Lease it or own it? How the two really differ
Equipment leases and Equipment Finance Agreements (EFAs) are the two most common ways businesses get equipment without paying cash up front. They can have similar payments, but they differ in who owns the equipment, how it hits your books and taxes, and what happens at the end.
Lease vs. EFA at a glance
| Equipment lease | Equipment Finance Agreement (EFA) | |
|---|---|---|
| Who owns it | The lessor, until you buy it out | You, from day one |
| Monthly payment | Often lower (especially an FMV lease), because you pay for use, not the full price | Usually higher, because you finance the full purchase price |
| Rate | Fixed payment | Fixed rate and payment |
| Balance sheet | Most leases over 12 months are now recorded as a right-of-use asset and a lease liability (ASC 842) | The equipment is an asset and the financing is a liability |
| Taxes | FMV lease payments are generally deductible as a business expense. A $1 buyout lease is usually treated like a purchase. | You can depreciate the equipment (Section 179 may apply) and deduct the interest |
| Maintenance | Sometimes bundled into the payment | Your responsibility |
| End of term | Buy it out, renew, or return it | Nothing to decide. It’s yours once it’s paid off. |
| Early payoff | Non-cancellable. Early termination settles the remaining obligation. | Non-cancellable. A payoff settles the remaining balance, often with no penalty fee. |
| Best for | Equipment you’ll upgrade often, or when the lowest payment matters most | Equipment with a long useful life that you plan to keep |
Tax and accounting treatment depends on the lease structure and your situation. We don’t provide tax, accounting or legal advice, so check with your CPA before you decide.
Not all leases are the same
More detail: types of equipment leases.
How to choose
Choose a lease if…
- You want the lowest monthly payment
- The equipment becomes outdated fast (technology, medical, POS)
- You want the option to upgrade or return it at the end
- You’d rather deduct payments than depreciate an asset (FMV lease)
Choose an EFA if…
- You want to own the equipment and build equity in it
- It has a long useful life (trucks, construction, manufacturing)
- You want Section 179 and depreciation (ask your CPA)
- You don’t want end-of-term decisions or buyout costs
Banking on Business: funding the equipment you need
ABC 10 News San Diego featured Liberty Capital Group on how businesses finance equipment without tying up their working capital.
Start your application10 reasons an EFA can beat a lease
- You own itUse it right away, and it sits on your balance sheet as an asset.
- Flexible termsTerms typically run 12 to 72 months, with payment schedules matched to your cash flow.
- Cash stays in the businessLittle or no down payment, so your cash goes to operations.
- Tax benefitsSection 179 may let you deduct qualifying equipment in year one, up to annual limits. Ask your CPA.
- Fixed rateA predictable payment, with no exposure to rising rates.
- Fast approvalApplication-only up to about $250,000, often approved the next day.
- No prepayment penalty feePay it off early. The payoff settles the remaining balance.
- Easier budgetingYou know the exact amount and timing of every payment.
- Soft costs includedFinancing can cover up to 120% of cost, including delivery, installation and training.
- More buying powerGet better equipment than you could buy with cash.
Three things to get started
- Online applicationFill it out and authorize us to process it. We start with a soft inquiry. A lender pulls hard credit only once you’re approved.
- Invoice or quoteFor the equipment or truck. Multiple vendors are fine, in one payment. A bill of sale works for some private sales.
- Bank statementsThe last 3–4 months, for income, any down payment and automatic ACH payments.
Lease vs. EFA questions
Is an EFA the same as a loan?
It works much like a loan: you own the equipment and repay the financing over a fixed term. The equipment itself is the collateral, so it’s usually easier to get than a traditional business loan.
Which has the lower monthly payment?
Usually an FMV lease, because you’re paying for the use of the equipment rather than its full price. A $1 buyout lease and an EFA have similar payments.
Do leases still stay off the balance sheet?
Mostly not anymore. Under the current lease accounting standard (ASC 842), most leases longer than 12 months are recorded on the balance sheet. Ask your CPA how this affects your financial statements.
Can I use Section 179 with a lease?
Often with a $1 buyout lease or an EFA, since they’re treated like a purchase. FMV lease payments are usually deducted as an expense instead. Your CPA can confirm what applies to you.
Can I pay off a lease or EFA early?
Both are non-cancellable, but an early payoff is possible. It settles the remaining obligation, and many EFAs have no prepayment penalty fee. We show you the payoff figure before you sign.
How long can the term be?
Typically 12 to 72 months, depending on the equipment, whether it’s new or used, and your credit and time in business.
Not sure which one fits?
We’ll quote a lease and an EFA side by side so you can compare the payment, the total cost and the end-of-term options.
Educational content only, not tax, accounting or legal advice. Consult your CPA before making a final decision. All financing is subject to credit approval. Terms vary by equipment, credit, time in business and industry. Liberty Capital Group, Inc. NMLS #2009539. CA DFPI #60-DBO49692.