Which option saves you more money when buying business equipment?
Equipment Finance: 7-15% rates, equipment as security, 100% financing, better tax benefits. Business Loans: 8-25% rates, more flexible, own equipment immediately, use cash anywhere. Winner: Equipment finance for pure equipment purchases, business loans for flexibility.
Yes, equipment finance payments are usually 100% tax deductible as operating expenses, plus potential instant asset write-offs.
With hire purchase, you own it after final payment. With operating leases, you return it or buy for residual value.
Most equipment finance allows early payouts, but may include early termination fees or interest penalties.
You're still liable for payments. Consider warranty, insurance, and maintenance agreements when comparing options.
| Factor | Equipment Finance | Business Loan | Winner |
|---|---|---|---|
| Interest Rates | 7% - 15% | 8% - 25% | 🏆 Equipment Finance |
| Security Required | Equipment itself | Often unsecured | 🤝 Depends |
| Deposit Required | 0% - 10% | 0% - 30% | 🏆 Equipment Finance |
| Flexibility | Equipment only | Any business purpose | 🏆 Business Loan |
| Tax Benefits | Excellent | Standard | 🏆 Equipment Finance |
| Ownership | After final payment | Immediate | 🏆 Business Loan |
| Approval Speed | 1-5 days | 1-14 days | 🤝 Similar |
| Maximum Financing | 100% of cost | 70-80% typically | 🏆 Equipment Finance |
| Early Termination | Possible (fees apply) | Usually flexible | 🏆 Business Loan |
| Best For | Single equipment purchase | Multiple/mixed purchases | 🤝 Depends |
Quick Answer: Equipment finance is a loan specifically for buying business equipment where the equipment itself acts as security for the loan.
With equipment finance, the lender provides funds to purchase specific equipment, and the equipment serves as collateral. You make regular payments over 2-7 years. There are several types:
$100K excavator on hire purchase: $1,850/month for 5 years at 12% = Total $111K
Compare to: $100K business loan at 18% = $2,560/month = Total $128K
Excavator, truck, machinery, IT equipment
Makes the admin worthwhile
Don't want to tie up cash
Equipment security reduces cost
Operating lease = 100% deductible
Office fit-out, mixed inventory
May change equipment needs
Admin costs outweigh benefits
Lender restrictions may apply
Early termination fees costly
Use business loans when you need maximum flexibility or are buying equipment as part of a larger business investment.
$100K business loan at 18% over 3 years = $3,610/month = Total $129,960
Benefit: Own immediately, can sell anytime, use leftover cash for working capital
Tax treatment can significantly impact the real cost of your financing option:
Annual payment: $22,200
Interest portion: ~$8,000
Depreciation: $20,000
Total deduction: $28,000
Tax saving: $8,400
Annual payment: $20,000
100% deductible: $20,000
No depreciation: $0
Total deduction: $20,000
Tax saving: $6,000
Annual loan payment: $43,320
Interest portion: ~$15,000
Depreciation: $20,000
Total deduction: $35,000
Tax saving: $10,500
*Assumes 30% company tax rate and 20% depreciation rate
Compare the true cost of equipment finance vs business loan including tax benefits:
Result: Business loan is $1,218 cheaper overall, but monthly payments are $693 higher. Equipment finance preserves cash flow.
Recommended: Equipment Finance
Heavy machinery holds value, lower rates important for thin margins, equipment finance standard industry practice
Recommended: Operating Lease
Rapid depreciation, regular upgrades needed, 100% tax deductibility valuable
Recommended: Equipment Finance
Vehicles hold value, fuel efficiency improvements, structured replacement programs
Recommended: Hire Purchase
Long-term assets, customization needed, depreciation benefits important
Recommended: Business Loan
Mixed equipment needs, installation costs, ongoing working capital requirements
Recommended: Business Loan
Multiple suppliers, fit-out costs, inventory funding also needed
Lower payments might mean longer terms and higher total cost. Always compare total cost of ownership including tax benefits.
A business loan might be cheaper overall but strain cash flow with higher payments. Equipment finance spreads the cost longer.
Tax benefits can change the real cost by 20-30%. Get advice from your accountant before deciding.
Equipment finance may restrict modifications, relocation, or early termination. Business loans offer more flexibility.
Rates vary significantly between lenders. Always compare at least 3 options for equipment finance AND business loan alternatives.
Always get quotes for both options. Equipment finance companies often beat business loan rates, but business loans offer more flexibility. The best choice depends on your specific situation and cash flow needs.
Get personalized quotes for both equipment finance and business loans to find your best option