Equipment Financing Calculator

Equipment financing comes in two main forms, and the choice between them affects your taxes, balance sheet, and long-term costs. An equipment loan is straightforward: you borrow money to buy the equipment, and the equipment serves as collateral for the loan. You own it from day one, claim depreciation deductions, and once the loan is paid off, you own it free and clear. An equipment lease lets you use the equipment for a set period in exchange for monthly payments, similar to renting. At the end, you either return it, buy it at fair market value, or buy it for $1 under a capital lease. Leasing typically means lower monthly payments because you are not paying for the full value of the equipment. It also keeps the asset off your balance sheet under an operating lease, which can improve financial ratios that banks care about. The downside is that you pay more over time and do not build equity. For equipment that holds value and has a long useful life (commercial vehicles, CNC machines, medical imaging systems), buying usually makes more financial sense. For equipment that depreciates quickly or becomes obsolete (computers, certain software, some medical devices), leasing can be smarter.

Equipment lenders underwrite differently than general business lenders because the equipment itself serves as collateral. This means lenders can be more flexible on credit scores and business history since they can repossess and resell the equipment if you default. Most equipment lenders want to see a personal credit score of at least 600-650, at least 1-2 years in business, and annual revenue sufficient to cover the payments. Startups and newer businesses can often still qualify but may need to make a larger down payment (20-30% instead of 10%) or accept a higher interest rate. The type of equipment matters. Lenders prefer equipment with an active resale market. A standard commercial truck or a popular brand of medical imaging system is easier to resell than a highly customized piece of manufacturing equipment built for a specific application. Equipment with strong resale value often qualifies for lower rates and higher loan-to-value ratios. Some lenders specialize in specific equipment types (construction, medical, restaurant, technology) and understand the resale markets well. Working with a specialist can result in better terms than going to a generalist lender.

The residual value is what the equipment is expected to be worth at the end of the financing term. It plays a crucial role in lease structures but can also affect loan economics. In a fair market value (FMV) lease, the residual is set high (typically 10-25% of original cost), which lowers your monthly payments. At the end of the lease, you can buy the equipment at its then-current market value, return it, or extend the lease. In a $1 buyout lease (also called a capital lease), the residual is essentially zero, meaning your payments cover the full cost of the equipment plus interest. Monthly payments are higher, but you own the equipment at the end for just $1. A 10% put option is a middle ground: your payments are based on 90% of the equipment cost, and at the end you pay the remaining 10% as a balloon payment or refinance it. This calculator lets you model all three scenarios by adjusting the residual percentage. Set it to 0% for a standard loan or $1 buyout, 10% for a 10% put structure, or higher for an FMV-style lease. Compare the monthly payments and total costs to see which structure fits your cash flow best.

Equipment purchases can generate significant tax savings through two provisions: Section 179 and bonus depreciation. Section 179 allows you to deduct the full purchase price of qualifying equipment in the year you put it into service, rather than depreciating it over several years. The 2024 limit is $1,160,000, with a phase-out beginning at $2,890,000 in total equipment purchases. Almost all tangible business equipment qualifies: machinery, vehicles (with limits on passenger vehicles), computers, office furniture, and software. Bonus depreciation provides an additional first-year deduction for equipment that exceeds the Section 179 limit or that you choose not to expense under Section 179. The bonus depreciation percentage has been stepping down: it was 100% through 2022, dropped to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. Financed equipment qualifies for both deductions. You can buy a $200,000 machine with a $20,000 down payment and a loan for $180,000, then deduct the full $200,000 on your taxes in year one. This creates a situation where your tax savings may exceed your first-year loan payments, effectively letting the tax code subsidize your equipment purchase. Consult with your accountant on the optimal strategy for your specific tax situation.

When you buy equipment can affect both your financing terms and your tax benefits. From a financing perspective, equipment lenders and manufacturers often run promotions at the end of calendar quarters and especially at year-end (November and December), when they are trying to hit annual sales targets. These promotions might include reduced rates, deferred first payments, or waived fees. End-of-model-year deals on vehicles and certain machinery can also yield savings of 5-15% off list price. From a tax perspective, equipment must be placed in service (not just purchased, but actually in use) during the tax year to qualify for Section 179 and bonus depreciation. Buying equipment in December gives you the full tax benefit for that year while minimizing the months of loan payments. However, if cash flow is tight, deferring the purchase to January means you do not start making payments until next year. Consider your total project cost carefully. The equipment price is the starting point, but add delivery, installation, training, and any facility modifications needed to use the equipment. Many businesses underestimate these soft costs by 10-20%, which can leave you short on working capital if you only finance the purchase price.