US Equipment Financing Calculator: Lease vs. Buy, SBA & Section 179

Equipment financing is a type of business loan specifically used to purchase or lease equipment for your business operations — machinery, vehicles, technology, medical devices, restaurant equipment, and more. Unlike general-purpose business loans, equipment financing typically uses the equipment itself as collateral, which usually results in lower interest rates and easier approval.

The lender provides funds to purchase the equipment, you repay the loan (plus interest) in fixed monthly payments over the loan term (typically 24–84 months), and you own the equipment outright once the loan is paid off. This is distinct from an equipment lease, where you make payments to use the equipment but typically don’t own it at the end. Use this calculator to compare all three options side-by-side.

Nearly any physical business asset can be financed. Common categories include: Construction & heavy equipment (excavators, cranes, bulldozers), Medical/dental equipment (imaging machines, dental chairs, surgical tools), Manufacturing machinery (CNC machines, presses, lathes), Restaurant equipment (commercial ovens, refrigeration, POS systems), Transportation (semi-trucks, vans, forklifts), Technology (servers, computer systems, telecom), Agricultural equipment (tractors, harvesters), and Office equipment (copiers, phone systems).

Used equipment is also financeable, though lenders typically require it to be in good working condition with documented value. This calculator’s equipment category selector automatically loads appropriate rate ranges and useful life assumptions for each equipment type.

Typical loan terms: 24–84 months (2–7 years), most commonly 36–60 months. Useful life of the equipment usually determines the maximum term — lenders won’t finance a 5-year life asset for 7 years.

Typical interest rates (2025–2026): SBA 7(a) equipment loans: Prime + 2.25%–4.75% (currently ~10.5%–13%). Conventional bank equipment loans: 6%–18% depending on creditworthiness. Online/alternative lenders: 12%–35%. Equipment leases: Effective rate 4%–20% depending on structure. Rates are heavily influenced by your business credit score, years in business, revenue, and the equipment type/condition. The SBA loan program page publishes current maximum rates.

Down payment requirements vary by lender and loan type: SBA 7(a) loans: 10% minimum, often 10–20%. Conventional bank equipment loans: 10–25% typical. Online/alternative lenders: 0–20%, some offer 100% financing. Equipment leases: Often $0 down (first and last month payment only).

For 100% equipment financing (no down payment), lenders typically require 2+ years in business, $100K+ annual revenue, and good credit (680+ FICO). Putting more down reduces your monthly payment and total interest paid — our calculator lets you adjust down payment to see the exact impact.

Credit score thresholds by lender type: SBA equipment loans: 680+ personal FICO, strong business financials. Traditional bank loans: 650–700+ FICO, 2+ years in business. Online lenders: 500–600+ FICO, though rates will be significantly higher. Equipment-specific lenders: Some finance based primarily on equipment value, not credit — useful for startups or businesses with credit issues.

Both personal and business credit are evaluated. The SBA Lender Match tool can help identify lenders matched to your credit profile without a hard pull.

A balloon payment is a large lump-sum payment due at the end of a loan term — typically 10%–30% of the original equipment cost. Balloon structures allow lower monthly payments during the loan term, making the financing more affordable month-to-month, but require the business to either pay the balloon amount in cash, refinance it, or return/sell the equipment at term end.

Example: $100,000 equipment, 5-year term, 20% balloon = $80,000 amortized over 60 months + $20,000 due at month 60. Monthly payments are significantly lower, but the total cost comparison vs. a standard loan depends on your interest rate and what you’d earn investing the monthly savings. Use the balloon payment toggle in this calculator to model both scenarios side-by-side before deciding.

The right choice depends on four factors: (1) Cash flow — leasing preserves working capital; buying outright eliminates monthly obligations. (2) Technology obsolescence — lease fast-changing tech (computers, medical imaging); finance/buy stable equipment (trucks, manufacturing machinery). (3) Tax strategy — buying unlocks Section 179 deduction; leasing deducts 100% of payments as operating expense. (4) Total cost — financing or buying is cheaper long-term; leasing is more expensive over the full useful life but cheaper short-term.

