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Is it cheaper to finance or lease a $100,000 machine over five years?

At the same 8% cost of capital, the two routes have the same present value of $100,000. The loan costs $2,027.64 a month and $121,658.37 in total; the lease costs $1,891.54 a month plus a $10,000 buyout, $123,492.53 in total. The $1,834.16 nominal gap is timing, not price: the lease pushes $10,000 of principal to month 60.

What is the SBA 504 loan structure for equipment?

A bank funds about 50%, a Certified Development Company funds about 40% through an SBA-guaranteed debenture, and the borrower puts in about 10%. The SBA caps the program at $5 million, $5.5 million for manufacturers and energy projects, and equipment must have a useful life of at least 10 years. Terms run 10, 20 or 25 years.

Can I deduct the full cost of equipment in 2026?

Yes, in most cases. The One Big Beautiful Bill Act reinstated 100% bonus depreciation for property acquired after January 19, 2025, and the 2026 Section 179 limit is $2,560,000 with a $4,090,000 phase-out. A $100,000 machine expensed in full shelters $21,000 of tax at a 21% corporate rate.

How much cash should I keep before paying cash for equipment?

Keep at least six months of operating reserves after the purchase. Paying $100,000 cash forgoes $46,932.81 of return over five years at an 8% cost of capital, so cash is the most expensive route unless your idle cash earns less than the loan rate.

What down payment do equipment lenders require?

Conventional equipment lenders commonly require 0% to 20% down depending on credit and equipment; Crest Capital often requires none, with loans from $10,000 to $500,000 over 24 to 84 months. SBA 504 requires 10%, rising to 15% for a business under two years old and 20% if it is also a special-purpose property.

Comparisons • 13 min read

Equipment Financing vs Leasing vs Cash Purchase: 2026 Decision Playbook

Financing, leasing or cash for a $100,000 machine? The loan totals $121,658.37, the lease $123,492.53 all-in, cash $46,932.81 in forgone return — the same present value. The 2026 Section 179 limits and the SBA 504 route, worked line by line.

By Enow A. Jovial • Published 2026-11-09

Equipment Financing vs Leasing vs Cash Purchase: 2026 Decision Playbook

Founder & CEO Insight — Enow A. Jovial

"Founders ask which route is cheapest and expect a one-word answer. There is none. A loan, a lease and a cash purchase answer the same question three ways — who holds the cash, who holds the risk, who holds the tax deduction — and the right one changes with the machine."

— Enow A. Jovial, Founder & Chief Executive Officer

A $100,000 CNC machine leaves every growing business the same choice: borrow and own it, lease it and hand it back, or pay cash and be done. The loan costs $2,027.64 a month for 60 months; the lease $1,891.54 plus a $10,000 buyout; cash $100,000 on day one. The decision is not in those numbers — it is in the year-one tax deduction, the balance-sheet treatment your lender sees, and the cash you no longer have when a customer pays late.

This playbook works the decision with one machine, one rate and one tax rate — $100,000, 8% cost of capital, the 21% federal corporate rate — so every figure can be checked. Change any input and the answer moves; the formulas show how.

The decision in one table

Route	Monthly payment	Total paid over 60 months	You own it	Year-one shield at 21%	Authority
Equipment loan	$2,027.64	$121,658.37	Day one	$21,000 (full expensing)	IRS Pub. 946 (2025)
Lease, then buy	$1,891.54	$123,492.53 incl. $10,000 buyout	Month 60 if you buy	$4,766.69 (payments deducted as paid)	UCC § 2A-103; FASB ASC 842-10-25-2
Cash purchase	$0	$100,000	Day one	$21,000 (full expensing)	IRS Pub. 946 (2025)
SBA 504 loan	$1,050.72	$126,086.40 over 120 months	Day one	$21,000 (full expensing)	SBA 504 program

The loan and the cash purchase take the same $21,000 year-one shield: both make you the owner on day one and the 2026 law lets an owner expense the machine in full. The lease takes $4,766.69 in year one — 21% of the $22,698.51 paid in twelve months — and the rest arrives as payments arrive. Cheaper per month, more expensive in total, because the $10,000 residual sits unpaid until month 60.

What each route actually is

A loan is a purchase with borrowed money: you own the machine from day one and the lender holds a security interest as collateral. A lease is not a purchase — under Uniform Commercial Code Section 2A-103 it is "a transfer of the right to possession and use of goods for a term in return for consideration," and a sale is expressly not a lease; a finance lease is one where the lessor does not select, manufacture or supply the goods. You rent possession; the lessor owns the machine, and the end depends on the purchase option — $1 buyout, fair-market-value buyout, or nothing. Cash is the simplest route: you pay $100,000 with no lender and no monthly obligation, giving up the return the money would have earned — at 8%, $46,932.81 over five years, the price of illiquidity.

