On a typical $40,000 piece of restaurant equipment, the choice between leasing and financing usually swings $5,000–$15,000 in 5-year total cost. Loan tends to win when you want to own and use Section 179. Lease tends to win when monthly cash flow is tight, or when the equipment ages out fast (POS systems, espresso machines, anything tech-driven).
An equipment loan is exactly what it sounds like: you borrow money, buy the equipment, own it day 1, and pay back principal + interest. The lender takes a UCC lien on the equipment — if you default, they can repossess.
An equipment lease is a rental arrangement. The lessor owns the equipment. You pay monthly to use it. At end of term, you either return the equipment, buy it (at $1, FMV, or 10% PUT), or extend.
The structural difference shows up in three places: monthly payment (lease usually $20–$80 lower), tax treatment (loan = depreciation + interest deductible; FMV lease = payments fully deductible as operating expense), and end-of-term decision (loan = nothing, you own; lease = decision point).
Loan wins when: (a) you want to own outright, (b) Section 179 in year 1 actually helps your tax bill, (c) the equipment will outlive the loan (walk-ins, hoods, dishwashers — 10–20 year useful lives), or (d) you can absorb the higher monthly. Loan also wins on resale at year 7+: when you upgrade, you can sell the asset and recoup 30–50% of original cost. Lease at end of term, you own nothing.
Lease wins when: (a) the equipment ages out fast (POS systems get replaced every 4–5 years, espresso machines every 6–8, kitchen tech generally faster than mechanical equipment), (b) monthly cash flow is the binding constraint (lease payment $20–$80/mo lower matters when you're at <10% margin), (c) you want operating-expense tax treatment (some accounting setups prefer it), or (d) you're a chain or multi-unit operator who values off-balance-sheet treatment.
Three real-world factors the calculator can't model: (1) maintenance and repair — leases sometimes bundle service while loans don't, (2) end-of-term return charges — leased equipment that's seen 5 years of restaurant use often gets hit with $500–$3,000 in wear-and-tear charges, (3) accounting complexity — operating leases are simpler from an accounting standpoint than depreciation + interest split. Build a 5–10% buffer into lease total cost to account for return charges.
If equipment useful life is 10+ years AND your tax bracket is 22%+, lease loses. If equipment useful life is 5–7 years (POS, tech-driven equipment), lease usually wins. If you're cash-flow-constrained, lease wins on monthly even if it loses on total cost. If you want to keep the equipment forever and the rate spread is <2%, loan wins.
| Factor | Equipment Loan | FMV Lease | $1 Buyout Lease | EFA |
|---|---|---|---|---|
| Ownership | Day 1 | End of term (optional) | End of term ($1) | End of term (no buyout) |
| Section 179 Year 1 | Yes — full cost | Payments only | Yes — full cost | Yes — full cost |
| Monthly Payment | Higher | Lower | Similar to loan | Similar to loan |
| End-of-Term Decision | None | Buy/return/extend | Auto-buy at $1 | None |
| Best For | Long-life equipment, owners | Tech-aging equipment, cash-tight | Restaurant standard | Restaurant standard |
Because the lessor takes residual-value risk — they're betting on what your equipment will be worth at end of term. That risk premium typically adds 1–4% to the effective APR vs an equivalent loan.
No. The IRS treats a $1 buyout lease as a capital lease (essentially a loan). You depreciate the asset and deduct interest, just like financing. The 'lease' label is mostly cosmetic for accounting and contract structure.
FMV/operating lease payments are fully deductible as operating expense. Capital lease ($1 buyout) payments split between principal and interest — only interest is deductible, plus depreciation on the asset (Section 179 eligible).
Equipment Finance Agreement. Behaves like a lease in contract structure (simpler doc set, faster underwriting) but you own at end with no buyout. Lenders push it because it's faster to close. Tax treatment matches a loan.
Sometimes — usually via a buyout-and-refinance. You buy the equipment at FMV from the lessor, then refinance the buyout amount with a loan. Worth doing only if loan rates have dropped 3%+ since you signed the lease.
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