General rule: Finance or buy if you’ll use the equipment for most of its useful life. Lease if you need the latest technology, want to avoid maintenance obligations, or need to preserve cash flow. The 3-way comparison in this calculator shows you the total 5-year cost of each option for your specific numbers.

Operating lease (now called “operating lease” under ASC 842): You rent the equipment, payments are an operating expense, equipment stays off your balance sheet (pre-ASC 842 treatment), and you return it at end of term. Best for short-term needs or rapidly depreciating technology.

Finance lease (formerly capital lease): Structured more like ownership — you typically have a purchase option at end of term (often $1), the asset appears on your balance sheet, and you can depreciate it. Under FASB ASC 842 (effective for all entities since 2022), both types must be reported on balance sheet. Finance leases allow depreciation deductions; operating leases allow full payment deductions. Consult your CPA for the correct treatment under your GAAP reporting requirements.

Buying outright is cheaper in absolute terms (no interest). Financing makes sense when: (1) the cost of capital deployed in cash exceeds the financing interest rate (if your business earns 25% ROI and financing costs 8%, the opportunity cost of using cash is 17%); (2) you need to preserve working capital for operations or growth; (3) the Section 179 deduction reduces your net cost significantly anyway.

The break-even rule: if your business ROI on deployed capital exceeds your equipment loan rate, financing is the financially superior choice. Our calculator shows the opportunity cost of the cash purchase vs. the interest cost of financing side-by-side, so you can see which path is actually cheaper for your specific rate of return.

Equipment depreciation creates the risk of being “underwater” — owing more on the loan than the equipment is worth. This matters most if you need to sell or refinance mid-term. Equipment typically depreciates faster in the early years (accelerated depreciation under MACRS), while loan balances decline slowly in the early months (most early payments are interest).

The crossover point — when equity exceeds debt — varies by equipment type: Construction equipment: typically years 3–4. Vehicles: years 3–5. Technology: often never (depreciates faster than loan balance declines). This is why a 72-month loan on technology equipment is risky. Our calculator’s depreciation vs. balance chart shows you exactly when you’ll be above water for your specific equipment and loan term.

At the end of an equipment lease, you typically have three options: (1) Return the equipment — hand it back with no further obligation (subject to wear-and-tear provisions). (2) Purchase the equipment — at fair market value (FMV) for operating leases, or at a pre-agreed price (often $1 or 10% of original value) for finance leases. (3) Renew/extend the lease — continue using at a reduced monthly rate.

Always read the lease’s end-of-term provisions carefully before signing. Some leases require the lessee to arrange equipment removal at their expense; others include hidden “documentation fees” at termination. The purchase option price and the residual value assumption are the two most important numbers to negotiate upfront.

Yes — most equipment lenders finance used equipment, though with more restrictions than new equipment financing. Key considerations: Age limit: Most lenders cap used equipment at 10–15 years old at end of loan term. Appraisal: Lender typically requires an independent appraisal or documented fair market value. Loan-to-value: Lenders may cap at 80% of appraised value (vs. 100% for new equipment). Rates: Often 1–3% higher than new equipment financing.

Used equipment can qualify for Section 179 deduction (up to the annual limit) if purchased and placed in service during the tax year — unlike bonus depreciation which currently phases out for used property. Check current IRS rules at IRS.gov Section 179.

Section 179 of the US Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment in the year it is purchased and placed in service — rather than depreciating it over its useful life (5–7 years under MACRS). For 2025, the Section 179 deduction limit is $1,220,000 with a phase-out beginning at $3,050,000 in total equipment purchases.

Example: $100,000 equipment, 25% effective tax rate → Section 179 deduction saves $25,000 in taxes → true net cost = $75,000. When financing, your monthly payment doesn’t change, but the total after-tax cost of the equipment drops significantly. The Section 179 module in this calculator shows your exact net cost and monthly payment adjusted for the tax benefit. Always consult your CPA — you must have sufficient taxable income to use the full deduction. See IRS Publication 946 for official rules.

Bonus depreciation allows businesses to immediately deduct a percentage of the cost of qualifying new (and some used) property in year one. Under current law, bonus depreciation is 40% in 2025 and 20% in 2026, continuing to phase down from the 100% introduced by the Tax Cuts and Jobs Act (2017–2022).

