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Equipment Leasing

Equipment leasing is one of the most common ways businesses acquire equipment without paying the full purchase price upfront.

In reality, equipment leasing and equipment financing are often very similar.

A lot of equipment leases are really lease-to-own transactions.

The business makes payments over a set period of time and, depending on the structure, may have the option to own the equipment at the end of the lease.

That is why I do not think of equipment leasing as something completely separate from equipment financing.

The main difference is usually how the transaction is structured.

For the business owner, the goal is normally the same:

Get the equipment you need without tying up all of your cash.

How Does Equipment Leasing Work?

With an equipment lease, a financing company purchases the equipment and leases it to your business.

You make payments over an agreed period of time.

At the end of the lease, there may be a purchase option that allows you to own the equipment.

The exact structure depends on the lender and program.

Common structures may include:

  • $1 buyout
  • Fixed purchase option
  • Fair market value buyout
  • Other lease-to-own structures

That is why I always think it is important to understand the buyout terms before signing anything.

For many small business owners, the lease is really being used as a way to finance the purchase of the equipment.

Is Equipment Leasing the Same as Equipment Financing?

Not exactly, but they are very close.

With a traditional equipment loan, the business generally owns the equipment and the lender has a lien against it.

With an equipment lease, the financing company may technically own the equipment during the lease term.

In many cases, the business intends to own the equipment at the end.

That is why lease-to-own structures are so common.

From a practical standpoint, both equipment leasing and equipment financing can help a business spread the cost of equipment over time instead of paying cash upfront.

What Types of Equipment Can Be Leased?

A wide variety of equipment may qualify for leasing.

That can include:

  • Excavators
  • Bulldozers
  • Skid steers
  • Backhoes
  • Cranes
  • Tow trucks
  • Semi trucks
  • Dump trucks
  • Box trucks
  • Cargo vans
  • Trailers
  • Restaurant equipment
  • Manufacturing equipment
  • Medical equipment
  • Dental equipment
  • Construction equipment
  • Landscaping equipment
  • Agricultural equipment
  • Machine shop equipment
  • Printing equipment
  • And much more

The lender will usually look at the type of equipment, age, value, seller, and overall transaction.

Some equipment is easier to finance because it has a strong resale market.

Other equipment may be more specialized and harder to place.

Can Used Equipment Be Leased?

Yes, depending on the lender.

Many equipment leasing companies will finance used equipment.

They may look at:

  • Equipment age
  • Condition
  • Mileage or hours
  • Purchase price
  • Resale value
  • Seller
  • Type of equipment

Older equipment may be more difficult to finance, especially if it has limited resale value.

But used equipment can still be a good fit for many leasing programs.

Can You Lease Equipment With Bad Credit?

Possibly.

Bad credit makes equipment leasing more difficult, but it does not always mean the transaction is impossible.

Some lenders may also look at:

  • Monthly business revenue
  • Time in business
  • Down payment
  • Equipment value
  • Bank activity
  • Existing debt
  • Additional collateral
  • Overall business strength

A borrower with weaker credit but strong business revenue may have more options than someone with the same credit score and very little revenue.

The credit score is only one part of the deal.

How Much Down Payment Is Required?

That depends on the lender and the transaction.

Some stronger borrowers may qualify with little or no money down.

Other deals may require:

  • 10%
  • 20%
  • 30%
  • Or more

A larger down payment can sometimes help make a difficult transaction work.

It lowers the lender’s exposure and shows that the borrower has more money invested in the equipment.

Can Startups Lease Equipment?

Yes, some lenders work with startups.

Startup equipment leasing can be more difficult because the business does not have much operating history.

In those situations, the lender may look more closely at:

  • Personal credit
  • Industry experience
  • Down payment
  • Cash reserves
  • Equipment type
  • Business plan
  • Overall strength of the borrower

A startup with strong credit and industry experience may have better options than a startup with weak credit and no experience.

Can You Lease Equipment From a Private Seller?

Sometimes.

Some lenders allow private-party equipment transactions.

These deals may require more documentation than a dealer purchase.

That can include:

  • Bill of sale
  • Proof of ownership
  • Equipment photos
  • Serial number or VIN
  • Condition information
  • Seller information
  • Equipment valuation

Private-party transactions can work, but they usually need to be handled more carefully because the lender wants to make sure the seller owns the equipment and the value makes sense.

Why Do Businesses Use Equipment Leasing?

The biggest reason is simple.

Most businesses do not want to tie up a large amount of cash in equipment if they can avoid it.

