For many Australian small and medium businesses, acquiring essential equipment can be a significant financial challenge. Whether you need machinery, vehicles, or technology, deciding how to fund these assets is crucial to managing cash flow and long-term growth.
Two of the most common options are equipment leasing and equipment finance. While both provide access to necessary business tools, they work differently and impact your finances in distinct ways.
Table of Contents
- What is Equipment Leasing?
- What is Equipment Finance?
- Key Differences Between Leasing and Financing
- Which Option is Best for Your Business?
- Conclusion
What is Equipment Leasing?
Equipment leasing is a rental agreement that allows businesses to use equipment for a fixed period in exchange for regular payments. The business does not own the equipment but can use it as needed throughout the lease term.
At the end of the lease, businesses typically have the option to:
- Renew the lease and continue using the equipment.
- Upgrade to newer equipment by starting a new lease.
- Return the equipment if it’s no longer needed.
- Purchase the equipment at a reduced price (depending on the lease agreement).
Pros of Equipment Leasing
✅ Lower upfront costs, preserving cash flow.
✅ Easier to upgrade to newer models.
✅ Fixed monthly payments for easier budgeting.
✅ Potential tax benefits as lease payments may be deductible.
Cons of Equipment Leasing
❌ No ownership, meaning continued payments with no equity gained.
❌ Can be more expensive over time compared to financing.
❌ Some leases have strict terms or penalties for early termination.
What is Equipment Finance?
Equipment finance, also known as an equipment loan, involves borrowing money to purchase equipment outright. The business takes ownership of the asset and repays the loan over an agreed period. Once the loan is fully repaid, the equipment belongs to the business with no further payments.
Pros of Equipment Finance
✅ Business owns the equipment once the loan is paid off.
✅ Builds business equity over time.
✅ No restrictions on how the equipment is used.
✅ May qualify for tax benefits like depreciation deductions.
Cons of Equipment Finance
❌ Higher upfront costs, including potential deposits.
❌ Monthly loan repayments can impact cash flow.
❌ The business is responsible for maintenance and repairs.
❌ Risk of owning outdated equipment if technology advances quickly.
Key Differences Between Leasing and Financing
| Feature | Equipment Leasing | Equipment Finance |
| Ownership | No ownership – the equipment is rented. | Business owns the equipment after the loan is repaid. |
| Upfront Costs | Low upfront costs. | May require a deposit or larger initial payment. |
| Monthly Payments | Typically lower, but continue indefinitely. | Fixed repayments over a set period. |
| Flexibility | Can upgrade or return equipment at the end of the lease. | Business keeps the equipment even after payments end. |
| Long-Term Cost | May be higher over time due to ongoing payments. | Often lower in the long run, as payments end once the loan is repaid. |
| Tax Benefits | Lease payments may be deductible. | Depreciation and interest may be tax-deductible. |
Which Option is Best for Your Business?
Choosing between equipment leasing and equipment finance depends on several factors, including your budget, business needs, and long-term goals.
Consider Equipment Leasing If:
✔ You need equipment that requires regular upgrades (e.g., IT and technology).
✔ You want to minimise upfront costs and preserve cash flow.
✔ You prefer predictable, fixed monthly payments without a large initial outlay.
Consider Equipment Finance If:
✔ You want to build equity by owning the equipment outright.
✔ The equipment has a long lifespan and won’t need frequent upgrading (e.g., heavy machinery, vehicles).
✔ You’re comfortable making higher monthly payments to eventually eliminate costs.
For businesses that frequently upgrade equipment, leasing may be the smarter choice. However, for businesses that require long-term use of assets without ongoing payments, financing is often the better investment.
Conclusion
Both equipment leasing and equipment finance have their advantages and can be effective ways to acquire essential business assets. The right choice depends on your cash flow, budget, and long-term business strategy.
If you’re unsure which option suits your business best, Capital Plus Finance can help. As an experienced equipment finance broker, we work with over 40 lenders to find the most cost-effective and flexible solutions for Australian businesses.