Key differences from Section 179: Section 179 has a dollar cap ($1.22M in 2025) and cannot create a net operating loss. Bonus depreciation has no cap, can create a NOL, and can be applied to used property meeting certain criteria. In most cases, businesses take Section 179 first, then apply bonus depreciation to any remaining cost basis. This calculator models both deductions and shows their combined effect on your after-tax equipment cost. IRS.gov bonus depreciation guidance.

Yes — you can take the full Section 179 deduction even if you financed the equipment. The deduction is based on the cost of the equipment (the full purchase price), not the amount of cash you paid. This is the most powerful and most misunderstood aspect of Section 179.

Example: You finance $150,000 of equipment with $15,000 down and a $135,000 loan. You can still deduct the full $150,000 under Section 179 (subject to income limitations), saving ~$37,500 in taxes at a 25% rate. You’re making loan payments from pre-tax dollars — the ultimate leverage. This is why “the equipment pays for itself” statements in equipment financing ads have real mathematical truth. Verify with your CPA and see IRS.gov for qualification requirements.

Qualifying Section 179 property must be: (1) Tangible personal property used more than 50% for business, (2) Purchased (not inherited or gifted), and (3) Placed in service during the tax year you’re claiming the deduction.

Most business equipment qualifies: machinery, computers, vehicles (with weight limits), office furniture, manufacturing equipment, medical equipment, restaurant equipment, and more. Real property and land do not qualify for Section 179 (though certain improvements may qualify under different rules). Vehicles: passenger vehicles have annual depreciation caps; SUVs over 6,000 lbs GVWR qualify for up to $30,500 (2025). See IRS Publication 946 for the complete qualifying property list.

MACRS (Modified Accelerated Cost Recovery System) is the standard US tax depreciation system for business property. Key asset classes for equipment: 3-year property: Tractors, racehorses, certain tools. 5-year property: Computers, cars, light trucks, office machinery (most common). 7-year property: Office furniture, most manufacturing equipment, agricultural equipment. 10-year property: Boats, trees, certain agricultural structures. 15-year property: Land improvements. 20-year property: Farm buildings.

MACRS uses a double-declining balance method in early years, switching to straight-line when advantageous. If you take Section 179 or bonus depreciation, any remaining basis after those deductions is depreciated under MACRS. Our calculator’s equipment category selector automatically applies the correct MACRS schedule for your equipment type. Full tables are in IRS Publication 946.

Operating leases generally do NOT qualify for Section 179 — because you don’t own the equipment, you cannot claim the deduction. Instead, operating lease payments are fully deductible as a business operating expense (100% deduction, but spread over the lease term rather than taken in year one).

Finance leases (capital leases) may qualify for Section 179 if the lease is structured as a conditional sale with a nominal purchase option ($1 buyout leases). The lessee is treated as the owner for tax purposes and can take the Section 179 deduction. This is one reason “$1 buyout leases” are popular — they combine the lower monthly payments of a lease structure with the tax benefits of ownership. Always confirm the tax treatment with your CPA before signing any equipment lease.

Equipment loan monthly payments use standard amortization formula:

Where: M = Monthly payment. P = Principal (equipment cost minus down payment). r = Monthly interest rate (annual rate ÷ 12). n = Number of monthly payments (term in months).

Example: $80,000 loan (after $20K down on $100K equipment), 8% annual rate, 60-month term: r = 0.08/12 = 0.00667. M = $80,000 × [0.00667 × (1.00667)⁶⁰] / [(1.00667)⁶⁰ − 1] = $1,621.85/month. Total paid = $97,311. Total interest = $17,311. This calculator shows the complete amortization schedule with every payment broken into principal and interest components.

APR (Annual Percentage Rate) is the standard annualized cost of borrowing, including interest and fees. It allows apples-to-apples comparison between lenders. Traditional bank loans and SBA loans quote APR.

Factor rate (also called “buy rate” or “decimal rate”) is used by alternative/online lenders — typically expressed as 1.15, 1.25, 1.40, etc. You multiply your loan amount by the factor rate to get total repayment. A 1.25 factor on a $100,000 loan means you repay $125,000. This sounds modest but converts to an extremely high APR when repaid over 12 months. Always convert factor rates to APR for comparison: APR ≈ (Factor Rate − 1) × (365 / Term in Days) × 100. A 1.25 factor rate on a 12-month loan = ~50% APR. The FTC requires disclosure of APR-equivalent rates in commercial financing in states that have adopted the SBFE Act.

