Business Finance Guide · Equipment
Buy the equipment. Keep the cash.
Loans vs. leases, approval odds and the 2026 tax rules for equipment.
Equipment financing lets a business buy or lease vehicles, kitchens, machines and technology and pay for them over time, usually with the equipment itself as collateral.
Most businesses finance equipment rather than paying cash. The Equipment Leasing & Finance Association (ELFA) reported in October 2026 that 87% of U.S. businesses that acquired equipment or software in 2025 used at least one form of financing, up from 82% in its 2024 survey. Of the $2.7 trillion invested in equipment and software in 2025, about 55% was financed, making equipment finance a $1.51 trillion industry.
How businesses pay for equipment
How U.S. equipment and software acquisitions were paid for in 2025
Share of total acquisitions; the remainder was paid without financing. Source: Equipment Leasing & Finance Association, 2026 Horizon Report.
Equipment financing is also among the easiest credit to get, because the lender can repossess and resell the asset. In the Federal Reserve’s 2025 Small Business Credit Survey, 71% of auto or equipment loan applicants were fully approved, the highest rate of any product, and only 11% were denied.
Outcomes for auto and equipment loan applicants (2025)
- 71%Fully approved
- 17%Partially approved
- 11%Denied
Source: Federal Reserve Banks, 2026 Report on Employer Firms.
Equipment loan vs. lease
Equipment loan vs. lease
| Equipment loan | $1 buyout lease | Fair market value lease | |
|---|---|---|---|
| Ownership | You own it from day one | You own it after the last payment | Lessor owns it; option to buy at market value |
| Down payment | Often 10% to 20% | Often first and last payment | Often first payment |
| Monthly payment | Moderate | Moderate | Lowest |
| Tax treatment | Depreciation and interest deductions | Usually treated like a purchase | Payments usually deductible as rent |
| Best for | Long-life equipment you will keep | Equipment you will keep, with low upfront cash | Technology you will upgrade often |
Rule of thumb: if the equipment will last much longer than the financing and you plan to keep it, a loan or $1 buyout lease usually costs less overall. If it becomes outdated quickly, such as computers or some medical devices, a fair market value lease makes upgrades easy. Ask your CPA how each option affects your taxes.
The 2026 tax rules
Federal tax law lets businesses deduct much of the cost of equipment in the year it is placed in service, even when it is financed. For 2026, the IRS set the Section 179 expensing limit at $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000, with a $32,000 cap for certain heavy SUVs (Revenue Procedure 2025-32). Federal bonus depreciation can cover costs above those limits.
California does not follow the federal Section 179 limit or federal bonus depreciation. The state caps its Section 179 deduction at $25,000, so a large equipment purchase can produce a big federal deduction but a much smaller one on your California return. Plan purchases with a CPA who prepares both.
Example: financing a $120,000 kitchen
A restaurant finances a $120,000 kitchen build-out with a 10% down payment and a seven-year loan. Use the calculator to test rates and terms; try $108,000 at 9% for seven years.
Equipment loan payment calculator
Estimates only. Lenders may add documentation fees; leases quote a monthly payment and a buyout option instead of a rate.
Where to get equipment financing
- Your bank or credit union: often the lowest rates for established businesses.
- Equipment dealers and manufacturers: convenient, sometimes with promotional rates.
- Independent equipment finance companies: faster approvals, broader credit range.
- SBA 504 loans: long-term, fixed-rate financing for machinery with at least 10 years of useful life, with terms up to 25 years for real estate projects.
- SBA 7(a) and microloans: for equipment plus installation and working capital.
How to get the best terms
Equipment financing checklist
- Get a written quoteLenders finance a specific invoice; include delivery and installation.
- Compare at least three offersLook at rate, term, down payment, fees and buyout terms.
- Match the term to the equipment’s lifeNever finance equipment longer than it will last.
- Ask about prepaymentSome leases charge all remaining payments if you end early.
- Check insurance requirementsLenders require coverage that names them as loss payee.
- Plan the tax timingPlacing equipment in service before December 31 determines the tax year.
Equipment financing fits neatly with other credit. Read our guides to small business loans and SBA loans to compare options.
