/tax incentives.
-
Lease if you need flexibility, want lower upfront costs, or plan to upgrade frequently. Bankrate and industry guides walk through this decision tree in detail.
Typical rates & market trends in 2025
-
Bank/credit union equipment loans: generally the most competitive for well-qualified borrowers—think prime + small spread (typical effective APRs are often in the 6–12% area for strong credits).
-
SBA 7(a) / CDC Loan / 504 for equipment: competitive long-term rates for qualifying borrowers (SBA-backed programs are still attractive if you qualify).
-
Online equipment lenders/specialty financiers (Crest Capital, Balboa, etc.): faster approvals, flexible underwriting, and APRs commonly 10–30% depending on borrower quality and term.
Recent roundups (Forbes Advisor, NerdWallet) show equipment financing remains a hot category with more lenders offering hybrid lease-loan products and faster digital underwriting. If speed matters, expect to pay higher rates; if price matters, bank/SBA channels usually win.
Tax treatment & 2025 update—Section 179 and bonus depreciation
Big 2025 tax change (important): The One Big Beautiful Bill Act (OBBBA) restored 100% bonus depreciation for qualifying property placed in service after Jan 19, 2025—meaning many businesses can now elect to deduct the entire cost of eligible equipment in the year it’s placed in service. This dramatically improves after-tax economics for buying equipment. Tax advisers and accounting firms explain how this changes capex planning.
Section 179 remains a separate, flexible option that allows immediate expensing up to statutory limits for qualifying property, subject to overall investment caps. Depending on your entity, taxable income, and long-term tax plan, you may choose Section 179, bonus depreciation, or a mix. Always coordinate with your CPA—these choices affect net income, NOLs, and state taxes. (US Bank and accounting sources discuss the interplay between Section 179 and bonus depreciation.)
Practical takeaway: For many buyers, an outright purchase financed with a loan can be highly tax-efficient because of immediate expensing under current law—making a loan plus a full tax deduction often cheaper after tax than a lease (which treats payments as an operating expense). But individual outcomes vary—ask your tax advisor.
Top equipment financing providers & products to consider
Lender choice matters—experience in your industry, speed, and structure vary widely. Active 2025 leaders include:
-
Crest Capital—specialist in equipment financing and leasing; known for fast approvals and vendor programs.
-
Balboa Capital—equipment loans up to mid-six figures with streamlined applications.
-
National banks & credit unions (Wells Fargo, First Citizens, Bank of America)—good for strong-credit borrowers and large-ticket financing.
-
Online lenders & fintechs—options include specialty lenders and marketplace platforms featured in 2025 buyer guides (Forbes Advisor, NerdWallet).
Tip: Get quotes from at least one bank, one specialty equipment financier, and one lessor—pricing and flexibility can swing on vendor relationships and equipment type.
How lenders underwrite equipment financing—what they look for
Underwriting focuses on a combination of:
-
Creditworthiness (personal FICO for small business owners, business credit for established companies)
-
Cash flow & collateral—lenders often evaluate the equipment’s resale value (they may take a UCC-1 lien).
-
Time in business & revenue—many lenders want 1–2 years of operations, though some micro-lessors will consider younger firms.
-
Equipment type & life cycle—movable, saleable equipment gets better terms than highly specialized or rapidly depreciating tech.
How to choose—decision checklist
Use this short decision checklist before you finance:
-
Expected useful life of equipment—buy if you’ll use it beyond 3–5 years; lease if you’ll upgrade frequently.
-
Do you want ownership & tax benefits? — Loans and Section 179/bonus depreciation favor ownership.
-
Cash flow sensitivity—leases have lower upfront costs but may be more expensive long-term.
-
Balance-sheet goals—some lessees prefer off-balance options for financial metrics (check accounting rules).
-
Speed vs. cost trade-off—online funders = speed; banks/SBA = price.
Example: cost comparison (worked example)
Scenario: You need a $100,000 piece of equipment.
-
Option A—Bank Equipment Loan: 7.5% APR, 5-year term, 2% origination fee.
-
Monthly payment ≈ $2,028. Total interest ≈ $21,680 (approx.).
-
-
Option B—Operating Lease: 5-year lease with a monthly payment of $2,300 (no ownership). Total rent ≈ $138,000.
-
Tax effect (2025, simplified): If you buy with a loan and your business qualifies for 100% bonus depreciation, you may deduct $100,000 in year 1, reducing taxable income and effectively after-tax cost substantially—often flipping the lease vs. buy calculus. (The exact after-tax benefit depends on your marginal tax rate and state tax rules; get an accountant’s help.)
Takeaway: Even if lease payments are lower in nominal monthly cost, the after-tax advantage of purchasing in 2025 (due to restored 100% bonus depreciation) can make buying + loan substantially cheaper for many businesses.
Application checklist—documents to have ready
Prepare this packet to speed approvals:
-
Equipment quotes/pro forma invoices (vendor paperwork)
-
Business & personal tax returns (2 years)
-
Bank statements (3–12 months)
-
Balance sheet & P&L (recent)
-
Ownership and business formation docs (EIN, articles)
-
Equipment details: make, model, serial, intended use, resale value estimate
-
Personal guarantor information (if required)
Specialist lessors often take vendor invoices and approve them in 24–72 hours if the borrower’s financials are in order.
Negotiation & structuring tips
-
Ask for an all-in example: principal, rate, fees, buyout option, and end-of-term costs.
-
Compare APRs (not just nominal rates). Use an equipment loan calculator to include fees.
-
Consider longer terms only if the monthly cash flow matters—longer terms increase the total interest.
-
Shop vendor financing—some manufacturers or vendors have subsidized finance programs.
-
Explore tax-advantaged structures with your CPA (e.g., Section 179 vs bonus depreciation optimal mix).
Common pitfalls to avoid
-
Ignoring fees: origination, documentation, UCC filing, maintenance—they add up.
-
Not checking residual/buyout terms on leases—end costs can be surprising.
-
Assuming tax rules don’t change—as 2025 demonstrated, Congress can alter bonus depreciation—consult your CPA before timing purchases for tax reasons. JD Supra
Useful tools & further reading
-
Equipment loan calculators (to compute payments & APR): Loan Calculators, Bankrate.
-
Lender reviews & best-of lists: Forbes Advisor, NerdWallet (2025 buyer guides). ForbesNerdWallet
-
Tax guidance: US Bank on Section 179 & bonus depreciation; accounting firms on OBBBA changes. U.S. Bank RSM US
ALSO READ: Small Business Loans: Best Options & How to Apply
FAQs
Q: Should I buy or lease equipment in 2025?
A: It depends. With 100% bonus depreciation restored for qualifying property in 2025, buying and financing with a loan is often more tax-efficient—but you must model after-tax cash flow and business needs.
Q: Can startups get equipment loans?
A: Yes—many specialty lenders and some CDFIs finance startups, though terms are generally better with established revenue or strong personal credit.
Q: Are used equipment loans cheaper?
A: Used equipment often qualifies for financing but may have slightly higher rates because residual value and lifespan are shorter. Shop lenders specializing in used equipment.
