Equipment Financing vs. Leasing: Which Is Right for Your Business?

The Short Answer

Finance if you want to own the equipment and it has a long useful life. Lease if the equipment will become obsolete quickly, you want lower monthly payments, or you need to preserve capital for other things.

But the real answer depends on your specific situation. Let's dig in.

How Equipment Financing Works

With equipment financing, you borrow money to purchase the equipment outright. You own it from day one (though the lender may place a lien on it until the loan is repaid). At the end of the loan term, the equipment is fully yours with no further payments.

Typical structure:

• Down payment of 0-20% of equipment cost
• Fixed monthly payments for 2-7 years
• Interest rates from 5-18% depending on your credit and business profile
• You own the asset and it appears on your balance sheet

Example: A $50,000 commercial oven financed over 5 years at 8% interest:

• Monthly payment: approximately $1,014
• Total paid: approximately $60,833
• You own a $50,000 asset (minus depreciation)

How Equipment Leasing Works

With a lease, you pay for the right to use the equipment for a set period. At the end of the lease, you typically have three options: return the equipment, renew the lease, or purchase the equipment at fair market value (or a predetermined buyout price).

Typical structure:

• Little to no money down
• Fixed monthly payments for 2-5 years
• Lower monthly costs than financing
• Equipment may or may not appear on your balance sheet (depends on lease type)

Two main lease types:

1. Operating lease: True rental. Lower payments, equipment goes back at the end. Best for equipment you'll want to upgrade frequently.

2. Capital lease (finance lease): Functions more like a loan with a buyout option. Higher payments than an operating lease but you typically purchase the equipment at the end for $1 or fair market value.

Example: That same $50,000 commercial oven on a 5-year operating lease:

• Monthly payment: approximately $900
• Total paid: approximately $54,000
• You don't own the asset at the end

The Tax Angle

This is where the decision gets interesting, and where most online guides get lazy. Here's what actually matters for Canadian businesses:

Equipment Financing Tax Benefits

• CCA (Capital Cost Allowance): You can claim depreciation on the equipment since you own it. The rate depends on the asset class.
• Interest deduction: The interest portion of your loan payments is tax-deductible.
• First-year enhanced allowance: Some equipment classes qualify for accelerated depreciation in the first year.

Equipment Leasing Tax Benefits

• Full payment deduction: Operating lease payments are typically 100% deductible as a business expense.
• Simplicity: No depreciation schedules to manage.
• Off-balance-sheet (operating leases): May help with debt-to-equity ratios if that matters for your other financing.

The tax difference often washes out over time, but the timing of deductions can matter for cash flow. Talk to your accountant before making a decision based on taxes alone.

When to Finance

Choose financing when:

• The equipment has a long useful life (10+ years)
• Technology won't make it obsolete anytime soon
• You want to build equity in business assets
• You plan to use the equipment beyond the loan term
• You want the freedom to modify or customize the equipment
• You might want to use the equipment as collateral for future loans

Good examples: Commercial real estate equipment, heavy construction machinery, commercial vehicles, industrial ovens, and specialized manufacturing tools.

When to Lease

Choose leasing when:

• The equipment will be outdated in 3-5 years
• You want to always have the latest model
• You need to preserve cash for other investments
• You want predictable costs with no maintenance surprises (some leases include maintenance)
• Your business is seasonal and you only need equipment part-time

Good examples: Computers and IT infrastructure, point-of-sale systems, medical imaging equipment, company vehicles, and office technology.

The Hybrid Approach

Many businesses use both strategies. A restaurant might finance their $80,000 custom kitchen buildout (long useful life, customized to their space) while leasing their POS system and office computers (replaced every 3-4 years anyway).

This isn't a one-size-fits-all decision. Consider each piece of equipment individually.

Making the Decision

Ask yourself these five questions:

1. How long will I use this equipment? If longer than the financing term, finance. If you'll want something newer, lease.

2. Does the equipment retain value? Vehicles and real equipment hold value — financing makes sense. Technology depreciates fast — leasing avoids the depreciation hit.

3. How's my cash flow? Leasing preserves working capital. If cash is tight, lower lease payments help.

4. Do I need to modify the equipment? Financing gives you ownership rights to customize. Leased equipment typically must be returned in original condition.

5. What's my tax situation? If you need deductions now, the accelerated CCA from ownership might be more valuable. If you want simple, predictable deductions, lease payments are straightforward.

Ready to Explore Your Options?

Whether you decide to finance or lease, the key is comparing offers from multiple providers. Start your application with OneLend to see equipment financing options from 30+ Canadian lenders. It takes 2 minutes, won't affect your credit score, and there's no obligation.