The worked math: one machine, three routes

The loan

The monthly payment on a $100,000 loan at 8% over 60 months:

\text{Payment} = \frac{100{,}000 \times \frac{0.08}{12}}{1 - (1 + \frac{0.08}{12})^{-60}} = \$2{,}027.64

Sixty payments total $121,658.37, so the interest cost is $21,658.37. In year one you pay $24,331.67 — $7,387.66 interest, $16,944.02 principal — leaving a balance of $83,055.99. The interest is deductible and the machine depreciable, which is where the year-one shield comes from.

\text{Total interest} = 60 \times \$2{,}027.64 - \$100{,}000 = \$21{,}658.37

The lease

The lease is priced at the same 8% over the same 60 months, with a 10% residual of $10,000 payable only if you buy at the end:

\text{Lease payment} = \frac{(100{,}000 - \frac{10{,}000}{(1 + \frac{0.08}{12})^{60}}) \times \frac{0.08}{12}}{1 - (1 + \frac{0.08}{12})^{-60}} = \$1{,}891.54

Sixty payments total $113,492.53; add the $10,000 buyout and the all-in cost is $123,492.53 — $1,834.16 more than the loan in nominal dollars. But discount every payment and the buyout at 8% and the present value is $99,999.89: the $100,000 machine. At the same cost of capital, lease and loan cost exactly the same in present-value terms — the gap is pure timing.

\text{Present value of lease} = \sum_{m=1}^{60} \frac{\$1{,}891.54}{(1 + \frac{0.08}{12})^m} + \frac{\$10{,}000}{(1 + \frac{0.08}{12})^{60}} = \$99{,}999.89

Cash

Cash has no payment and no interest, but an opportunity cost — $100,000 earning 8% a year for five years grows by:

\text{Forgone return} = \$100{,}000 \times ((1.08)^5 - 1) = \$46{,}932.81

That is the true cost of cash: $46,932.81 of return you will never see, against $21,658.37 of loan interest. Cash beats the loan only if idle cash earns less than the loan rate — at 4% the forgone return is $21,665.29 and the routes nearly tie. Run the number on your own return, not on a feeling about debt.

The SBA 504 route: the cheapest money for long-life equipment

For equipment with at least 10 years of useful life, SBA 504 is the lowest-cost financing most small businesses can reach: long-term, fixed-rate, up to $5 million for major fixed assets. The stack is three pieces — a bank funds about 50%, a Certified Development Company about 40% through an SBA-guaranteed debenture, the borrower about 10% down. The maximum rises to $5.5 million for manufacturers and energy projects; the down payment to 15% for a business under two years old, 20% if it is also special-purpose property.

SBA 504 loans page showing long-term fixed-rate financing of up to $5 million for major fixed assets

On the same machine the 504 stack is a $50,000 bank loan, a $40,000 CDC debenture and a $10,000 down payment. At 6% fixed over 10 years the CDC piece costs $444.08 a month; at 8% the bank piece $606.64, for a combined $1,050.72. Total paid over ten years: $126,086.40 on $90,000 borrowed — roughly half the conventional loan's monthly burden, but twice the term, and the machine must have 10 years of useful life. A CNC machine qualifies; a laptop fleet does not. Funding takes 30 to 90 days, so 504 fits a planned purchase, not an emergency replacement.

Conventional lenders move faster. Crest Capital finances $10,000 to $500,000 over 24 to 84 months, often with no down payment, approving loans under $250,000 the same day without tax returns. Neither Crest nor Balboa Capital publishes rates — Crest's are reported from 5% — so price any conventional quote with the present-value test.

At the same cost of capital, a fairly priced lease and a loan cost the same in present value. The choice is never the monthly payment — it is who holds the $10,000 residual, who takes the year-one shield, and whether the machine still earns in year six.

The tax layer: 2026 is the year to own the machine

The tax law changed the answer in 2025: the One Big Beautiful Bill Act, Public Law 119-21, reinstated 100% bonus depreciation for property acquired after January 19, 2025. Publication 946 states the 2026 Section 179 limits plainly: a $2,560,000 maximum deduction, reduced by Section 179 property placed in service above $4,090,000, and a $32,000 maximum for sport utility vehicles. The 2025 figures were $2,500,000, $4,000,000 and $31,300.

