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Equipment loan vs Operating lease: which is right for your business?
The main difference between a equipment loan and a operating lease is how they are secured and repaid: a equipment loan suits any business buying income-producing equipment, while a operating lease suits businesses replacing equipment on a fixed cycle who want no residual or resale exposure.
Equipment loan vs Operating lease at a glance
| Equipment loan | Operating lease | |
|---|---|---|
| What it is | An equipment loan is a secured business loan used to buy machinery, vehicles or technology, with the equipment itself as security and fixed repayments over 1 to 7 years. It covers new and used assets from dealers or private sellers. | An operating lease is a rental agreement where the financier owns the asset, carries the residual value risk and leases it to your business for a fixed monthly payment over an agreed term. At the end you simply hand the asset back, with no residual to pay and no resale to manage. |
| Amount | $5,000 – $5,000,000 | $10,000 – $2,000,000 |
| Term | 12–84 months | 12–60 months |
| Indicative rate | 6.9% – 16% p.a. | 7.5% – 15% p.a. |
| Rate type | Fixed | Fixed |
| Security | Secured by the asset | Secured by the asset |
| Repayments | Monthly | Monthly rental |
| Typical speed | Same day to 48 hours for low-doc | 2–5 business days |
| Best for | Any business buying income-producing equipment | Businesses replacing equipment on a fixed cycle who want no residual or resale exposure |
| Consider the other if | General working capital with no asset purchase | Long-life assets you intend to keep and own outright |
| Tax | Interest and depreciation are generally deductible. | Rentals on business-use assets are generally deductible as an operating expense and GST is charged on each payment. Confirm with your accountant. |
Rates shown are indicative ranges observed across our lender panel for the period stated. They are not an offer or quote. Your rate depends on your business, the lender, the amount, the term and the security offered. The lender makes the final credit decision.
When to choose a equipment loan
A equipment loan is usually the better fit for any business buying income-producing equipment. Its main advantages are secured pricing, low-doc pathways for established businesses, new, used and private-sale assets. Consider the alternative if general working capital with no asset purchase.
When to choose a operating lease
A operating lease is usually the better fit for businesses replacing equipment on a fixed cycle who want no residual or resale exposure. Its main advantages are no residual to pay and no resale risk at term end, fixed, predictable monthly cost, simple upgrade path onto newer equipment. Consider the alternative if long-life assets you intend to keep and own outright.
Equipment loan
An equipment loan is a secured business loan used to buy machinery, vehicles or technology, with the equipment itself as security and fixed repayments over 1 to 7 years. It covers new and used assets from dealers or private sellers.
Operating lease
An operating lease is a rental agreement where the financier owns the asset, carries the residual value risk and leases it to your business for a fixed monthly payment over an agreed term. At the end you simply hand the asset back, with no residual to pay and no resale to manage.