Timing matters as well. Lenders and dealers often run promotions near the end of a quarter or the year, and placing equipment in service before December 31 can move a tax deduction into the current year. Balance those benefits against your cash plan: a deduction is worth less than a payment you cannot comfortably make.
New, used or refurbished?
Lenders finance used equipment, but terms are usually shorter because the asset has less life left. A five-year-old truck might be financed over three or four years, while a new one might qualify for five to seven. Certified refurbished equipment from a dealer can be a middle ground, with a lower price and a warranty. Whatever you choose, get an inspection on high-value used equipment before you sign.
Also consider total cost of ownership: maintenance, energy use, insurance, downtime and resale value. A cheaper machine that breaks down during your busiest week can cost more than the payment difference on a newer one.
Questions to ask before you sign
- What is the total cost over the term, including fees and the buyout?
- Is the rate fixed, and is there a prepayment penalty?
- What down payment is required, and can taxes, delivery and installation be included?
- For a lease, what are the end-of-term options and their prices?
- Who is responsible for maintenance, insurance and repairs?
- Does the lender file a lien only on this equipment, or on all business assets?
Common mistakes
- Financing beyond the equipment’s useful life. You may still be paying after it is gone.
- Ignoring the buyout price. A low lease payment can hide an expensive purchase option.
- Assuming the tax deduction is automatic. Section 179 has limits, and California follows different rules.
- Accepting a blanket lien. Ask that collateral be limited to the financed equipment.
Key terms
- Section 179: a federal tax provision that lets businesses deduct the cost of qualifying equipment in the year it is placed in service.
- Bonus depreciation: an additional first-year depreciation deduction for qualified property.
- Fair market value lease: a lease that lets you buy the equipment at its market value at the end.
- $1 buyout lease: a lease that transfers ownership for $1 at the end of the term.
- UCC filing: a public notice that a lender has a security interest in an asset.
The bottom line: equipment financing is one of the most accessible forms of business credit. Match the term to the equipment, compare loans and leases on total cost, and plan the tax effect on both your federal and California returns.
Free help in the Sacramento region
You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.
Key takeaways
- 87% of U.S. businesses that bought equipment in 2025 used financing; the industry reached $1.51 trillion.
- Equipment loans had the highest full approval rate of any financing product in 2025 (71%).
- Leases were the most common way to pay for equipment (23% of acquisitions).
- The 2026 federal Section 179 limit is $2,560,000; California caps its deduction at $25,000.
- Match the financing term to the equipment’s useful life and compare at least three offers.
Frequently asked questions
Is it better to lease or buy equipment?
Buy, with a loan or $1 buyout lease, if you will keep the equipment for most of its life. Lease at fair market value if it becomes outdated quickly and you want easy upgrades.
Can a new business get equipment financing?
Often yes, because the equipment secures the loan. Expect a larger down payment or higher rate without business history.
What credit score do I need for equipment financing?
Requirements vary by lender. Banks typically want good personal and business credit; equipment finance companies approve a wider range at higher rates.
Can I deduct equipment that I finance?
Generally yes. Section 179 and bonus depreciation can apply to financed equipment placed in service during the year. California rules are more limited, so ask a CPA.
What happens at the end of an equipment lease?
Depending on the lease, you buy the equipment for $1 or its market value, return it, or renew the lease.
Sources
- Equipment Leasing & Finance Association: 2026 Horizon Report release
- Federal Reserve Banks: 2026 Report on Employer Firms (2025 Small Business Credit Survey)
- IRS: Revenue Procedure 2025-32 (2026 inflation adjustments, Section 179)
- IRS: Publication 946, How to Depreciate Property
- California Franchise Tax Board: S corporation instructions (California Section 179 limit of $25,000)
- SBA: 504 loans
- SBA: Microloans
Keep reading on Inksight
- Business Credit vs. Personal Credit: What Every Small Business Owner Should Know
- How to Choose a Business Structure in California: Sole Proprietorship, LLC, S Corp or C Corp
- Business Banking 101: How to Choose and Open a Business Bank Account
- Small Business Funding Options: Loans, Grants and Investors
- Business Resources: all guides →