For example, if a business needs a $100,000 piece of equipment, paying cash may leave less money available for:

  • Payroll
  • Inventory
  • Fuel
  • Repairs
  • Marketing
  • Insurance
  • Expansion
  • Unexpected expenses

Leasing can allow the business to acquire the equipment while keeping more cash available for daily operations.

For a lot of businesses, preserving working capital is just as important as getting the equipment itself.

Lease-to-Own Equipment Financing

Most of the equipment lease programs I work with are really designed to end with ownership.

That is why I often describe them as lease-to-own.

The business makes payments over the term.

At the end, the equipment can usually be purchased under the terms of the lease.

That makes the structure very similar to equipment financing.

The exact buyout amount should always be reviewed before signing.

$1 Buyout Lease

A $1 buyout lease is one of the most straightforward lease-to-own structures.

At the end of the lease, the business may be able to purchase the equipment for $1.

This is very similar to financing the equipment through a traditional loan.

The main difference is the legal structure of the transaction during the term.

Fair Market Value Lease

A fair market value lease works differently.

At the end of the term, the business may have the option to purchase the equipment for its fair market value.

This type of structure may make more sense for equipment that becomes outdated quickly or for businesses that do not necessarily want to own the equipment long term.

For many of the heavy-equipment transactions I work with, the borrower usually does want to own the equipment, so lease-to-own structures tend to be more common.

Are There Potential Tax Advantages to Equipment Leasing?

Potentially.

This is one of the reasons business owners ask about leasing.

Depending on how the lease is structured and how the business is taxed, lease payments may be treated differently from a traditional equipment purchase.

In some situations, lease payments may be deductible as a business expense.

In other situations, the transaction may be treated more like a financed equipment purchase for tax purposes.

There may also be situations where Section 179 or bonus depreciation could apply, depending on the structure of the transaction, the equipment, and current tax law.

The important thing is that the tax treatment can vary.

It may depend on:

  • Type of lease
  • Buyout structure
  • Business entity
  • Equipment type
  • How the equipment is used
  • Current federal tax rules
  • State tax rules
  • Your individual tax situation

I would not choose a lease simply because someone says it has “better tax benefits.”

The financing should make sense first.

Then the business owner should talk with a qualified CPA or tax professional about how that specific transaction may be treated.

I am not a tax advisor, and nothing on this page should be considered tax advice.

Equipment Leasing and Section 179

Section 179 is a tax provision that may allow qualifying businesses to deduct the cost of certain equipment in the year it is placed in service, subject to current rules and limits.

Whether a particular lease qualifies can depend on how the lease is structured.

A lease that is treated more like a purchase may be handled differently from a true operating lease.

That is why I would not make assumptions based only on the word “lease.”

If the potential tax treatment is important to your decision, have your accountant review the lease structure before you sign.

Equipment Leasing and Bonus Depreciation

Bonus depreciation may also apply to certain equipment purchases under current tax law.

Again, the exact treatment depends on the transaction.

Tax rules also change.

Something that was available one year may be different the next.

That is another reason I would treat the tax benefit as a possible advantage, not as the only reason to choose leasing.

Equipment Leasing for Construction Companies

Construction companies use equipment leasing all the time.

That may include:

  • Excavators
  • Dozers
  • Loaders
  • Skid steers
  • Backhoes
  • Cranes
  • Dump trucks
  • Other heavy equipment

Construction equipment often has a strong resale market, which can help with financing.

The lender will still look at credit, revenue, time in business, down payment, and the equipment itself.

Truck Leasing

Commercial trucks can also be leased.

That may include:

  • Semi trucks
  • Tow trucks
  • Dump trucks
  • Box trucks
  • Cargo vans
  • Flatbed trucks
  • Trailers

Truck transactions can be very lender-specific.

Age, mileage, use, and business revenue can all matter.

Some lenders specialize in transportation while others do not.

Equipment Leasing With Credit Scores Under 600

There are programs that may consider borrowers with credit scores under 600.

That does not mean every deal gets approved.

The lender may want stronger compensating factors such as:

  • Higher monthly revenue
  • More time in business
  • Larger down payment
  • Strong equipment value
  • Additional collateral

A borrower with a 580 score and a strong business may still have options.

Equipment Leasing With Credit Scores Around 550

This gets more difficult, but it may still be worth looking at.

At this level, the lender may focus heavily on:

  • Revenue
  • Down payment
  • Time in business
  • Equipment type
  • Overall cash flow

The financing may be more expensive and the down payment may be higher.

But that does not always mean the transaction is impossible.

What About Credit Below 550?

Below 550 can be challenging, but equipment leasing with really bad credit is possible.

However, there are still situations where the deal may work.

