If you're looking to acquire equipment for your business in 2025, you're probably wrestling with the age-old question: should I finance or lease?
After helping thousands of businesses navigate this decision at FundFlex over the past five years, I've seen firsthand how the right choice can save companies tens of thousands of dollars—while the wrong one can strain cash flow for years.
Here's the thing: there's no universal "best" option. But there is a best option for your specific situation. Let's break down exactly how to figure out which one that is.
The Real Cost Difference: A Quick Example
Last month, I worked with a construction company comparing options for a $150,000 excavator. Here's what they were looking at:
Financing Option: $150,000 loan at 7.5% APR over 5 years = $3,002/month (Total cost: $180,120)
Leasing Option: $2,650/month for 5 years with 10% residual buyout = Total cost: $174,000
At first glance, leasing looks cheaper, right? Not so fast. The financed excavator becomes a company asset worth roughly $75,000 after five years. The leased equipment? You'd need another $15,000 just to own it.
Equipment Financing: When Ownership Makes Sense
Equipment financing is essentially a loan where the equipment serves as its own collateral. You're buying the equipment outright, just spreading the cost over time.
The Biggest Advantages of Financing
You build equity immediately. Every payment increases your ownership stake. For equipment that holds value well (think certain medical devices, manufacturing machinery, or quality construction equipment), this matters enormously.
Tax benefits through depreciation. Here's where it gets interesting. With Section 179 deductions, you might write off up to $1,160,000 of equipment purchases in 2025. That's immediate tax relief that leasing rarely matches. One of our clients, a printing company, saved $42,000 in taxes their first year through depreciation alone.
No mileage or usage restrictions. Run that excavator 24/7 if you need to. It's yours. No overage fees, no surprise charges.
Potential for lower total cost. If you're keeping equipment for 5+ years, financing almost always wins on total dollars spent.
When Financing Might Not Work
The downside? Higher monthly payments can squeeze cash flow, especially for newer businesses. You're also on the hook for maintenance once warranties expire. And if technology changes quickly in your industry, you might own outdated equipment before it's paid off.
Equipment Leasing: The Flexibility Play
Leasing is more like a long-term rental. You're paying for the use of equipment without the commitment of ownership.
Why Companies Choose Leasing
Preserve working capital. This is huge for growing businesses. Lower monthly payments mean more cash for inventory, marketing, or hiring. I've seen restaurants lease kitchen equipment specifically to keep cash available for their first year's operations.
Easier approval process. Leasing companies often approve applications that banks reject. If your business is under two years old or your credit isn't perfect, leasing might be your only option.
Built-in upgrade paths. For tech equipment that becomes obsolete quickly, leasing makes sense. One IT services client leases all their servers, upgrading every three years without the hassle of selling old equipment.
Predictable expenses. Many leases include maintenance packages. No surprise repair bills, just one consistent monthly payment.
The Hidden Costs of Leasing
But here's what lease agreements don't advertise: those "low monthly payments" add up. Over time, you might pay 15-30% more than the equipment's value. Plus, early termination fees can be brutal—sometimes 50% of remaining payments.
The Tax Factor: It's More Complex Than You Think
Everyone talks about Section 179 for purchased equipment, but leasing has tax advantages too. Lease payments are typically 100% deductible as business expenses.
Here's a real comparison from a landscaping client:
Financed $50,000 in mowers:
- First-year depreciation deduction: $50,000
- Tax savings (at 25% rate): $12,500
- But no deductions in following years
Leased the same equipment:
- Annual lease payment deduction: $12,000
- Annual tax savings: $3,000
- Total savings over 5 years: $15,000
The lease actually provided more tax benefits over time. Your accountant can model both scenarios for your specific situation.
Industry-Specific Considerations
Through our work at FundFlex, we've noticed clear patterns:
Construction companies usually finance. Equipment holds value, gets used heavily, and depreciation benefits are substantial.
Medical practices often lease high-tech equipment. Medical technology evolves rapidly, and leasing allows upgrades without selling outdated machines.
Restaurants split the difference. They might finance kitchen basics (ovens, refrigerators) while leasing point-of-sale systems that need regular updates.
Transportation companies increasingly lease. It transfers maintenance headaches to the lessor and provides predictable monthly costs.
Your Decision Framework: 5 Key Questions
After analyzing hundreds of these decisions, here's the framework that works:
1. How long will you use this equipment?More than 5 years? Finance it. Less than 3? Strongly consider leasing.
2. What's your cash flow situation?Tight cash flow favors leasing's lower payments. Strong reserves make financing's equity building attractive.
3. How quickly does this equipment lose value?Slow depreciation (construction equipment) favors financing. Rapid obsolescence (computers) favors leasing.
4. Can you handle maintenance costs?If unexpected $5,000 repair bills would hurt, leasing with maintenance included provides peace of mind.
5. What are your growth plans?Scaling quickly? Leasing provides flexibility. Stable operations? Financing builds long-term value.
The Hybrid Approach Nobody Talks About
Here's something most articles won't tell you: you don't have to choose just one strategy. Smart companies often use both.
A manufacturing client recently financed their core production line (equipment they'll use for 10+ years) while leasing their fleet vehicles and IT infrastructure. This balanced approach optimized both cash flow and tax benefits.
Making Your Decision: Next Steps
Start by getting actual quotes. At FundFlex, we can show you real numbers for both options in about 24 hours—without affecting your credit score.
Run both scenarios through your cash flow projections. Factor in tax implications with your accountant. Consider your industry's equipment lifecycle.
Most importantly, don't let analysis paralysis stop you from getting equipment that grows your business. I've seen too many companies miss opportunities while endlessly debating financing versus leasing. Sometimes the best decision is simply the one that gets you moving.
The Bottom Line
Equipment financing saves money when you're buying equipment for long-term use, want to build equity, and can handle higher monthly payments. You'll typically pay less overall and gain a valuable business asset.
Equipment leasing saves money when you need to preserve cash flow, want predictable expenses, or use equipment that becomes outdated quickly. You'll pay more long-term but gain flexibility and lower monthly costs.
The "right" choice depends entirely on your business's unique situation. But now you have the framework to make that choice confidently.
Ready to explore your equipment funding options? FundFlex connects you with both financing and leasing options from over 300 lenders—all with no impact to your credit score. Get personalized quotes in 24 hours and see real numbers for your specific situation.
Alisa Hester has been helping businesses navigate the funding landscape as PR Specialist at FundFlex Capital for over 5 years. She's facilitated over $100M in funding for businesses with credit scores ranging from 480 to 820. Connect with her and the FundFlex team for a no-credit-impact funding consultation.
