Equipment financing, leasing, or sale‑leaseback: which options fit your purchase
There are three common ways to pay for a machine, vehicle, or other piece of equipment. With equipment financing, you borrow to buy the equipment and own it. With a lease, you pay to use it for a set term and decide at the end whether to buy it, renew, or return it. With a sale-leaseback, you sell equipment the business already owns and lease it back, turning it into cash while you keep using it. Keystone Business Lenders helps owners compare options from third-party lenders, so you can see the structures side by side before you sign.
For the product itself, see our equipment financing options, or read the short equipment financing guide.
The short answer: three ways to pay for equipment
Equipment financing. You borrow to buy the equipment, and the equipment supports the agreement. You pay on a schedule, and when the agreement is paid off, the business owns the equipment outright.
Equipment leasing. You pay to use the equipment for a set term, and the leasing company owns it during that time. At the end of the term, depending on the lease, you can typically buy it, renew the lease, or return it.
Sale-leaseback. You sell equipment your business already owns and lease the same equipment back, so it stays in your shop or yard. Some lenders offer this structure to help a business free up cash from equipment it already owns.
None of the three is best for every business. It depends on how long you will keep the equipment, how much cash you want to put up front, and whether you already own it.
How equipment financing works
Equipment financing is money to buy a specific asset the business will keep: a truck for a trade, a lift, a CNC, a van, or a machine that replaces one that is failing. The equipment is part of the request, so a clear description of what you are buying does real work. Both new and used equipment can fit.
You pay on a schedule tied to that asset, usually over a longer window than a short-term cash product. Because the equipment secures the agreement, the lender typically holds a claim on it until the balance is paid. Once you make all the payments, you own the equipment outright. Term and total cost are on the agreement, and they vary by lender and by the equipment.
Financing tends to fit long-life equipment that is a long-term part of how you operate, such as heavy machinery or a vehicle you plan to run for years. Owning also lets you sell the equipment when you are done with it.
Some owners use a term loan instead (see the term loan guide), and some look at SBA loans (see SBA vs short-term financing).
How equipment leasing works
Equipment leasing works differently from a loan. Instead of borrowing to buy, the business pays to use the equipment for a set term. During the lease, you are not the owner of the equipment. The leasing company, called the lessor, owns it and rents it to you, much like a long-term rental agreement. At the end of the term, you typically return it, renew the lease, or buy it, depending on what the lease says.
Some lenders offer equipment leases alongside financing, and the structure on any lease you are offered is set by the agreement.
Leases that end in ownership vs leases that end in a choice
Some leases are built so that you buy the equipment at the end for a set or nominal amount. These work a lot like an equipment loan.
Other leases leave the decision open. With a fair market value lease, you make payments and use the equipment during the term, and at the end you can buy it at its fair market value, return it, or renew the lease. How each type of lease is treated for taxes and accounting is a question for your accountant, not for this guide.
Who leasing tends to fit
Leasing tends to fit equipment in danger of becoming obsolete, such as computers, diagnostic tools, and point-of-sale systems. It can also suit a growing business that expects to upgrade at the end of the term. Because leases often cost less up front, some owners lease to keep more cash in the business.
What to read in a lease agreement
Before you sign, read the agreement for:
- Total cost over the term. While leases are often cheaper in the beginning, you may end up paying more than the cost of the equipment over the life of the lease.
- End-of-term terms. What you can do when the lease ends, and what buying the equipment would cost at that point.
- Early termination. What happens if you need to end the lease before the term is up.
- Use restrictions. Any limits on how, where, or how much the equipment can be used.
- Maintenance and insurance. Some leases include maintenance. Many require you to insure the equipment.
How a sale‑leaseback works
A sale-leaseback starts with equipment your business already owns. You sell it to a lessor or lender, receive cash, and lease the same equipment back. It never leaves your shop or yard, but the business no longer owns it during the lease. Some lenders offer sale-leaseback arrangements to let a business free up cash from equipment it already owns.
Owners usually look at one because they paid cash for equipment and now need working cash back, or because they own equipment outright and want to restructure it. Think through:
- Ownership. Once you sell the equipment, you lease it. If the business relies on it daily, read the agreement closely.
- The end of the lease. Whether you can buy the equipment back, renew, or return it depends on the lease terms.
- Value. The value a lessor places on used equipment shapes how much cash a sale-leaseback can produce.
- Existing liens. If a lender already has a claim on the equipment, that has to be dealt with. This is not legal advice; ask the lender directly.
If you already bought the equipment, say so on the application. A purchase that already happened changes what a lender can do with the request, so it is better said up front.
Financing vs leasing vs sale‑leaseback, side by side
| Equipment financing | Equipment leasing | Sale‑leaseback | |
|---|---|---|---|
| Best for | Buying equipment you plan to keep and use for years | Equipment you may upgrade or replace, or keeping cash up front lower | Getting cash from equipment you already own while you keep using it |
| Who owns it during the term | Your business (the lender typically holds a claim until it is paid off) | The lessor | The lessor (you sold it) |
| What you get | The equipment | Use of the equipment | Cash, plus continued use of the equipment |
| End of term | You own it outright | Buy, renew, or return, depending on the lease | Buy back, renew, or return, depending on the lease |
| What to compare | Total cost and the payment schedule on the agreement | Total cost over the lease, end-of-term terms, early termination, maintenance | Cash received, total lease cost, buyback terms |
| Watch for | Collateral and prepayment terms | Paying more than the equipment's price over a long lease | Giving up ownership of equipment you rely on |
Which options fit your purchase
You are buying equipment you will keep for years
Financing is the usual place to start.
The equipment will be outdated in a few years, or you expect to upgrade
Leasing may fit. Read the end-of-term terms closely.
You already bought the equipment and need cash back
A sale-leaseback may fit, depending on the equipment and the lenders reviewing it. Say on the application that you already own it.
The need is not really the equipment
Payroll or a slow month is working capital, not equipment financing. Inventory you sell is also working capital. A building is commercial real estate. See working capital and commercial real estate.
You are not sure
You do not have to pick the structure first. If you are not sure which product fits, say so on the application and describe the equipment and what you need. One application covers the request, and the options that come back may include more than one structure.
How to compare the cost
We do not publish rates. Cost depends on the agreement, the equipment, and the lender. What matters is what leaves the business in total, not the monthly payment.
- Financing. Compare the amount you receive, the total you will repay, and the number of payments, and check early payoff.
- Leasing. Add up every payment over the full term, then ask what you would pay at the end to keep the equipment and what early termination costs.
- Sale-leaseback. Compare the cash you receive with what the lease costs over its term and what buying the equipment back would cost.
Taxes are part of the picture too. Owning equipment and leasing it can be treated differently for depreciation and for lease payments, and some purchases may qualify for a Section 179 deduction. Talk to your tax advisor about how each structure would apply to your business. For a full checklist, read what to check before you sign.
What to have ready
Equipment requests usually start with a clear description of the asset, whether it is new or used, and its approximate price. See what to have ready and the equipment financing page.
What happens after you apply
You submit one application online, and Keystone sends the application to lenders that buy this kind of paper. Options appear in your account when they exist; sometimes more than one, sometimes none. You compare them, pick one if you want it, and review that lender's agreement before you sign. You are not required to sign. See how it works.