Total interest cost depends dramatically on rate and term. For a $100,000 equipment loan:

At 6%: 36 months = $9,249 interest · 60 months = $15,997 interest · 84 months = $22,977 interest

At 12%: 36 months = $19,157 interest · 60 months = $33,225 interest · 84 months = $48,018 interest

At 20%: 36 months = $33,339 interest · 60 months = $58,823 interest · 84 months = $87,236 interest

This is why rate shopping is so valuable — a 2% rate reduction on a $100K 60-month loan saves approximately $6,000 in interest. The rate comparison module in this calculator shows you exactly what you save at different rates. Always get at least 3 competing quotes before accepting equipment financing.

Common fees to negotiate or avoid: Origination fee: 1%–3% of loan amount upfront. Documentation fee: $150–$500 flat. Prepayment penalty: 1%–5% of remaining balance if paid early (always try to eliminate this). UCC filing fee: $50–$150 (lender files a Uniform Commercial Code lien on the equipment — standard and unavoidable). Maintenance/insurance requirements: Lender may require specific insurance levels. End-of-lease fees (for leases): Documentation fee ($300–$600), removal fees, excess wear charges.

Origination fees and prepayment penalties are the two most impactful negotiable items. On a $150,000 loan, a 2% origination fee is $3,000 upfront. The FTC’s commercial financing disclosure guidelines require lenders to disclose all fees as part of the total financing cost in many US states.

Shorter term (24–36 months): Higher monthly payment, significantly less total interest, own the equipment faster, less risk of being underwater, better for fast-depreciating equipment (tech, computers). Best when cash flow can support higher payments.

Longer term (60–84 months): Lower monthly payment, more total interest, longer period of risk, better for stable equipment (manufacturing machinery, heavy equipment, vehicles) that retains value. Best when cash flow preservation is critical. General rule: Never choose a loan term longer than the equipment’s useful life. A 7-year loan on equipment with a 5-year life is a structural mistake. Our calculator shows the monthly payment and total interest side-by-side for any term you enter.

Yes, if your loan agreement doesn’t include a prepayment penalty (or you’ve negotiated it out). Early payoff can save significant interest — especially in the first half of the loan term when most of each payment is interest. On a 60-month loan at 10%, paying off at month 30 saves approximately 30–40% of your remaining interest.

Use our amortization schedule’s early payoff calculator: enter an extra monthly amount → see how many months you shave off and total interest saved. For loans with prepayment penalties, compare the penalty cost against interest savings to determine if early payoff is beneficial. Some SBA loans have prepayment fees in years 1–3; conventional equipment loans increasingly offer no-penalty prepayment.

Two SBA programs finance equipment: SBA 7(a) loan — most flexible, up to $5M, can finance equipment as part of a larger business loan, terms up to 10 years for equipment, rates currently Prime + 2.25%–4.75%. Best for: general equipment needs combined with working capital or real estate. SBA 504 loan — specifically for fixed assets (equipment + real estate), rates currently ~5.5%–7% (below-market fixed rates), terms up to 25 years, minimum $125K, requires 10% down from borrower, 40% from CDC, 50% from bank. Best for: large equipment purchases ($500K+) where long-term fixed rate is valuable.

For most small businesses financing equipment under $500K, the SBA 7(a) is the right program. Use SBA Lender Match to find approved lenders. Current SBA maximum rates are published on SBA.gov.

SBA loan timelines: SBA 7(a) standard: 45–90 days from application to funding. SBA 7(a) Small (under $500K) via SBA Express: 36-hour SBA decision, 30–45 days total. SBA 504: 60–90 days. SBA Microloan (under $50K): 2–4 weeks through SBA intermediaries.

If timing is critical (e.g., equipment is available at auction), SBA loans are often too slow. Conventional bank equipment loans typically fund in 5–15 business days. Online lenders like Balboa Capital or Crest Capital can fund in 1–3 business days. The speed vs. rate trade-off is real — SBA rates are typically 3–8% lower than online lender rates, worth waiting for if timing allows.

