Equipment Leasing vs Equipment Loans Explained | Broker-in-a-Box
The real differences between equipment leases and equipment loans. What brokers need to know about each product, when to recommend them, and how they affect your borrowers.
Frequently asked questions
What is the main difference between an equipment lease and an equipment loan?
With an equipment loan, the borrower purchases the equipment and owns it from day one, with the lender holding a lien until the loan is paid off. With an equipment lease, the borrower uses the equipment for a set term and may or may not own it at the end depending on the lease type. Both are equipment finance products, and both pay broker commissions. The right choice depends on the borrower\'s goals around ownership, tax treatment, and cash flow.
Do equipment leases or equipment loans have lower monthly payments?
Operating leases and FMV leases typically have lower monthly payments than loans because the borrower is not paying down the full value of the equipment -- they are paying for the use of it. Capital leases and $1 buyout leases have payments closer to loan payments because they are structured as effective purchases. The payment difference comes down to whether the borrower is financing ownership or financing usage.
Can a broker earn commissions on both leases and loans?
Yes. Both equipment leases and equipment loans pay broker commissions. The commission structure is similar -- typically a percentage of the funded amount. Most lenders that work with brokers offer both lease and loan products. As a broker, the more product types you understand, the more deals you can close because you can match the right structure to each borrower situation.
Which is better for tax purposes -- leasing or buying equipment?
It depends on the structure and the borrower\'s tax situation. With a loan or capital lease, the borrower can typically depreciate the equipment and may qualify for Section 179 or bonus depreciation. With an operating lease, lease payments are generally deductible as a business expense, but the borrower does not own the asset and cannot depreciate it. The best answer for any specific borrower is one their CPA should weigh in on.
How do I know whether to recommend a lease or a loan to a borrower?
Ask what the borrower cares about most. If they want to own the equipment outright, build equity, and keep it for many years, a loan or capital lease makes sense. If they want lower payments, flexibility to upgrade, or want to keep the asset off their balance sheet, an operating or FMV lease is a better fit. Technology equipment that depreciates fast leans toward leasing. Long-life assets like heavy machinery lean toward loans. Match the product to the borrower\'s priorities.