Owning vs. Leasing Equipment: The Complete Small Business Decision Guide

You just landed your biggest client yet, but delivering on the contract requires equipment you don't have. The quote comes in at $75,000. Do you drain your cash reserves to buy it outright, or sign a lease and preserve your capital? This decision could shape your business's financial trajectory for years to come.

Nearly 80% of U.S. businesses lease or finance at least some of their equipment, according to the Equipment Leasing and Finance Association. In an industry worth $1.3 trillion, the lease-versus-buy question isn't just academic—it's one of the most consequential financial decisions small business owners face. Get it right, and you position your company for sustainable growth. Get it wrong, and you might find yourself cash-strapped or stuck with obsolete machinery.

Let's break down exactly how to make this decision for your business.

The True Cost of Each Option

Before diving into the pros and cons, let's look at real numbers. The math often surprises business owners.

Buying Example

A commercial-grade printer costs $4,000. You pay upfront (or finance it), and after five years of use, you've paid $4,000 plus any financing interest. If you sell it for $800, your net cost is $3,200.

Leasing Example

That same $4,000 printer leased at a typical rate of $40 per month per $1,000 of equipment value costs you $160 monthly. Over a 3-year lease, you'll pay $5,760 total—44% more than purchasing—and you don't own anything at the end.

The raw numbers favor buying. But raw numbers rarely tell the whole story.

When Buying Makes Financial Sense

You'll Use the Equipment Long-Term

If you're acquiring equipment that will serve your business for 5-10+ years without becoming obsolete, ownership almost always wins. Office furniture, warehouse racking systems, commercial ovens, and manufacturing equipment that doesn't rely on rapidly changing technology fall into this category.

The longer you use owned equipment past its payoff period, the more valuable the purchase becomes. Once you've paid off a commercial refrigeration unit, every additional month of use is essentially free (minus maintenance).

You Have Strong Cash Reserves

Businesses with healthy cash positions can negotiate better purchase prices—often 10-20% below list—while avoiding lease premiums entirely. If tying up $50,000 in equipment won't strain your operations or limit growth opportunities, buying may be your best option.

The Equipment Holds Resale Value

Some equipment categories maintain value remarkably well. Heavy machinery, commercial vehicles, and industrial equipment often retain 40-60% of their value after several years. This built-in equity makes ownership more attractive because you can recover capital when upgrading.

You Want Maximum Tax Benefits

With the One Big Beautiful Bill Act passed in July 2025, Section 179 deductions have become even more powerful for equipment purchasers:

• Maximum deduction: $2.5 million (doubled from the previous $1.25 million)
• Phase-out threshold: $4 million in total equipment purchases
• Bonus depreciation: 100% restored for 2025 and beyond

This means most small businesses can deduct the full cost of qualifying equipment in the year of purchase. A $100,000 equipment purchase in the 24% tax bracket could save you $24,000 in federal taxes that year.

Leasing doesn't offer depreciation deductions—only the lease payments themselves are deductible as business expenses.

You Need Customization Flexibility

Owned equipment can be modified, upgraded, or adapted to your specific needs without restriction. Lease agreements often prohibit modifications or require lessor approval. If your operations require specialized configurations, buying provides the freedom to optimize.

When Leasing Makes Financial Sense

Technology Changes Rapidly in Your Industry

Computers, software, telecommunications equipment, and medical diagnostic devices become outdated quickly. A $15,000 server purchased today might be significantly outperformed by a $10,000 model in three years.

Leasing transfers obsolescence risk to the lessor. When your lease ends, you simply upgrade to current technology rather than trying to sell outdated equipment at a loss.

Cash Flow Is Tight or Unpredictable

Leasing typically requires little to no down payment, preserving capital for other priorities:

Cost Component	Purchasing	Leasing
Upfront cost	Full price or 10-20% down	First month's payment
Monthly impact	Loan payments (if financed)	Lease payments
Cash preserved	Low	High
End of term	Own the asset	Return or purchase

For businesses in growth phases, seasonal industries, or those with irregular revenue patterns, predictable monthly lease payments offer better cash management than large capital outlays.

You're Testing New Markets or Services

Launching a new service line? Expanding to a new location? Leasing lets you acquire necessary equipment without betting heavily on an unproven venture. If the expansion doesn't work out, you're not stuck with specialized equipment you can't use.

Maintenance Is Included

Many lease agreements include maintenance coverage, shifting repair costs and downtime risk to the lessor. For complex equipment requiring specialized service—medical devices, commercial HVAC systems, fleet vehicles—this protection can be valuable.

