For an Ames, IA shop or practice, equipment financing vs leasing comes down to the end of the term: a loan makes the business the owner from day one, while a lease can keep the monthly payment lower and leaves a choice at the end to return, renew or buy the machine. A machine kept for many years leans toward a loan; one replaced on a cycle leans toward a lease.
In the invented example on this page the fair market value lease has the lower monthly payment, but it costs more in total if the Ames, IA shop buys the machine at the end; the loan makes the shop the owner from the first payment.
Lifts, espresso machines and treatment tables
Three machines from three trades show where the question starts. A two-post lift in an auto repair shop can stay in service for decades, and the shop will keep it as long as it lifts. An espresso machine in a coffee bar runs all day and may be traded for a newer model after a few years. A treatment table in a chiropractic or therapy office costs less than either, and its price may not justify a lease contract at all.
The lift points toward owning, through an equipment loan or a lease with a $1 buyout. The espresso machine points toward a fair market value lease that can be handed back. The treatment table may simply be bought from cash flow. Any work on the floor or walls that a machine needs is building work outside this site; the machine itself is equipment.
County Business Patterns for 2023 lists 51 automotive repair and maintenance establishments (NAICS 8111), 29 snack and nonalcoholic beverage bars (NAICS 722515) and 67 offices of other health practitioners (NAICS 6213) with paid staff in Story County, Iowa.
Lease payments versus loan payments
Illustration only, invented figures: an auto repair shop prices a tire changer and wheel balancer package at $14,200 and gets two quotes.
| Equipment loan | Fair market value lease | |
|---|---|---|
| Paid at signing | $1,400 | $0 |
| Monthly payment, 48 months | $320.05 | $268 |
| Total of the 48 payments | $15,362.40 | $12,864 |
| Cost to own at the end | $16,762.40 | $17,264 with a $4,400 buyout |
| Owner during the term | The shop | The leasing company |
The loan figures use $12,800 at an annual rate of 9.25%; the lease figures are an invented quote, since a lease payment comes from the leasing company and not from a rate formula. On these numbers the lease is $52.05 a month lower, but buying the machine at the end brings the lease path to $501.60 more in total than the loan.
Real quotes can land the other way: a higher lease payment or a larger end value can make the loan the lower-cost route. The point of laying the two side by side is to compare totals, not monthly payments alone. The equipment payment calculator works out the loan side for a different price or term.
End-of-term buyout choices
A lease ends with a choice, and the contract sets which choices exist. The three versions on the same invented package:
| Lease type | Monthly payment | Buyout at the end | Total if the shop keeps it |
|---|---|---|---|
| $1 buyout | $352 | $1 | $16,897 |
| 10% purchase option | $318 | $1,420 | $16,684 |
| Fair market value | $268 | Set at the end ($4,400 here) | $17,264 |
The higher the monthly payment, the smaller the buyout. With a $1 buyout the shop pays $352 a month and owns the package for one more dollar; with a fair market value lease the end price is not known until the end, which is the trade for the lower payment.
Returning the machine, renewing the lease for another term or buying it are the three exits of a fair market value lease. A shop that knows it will keep the machine gains little from that flexibility.
Questions for an accountant before deciding
Leases and loans can be treated differently on the books and for taxes, and that is a question for the business’s own accountant, not for this site. Questions to bring to that meeting:
- How would each option show on the balance sheet and the profit and loss statement?
- Which option fits the way the business plans to write off equipment over time?
- Would this lease be treated as a purchase for tax purposes, or as a rental?
- Is sales tax charged on each lease payment, on the purchase price, or on both?
- How would a new lease or loan look to a funding partner reviewing a later request?
- Does the timing of the purchase within the business’s tax year matter here?
Once the accountant has weighed in, a machine bought outright with its setup costs can also go on a term loan. The auto repair funding page covers shop equipment in more detail, the apply page holds the request form, and the blog lists the other articles.
The office ZIP has 28 automotive repair and maintenance establishments with employees, by the 2023 ZIP Code Business Patterns file for ZIP 50010.
By Halehaven Loans · Updated