For example, the borrower may have:

  • Strong revenue
  • Significant down payment
  • Long time in business
  • Valuable equipment
  • Additional collateral

Those factors can sometimes help offset weak credit.

Can Additional Collateral Help?

Sometimes.

Certain lenders may consider additional business assets or equipment that is owned free and clear.

That can sometimes help strengthen a difficult deal.

Not every lender offers this type of program.

But if credit is weak and the business has valuable assets, it may be worth looking at.

What Do Equipment Leasing Companies Look At?

Every lender is different, but common factors include:

  • Personal credit
  • Business credit
  • Monthly revenue
  • Time in business
  • Bank activity
  • Equipment type
  • Purchase price
  • Down payment
  • Existing debt
  • Industry
  • Equipment value
  • Overall cash flow

One lender may decline a deal that another lender is comfortable with.

That is why the right lender matters.

How Fast Can Equipment Leasing Be Completed?

That depends on the transaction.

A straightforward deal with strong credit, good documentation, and standard equipment may move quickly.

More difficult transactions can take longer.

Examples include:

  • Private-party purchases
  • Older equipment
  • Challenged credit
  • Larger transactions
  • Unusual equipment
  • Additional collateral

The faster the borrower and seller provide the required documentation, the faster the lender can usually complete the deal.

What Documents Are Usually Needed?

The exact requirements depend on the lender.

A good starting point may include:

  • Credit application
  • Equipment invoice or purchase order
  • Business bank statements
  • Driver’s license
  • Business information
  • Seller information

Larger or more complicated transactions may require additional documentation.

Equipment Leasing vs Paying Cash

Paying cash can make sense for some businesses.

But using all of the company’s available cash to purchase equipment can create other problems.

A business may be better off keeping cash available for:

  • Payroll
  • Inventory
  • Marketing
  • Repairs
  • Expansion
  • Emergencies

Leasing can allow the business to acquire the equipment while preserving more working capital.

That can be especially important for a growing business.

Equipment Leasing vs Equipment Financing

For most of the transactions I work with, the difference is not as dramatic as people think.

Both are used to help a business acquire equipment over time.

Many equipment leases are really lease-to-own transactions.

The better option depends on:

  • Credit
  • Cash flow
  • Equipment type
  • Buyout structure
  • Tax considerations
  • How long you plan to keep the equipment
  • Overall business goals

The important thing is not the label.

The important thing is whether the structure makes sense for the business.

When Might Leasing Make More Sense?

Equipment leasing may be worth considering if:

  • You want to preserve cash
  • You want predictable payments
  • You want a lease-to-own structure
  • You do not want to pay the full purchase price upfront
  • You may benefit from the way the transaction is treated for tax purposes
  • You are purchasing equipment that is essential to generating revenue

When Might Leasing Not Make Sense?

It may not be the best choice if:

  • The lease terms are too expensive
  • The buyout is not attractive
  • You plan to pay the equipment off quickly
  • You have enough cash and do not need to preserve working capital
  • Another financing option is clearly better
  • The tax advantages do not apply to your situation

Again, the decision should be based on the full transaction.

Why Work With a Broker?

When you go directly to one leasing company, you get one set of guidelines.

That lender may be a great fit.

Or they may not be the right fit at all.

I work with multiple equipment financing and leasing sources.

One lender may be better for stronger credit.

Another may be more flexible with challenged credit.

One may like trucks.

Another may prefer construction equipment.

One may be better for startups.

Another may be stronger on established businesses.

The goal is to understand the transaction and find the program that makes the most sense.

What Information Do I Need to Get Started?

You do not need a full loan package just to see whether the deal is worth looking at.

Start with:

  • Type of equipment
  • Purchase price
  • New or used
  • Seller
  • Time in business
  • Approximate monthly revenue
  • Approximate credit score
  • Amount available for a down payment

From there, I can usually get a pretty good idea of what programs may make sense.

Need Equipment Leasing?

If you are trying to acquire equipment and are not sure whether leasing or financing is the better option, that is fine.

You do not need to know the exact structure before contacting me.

Tell me what you are buying, how much it costs, and what your business looks like.

From there, I can help determine which equipment leasing or financing options may make sense.

Call or text Shawn at (714) 271-8524 or email Info@TheBroker.Finance to discuss your equipment leasing options.

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All financing and leasing is subject to lender approval, underwriting requirements, documentation, equipment eligibility, program availability, and lender-specific conditions. Tax treatment varies by transaction and taxpayer. Please consult a qualified CPA or tax professional regarding Section 179, depreciation, lease deductions, and other tax matters.