Calculate whether built-in maintenance would actually cost less than your expected repair expenses. Sometimes it's a genuine savings; other times, you're paying a premium for coverage you won't need.

Equipment Categories: Typical Lease vs. Buy Recommendations

Usually Better to Buy

• Office furniture: Long useful life, minimal obsolescence risk
• Warehouse equipment: Forklifts, pallet racks, conveyor systems hold value well
• Commercial kitchen appliances: Ovens, refrigeration, prep equipment last decades
• Industrial machinery: High initial cost but extremely long useful life
• Heavy vehicles: Trucks, trailers when used consistently for years

Usually Better to Lease

• Computers and laptops: Typically obsolete within 3-4 years
• Networking equipment: Technology evolves rapidly
• Medical diagnostic equipment: Frequent upgrades required for competitive care
• Specialized software systems: License models often favor leasing
• Fleet vehicles (high-mileage use): Wear and tear makes ownership costly

It Depends on Your Situation

• Commercial vehicles: Long-term light use favors buying; heavy use may favor leasing
• Manufacturing equipment: Stable technology favors buying; rapidly evolving fields favor leasing
• Point-of-sale systems: Depends on how often you need to upgrade for payment technology compliance

The Hybrid Strategy

You don't have to choose one approach exclusively. Many successful businesses use a mixed strategy:

• Buy equipment customers see: Reception furniture, client-facing technology
• Lease back-office technology: Computers, servers, networking equipment
• Buy stable, long-life equipment: Warehouse systems, industrial appliances
• Lease rapidly evolving equipment: Diagnostic machines, specialized software systems

This approach optimizes both cash flow and long-term costs while ensuring you're never stuck with obsolete equipment where it matters most.

Key Questions to Ask Before Deciding

Before signing a purchase order or lease agreement, work through these questions:

1. How long will you need this equipment? Less than 3 years often favors leasing; longer usually favors buying.

2. How quickly does this technology evolve? Rapid obsolescence favors leasing.

3. What's your current cash position? Tight cash favors leasing; strong reserves favor buying.

4. Can you use Section 179 deductions effectively? High tax liability plus equipment needs may favor buying.

5. Does the equipment require specialized maintenance? Complex service requirements may favor leasing with maintenance coverage.

6. What's the resale market like? Strong resale values favor buying; weak markets favor leasing.

7. Will you need to modify or customize the equipment? Customization needs favor buying.

Common Mistakes to Avoid

Mistake 1: Focusing Only on Monthly Payments

A $400 monthly lease payment sounds better than a $15,000 purchase, but over three years you'll pay $14,400 and own nothing. Run the full numbers before deciding.

Mistake 2: Ignoring Opportunity Cost

That $50,000 equipment purchase might make financial sense on paper, but what else could you do with that capital? Marketing campaigns, hiring, inventory expansion? Consider what you're giving up.

Mistake 3: Overlooking Early Termination Penalties

Most leases lock you in for the full term. If your business pivots or the equipment becomes unnecessary, you'll still owe payments—often with substantial penalties for early termination.

Mistake 4: Forgetting About Insurance and Liability

Lease agreements typically require specific insurance coverage. Factor these costs into your comparison. Ownership gives you flexibility to choose coverage levels.

Mistake 5: Not Negotiating

Both purchase prices and lease terms are negotiable. Request quotes from multiple vendors, ask for price matching, and negotiate lease terms including maintenance coverage, early termination clauses, and end-of-lease purchase options.

Make the Decision That Fits Your Business

The right choice depends entirely on your specific situation—your cash position, growth plans, industry dynamics, and the particular equipment in question. There's no universal answer, only the answer that best serves your business's needs and goals.

Take time to model both scenarios with actual numbers. Factor in tax implications, maintenance costs, opportunity costs, and flexibility requirements. When possible, consult with your accountant or financial advisor to ensure you're capturing all the relevant variables.

The goal isn't to minimize cost at all costs—it's to make the decision that positions your business for sustainable success.

Keep Your Equipment Decisions Financially Clear

Whether you buy or lease, tracking equipment expenses accurately is essential for tax compliance and financial clarity. Beancount.io provides plain-text accounting that gives you complete transparency over your asset records, depreciation schedules, and lease payment tracking—no proprietary formats, no black boxes, just clear financial data you control. Start for free and bring the same thoughtful analysis to your bookkeeping that you bring to your equipment decisions.