Equipment Leasing FAQ: Straight Answers to the Questions Businesses Ask Most

This page collects short, direct answers to the questions U.S. business owners ask most often about commercial equipment leasing. Each answer is general information, since contracts, states and tax situations differ, and each points to a longer guide where more detail helps. If a question affects a large commitment, take the answer to an attorney or CPA who can read your actual agreement.

Basics

What is commercial equipment leasing?

It is a contract in which a lessor buys equipment you choose and lets you use it for a set term in return for regular payments. Equipment can include machinery, vehicles, computers, medical devices, restaurant equipment, construction gear and more. The end-of-term outcome depends on the structure: return it, renew, buy at fair market value, or buy for $1 or a fixed price. Our cost guide explains how payments are built.

Is a lease different from a loan?

In a true lease the lessor owns the equipment; in a loan you own it and the lender holds a security interest. Some leases behave like loans, notably $1 buyout leases, and may be treated as purchases for tax purposes. Compare total cost regardless of the label.

What kinds of equipment can be leased?

Most tangible, movable business equipment with a resale market can be leased. New equipment is easiest. Used equipment can often be financed. Software, installation and training can sometimes be included, though they can be harder to finance on their own.

What is a typical lease term?

Terms commonly range from 12 to 84 months, with 36 to 60 months frequent. Match the term to the equipment's useful life.

Credit and approval

What credit score do I need?

There is no universal cutoff. Many lessors look for mid-600s and above for standard programs, while some work with lower scores at higher cost or with a larger down payment. Time in business, cash flow and equipment type also matter. See our documents and requirements guide.

Can a startup get an equipment lease?

Yes, though with fewer options. Expect a larger down payment, personal guarantee or additional collateral. Used equipment with good resale value can help.

Will applying to several lessors hurt my credit?

Each hard inquiry can have a small effect, and some scoring models group similar inquiries made in a short period. Ask whether pre-qualification uses a soft pull, and apply only to lessors you are seriously considering.

What if I'm denied?

Ask for the reason, correct credit report errors, consider a larger down payment, a less expensive piece of equipment, a co-signer or guarantor, or a different type of lessor.

Costs and payments

How is the monthly payment calculated?

Based on the amount financed, the rate or money factor, the term and the residual value if any. The lease payment calculator shows the arithmetic for amortizing agreements.

What is a money factor?

A small decimal used instead of an interest rate. Multiply by 2,400 for an approximate annual percentage rate. A money factor of 0.0035 is about 8.4%.

Are there fees besides the payment?

Often: documentation or origination fees, advance payments, late fees, taxes, insurance and end-of-term charges. Ask for all of them in writing.

Can I pay off a lease early?

Possibly, but most commercial leases are non-cancelable and early payoff may require paying most or all of the remaining payments, sometimes with a discount. Ask for the early buyout terms before you sign.

Taxes and accounting

Can I deduct lease payments?

For a true lease, payments are generally deductible as a business expense. For a lease treated as a purchase, you may instead deduct depreciation and interest, potentially including Section 179 or bonus depreciation. Ask your CPA to confirm, and read our guide on Section 179 and bonus depreciation.

Do I pay sales tax on a lease?

In many states, yes, though how it applies varies. Some states tax each lease payment, others tax the purchase price up front, and some exempt certain equipment or users. Check with your state department of revenue or a tax professional.

Does a lease appear on my balance sheet?

Under ASC 842, businesses that follow GAAP generally record leases longer than 12 months as a right-of-use asset and a lease liability. Smaller businesses that do not prepare GAAP statements may treat it differently. Your accountant can advise.

Who pays property tax on leased equipment?

Typically the lessee reimburses the lessor for personal property taxes, depending on the state and the contract.

Contract terms

What does non-cancelable mean?

You must keep making payments for the entire term even if you no longer need the equipment or if it stops working. See how to read an equipment lease agreement.

Do I need a personal guarantee?

Often for small and mid-sized businesses, less often for larger, well-capitalized companies. Ask whether it can be capped or limited.

Who is responsible for repairs?

Usually the lessee. Warranty claims go to the manufacturer or vendor. Payments typically continue during repairs.

What happens if the equipment is lost or stolen?

You generally must pay a stipulated loss value and your insurance should respond. Confirm that coverage matches the amount.

Can the lessor sell my lease?

Yes, in most cases through an assignment clause. Your obligations remain, but payments may go to a new owner.

Special situations

Can I lease used equipment?

Yes. The lessor may require inspection, serial number verification and clear title, and terms may be shorter.

Can I sublease or move the equipment?

Usually only with the lessor's written consent. Moving equipment to a different location without permission can be a default.

Can I lease equipment through my LLC?

Yes. The LLC is the lessee, but the lessor may still ask owners for a personal guarantee. Make sure the legal name matches your formation documents.

What if my business closes?

The lease and any guarantee do not automatically end. Talk to the lessor about options such as returning the equipment or arranging a payoff. An attorney can help.

What about a sale-leaseback?

If you own equipment outright, you may sell it to a lessor and lease it back to free up cash. It adds financing cost and changes ownership, so review tax and accounting effects first.

Fraud and safety

How do I spot a scam?

Watch for upfront fees before approval, guaranteed approval, pressure to sign immediately and refusal to provide a written contract. See our guide to red flags and scams.

Who regulates equipment leasing?

There is no single federal regulator of commercial equipment leasing. State law, including the Uniform Commercial Code, governs contracts. Some states require licenses or disclosures for certain commercial financing. The FTC polices unfair and deceptive practices. Check with your state attorney general or financial regulator.

Where to get help

• Ask a business attorney to review the agreement.
• Ask a CPA about tax and accounting treatment.
• Contact a Small Business Development Center, which provides free or low-cost counseling through the SBA's network.
• Use the pre-application checklist to prepare.

Sources and further reading

• Small Business Administration — financing resources and counseling.
• Federal Trade Commission — business guidance and reporting of fraud.
• Internal Revenue Service — tax rules for equipment.
• Equipment Leasing and Finance Association — industry resources.