SBA 7(a) loan maximum: $5,000,000 (equipment can be part of any 7(a) loan use). SBA 504 loan maximum for equipment: Up to $5.5M for standard businesses, $5.5M for manufacturers/energy projects. SBA Microloan: Up to $50,000 (through SBA intermediaries, used for smaller equipment).

There is no SBA minimum loan amount for 7(a), but most lenders have their own minimums ($50,000–$150,000 for traditional banks; $10,000–$25,000 for SBA-approved online lenders). For equipment under $50,000, conventional equipment lenders typically offer faster, simpler financing than SBA programs. Current SBA loan limits and terms are on SBA.gov.

For SBA equipment loans, the equipment itself serves as primary collateral. For SBA 7(a) loans under $25,000: no collateral required. Between $25,000–$350,000: lender must take available business assets as collateral; personal real estate if business assets are insufficient. Over $350,000: lender must take all available collateral (business + personal assets).

Personal guaranty is required from all owners with 20%+ ownership stake for all SBA loans. For SBA 504 loans, the equipment (and often real estate) serves as collateral, and personal guaranty is required. The equipment collateral typically reduces the need for additional collateral since the lender can repossess and liquidate the financed asset if needed. See SBA collateral requirements.

DSCR (Debt Service Coverage Ratio) measures your business’s ability to cover its debt obligations from operating income.

Where Net Operating Income = Revenue − Operating Expenses (before interest, taxes, depreciation) and Total Debt Service = all annual loan/lease payments (including the new equipment loan).

The SBA standard minimum DSCR is 1.25× — meaning your operating income must be at least 25% more than your total debt payments. A DSCR below 1.0× means your income doesn’t cover your debt — highly unlikely to get approved. A DSCR of 1.25× is the minimum; 1.5× or higher is considered strong. Use our calculator’s DSCR module to check whether adding this equipment payment keeps you above the 1.25× threshold. The SBA lending guidelines publish current underwriting standards.

Equipment financing creates an immediate, fixed monthly obligation that reduces available working capital. This affects three key metrics: (1) Free cash flow — monthly payment directly reduces the cash available for operations, inventory, payroll, and growth. (2) Working capital ratio — if the loan payment is classified as current (within 12 months), it reduces your current assets/liabilities ratio. (3) Debt-to-equity ratio — the loan appears on your balance sheet as a liability, affecting your leverage ratios.

Critically, consider whether the equipment generates cash flow to offset its cost. Revenue-generating equipment (a new delivery truck, a CNC machine for a new contract) may more than offset its monthly payment. Administrative equipment (new computers) reduces costs but may not directly generate revenue. The cash flow section of our calculator lets you model the net cash flow impact — payment vs. incremental revenue — to determine true financial return.

A DSCR below 1.25× makes SBA financing very difficult but doesn’t eliminate all options: (1) Equipment-secured lending: Some lenders focus on equipment value rather than business cash flow — particularly for high-value equipment with strong resale markets (construction, medical). (2) Shorter term: Reduces total debt service if the monthly payment concern is temporary. (3) Larger down payment: Reduces loan amount and monthly payment, improving DSCR. (4) Alternative lenders: Online lenders often use different (less strict) underwriting with DSCR as one factor among many — but rates will be significantly higher.

If the equipment will genuinely improve your DSCR by generating revenue, some lenders will evaluate projected cash flows. Document the expected revenue increase and present it as part of your application with supporting contracts or projections.

Yes — interest paid on equipment loans is generally tax-deductible as a business expense under IRC Section 163. This applies to both conventional equipment loans and SBA loans. The interest portion of each payment (not the principal) is deductible in the year it is paid.

Example: If your annual equipment loan interest is $8,000 and your effective tax rate is 25%, you save $2,000 in taxes — effectively reducing your true interest cost to $6,000. Combined with Section 179 depreciation on the equipment itself, the total after-tax cost of financed equipment can be significantly lower than the face cost. For C-corporations, the IRS Business Expense Publication 535 governs interest deductibility. Note: Business interest deductions are limited for larger businesses under IRC 163(j) ($25M+ revenue threshold). Consult your CPA for your specific situation.