IRS Publication 946, What's New for 2026: Section 179 limit $2,560,000, phase-out $4,090,000, SUV cap $32,000

The owner routes — loan and cash — can deduct the full $100,000 in year one under Section 179 or 100% bonus depreciation. At 21% the shield is $21,000. Compare the old 7-year MACRS schedule: a 14.29% first-year deduction, a $3,000.90 shield. The gap is why the 2026 law favours ownership — the deduction arrives in the same year as the cash outflow.

The lease route cannot take that shield: the lessee does not own the machine. Payments are deducted as paid — $22,698.51 in year one, a $4,766.69 shield — and the deduction stretches across the term. Over five years the lease deducts the full $113,492.53, $23,833.43 of shields at 21%, against $21,000 in year one for the owner routes. The lease eventually deducts more in nominal dollars, but a year-five shield is worth less than a year-one shield, and the owner routes also deduct $21,658.37 of loan interest. Run the present value on the shields before the tax tail wags the decision.

The accounting trap: your lease may be a loan on the books

FASB ASC 842 puts every lease longer than 12 months on the balance sheet as a right-of-use asset and a lease liability, and classification decides how the cost hits the income statement. A lease is a finance lease if it meets any one of five criteria in ASC 842-10-25-2: ownership transfers by the end of the term; a purchase option the lessee is reasonably certain to exercise; a term covering a major part of the remaining economic life (commonly 75% or more); a present value of substantially all of the fair value (commonly 90% or more); or an asset so specialized the lessor has no alternative use for it. If none is met, it is an operating lease.

Test	Our 60-month lease	Finance lease?
Ownership transfers at end	No — $10,000 buyout is optional	No
Purchase option reasonably certain	No — fair-market buyout	No
Term vs economic life (75%)	60 months of a 120-month life = 50%	No
Present value vs fair value (90%)	$99,999.89 of $100,000 = 100%	Yes
Specialized, no alternative use	No — standard CNC machine	No

The model lease trips the present-value test: the payments are worth substantially all of the machine's fair value, so it behaves like a loan on the books — amortisation plus interest, front-loaded — even though the contract calls it a lease. That is not a reason to avoid it; it is a reason to stop believing the lease keeps debt off the balance sheet. Under ASC 842 it does not, and if your covenants cap total debt, a finance lease counts. Our lease accounting ASC 842 playbook works the journal entries.

A lease meeting any one of the five ASC 842 finance-lease criteria is accounted for like a loan — amortisation plus interest, front-loaded — even if the contract says "operating lease." If your covenants cap total debt, a finance lease counts toward the cap. Confirm the classification with your CPA before you sign, not after the audit.

Run the present-value test in five steps

Get three written quotes for the same machine: a loan, a lease with the buyout in writing, a cash price with the discount stated.
Put every route on one timeline: payments, buyout, down payment, tax shield year by year.
Discount every future payment at the same rate — your borrowing cost or the return the cash would earn — and add the totals.
Compare present values, not monthly payments: lowest present value wins on cost, lowest year-one cash need wins on survival.
Re-run with the Section 179 and bonus figures for the year you buy — the tax shield changes the ranking.

Who should pick which route

Finance it when the machine will earn longer than the loan term, when you want the year-one shield, and when the payment fits inside the machine's gross margin — a machine adding $4,000 a month covers a $2,027.64 payment twice over.

Lease it when technology turns over faster than the machine wears out, when you need the upgrade path in the contract, or when preserving the $100,000 matters more than owning the asset. A business replacing its fleet every three years should never sign a 60-month lease: 60 months of a 36-month life is a finance lease on an asset you will abandon.

Pay cash when the purchase leaves six months of reserves untouched, when idle cash earns less than the loan rate, and when the machine has no resale market worth protecting. Cash is right with $400,000 in the bank and a $100,000 machine — wrong with $110,000 in the bank and the same machine.

Use SBA 504 when the equipment has 10 or more years of useful life, when you can wait 30 to 90 days, and when the monthly payment is the constraint rather than the total cost: $1,050.72 is the lowest in this playbook, but it buys ten years of obligation on a machine you must keep using.

Before you sign any equipment quote, run the present-value test: discount the payments and the residual at your cost of capital. Above the cash price, the quote is overpriced. At or below it, the financing is fairly priced and the decision turns on tax and cash, not the rate.

Execution checklist

[x] Price the machine in cash first — get the cash price in writing before any financing quote.
[x] Run the present-value test on every quote — discount payments plus residual at your cost of capital and reject any quote above the cash price.
[x] Confirm the Section 179 and bonus position with your CPA — the 2026 limits are $2,560,000 and $4,090,000, but your taxable income and placed-in-service date decide the claim.
[x] Classify the lease under ASC 842 before signing — a lease tripping any of the five criteria is a finance lease on the books.
[x] Check the SBA 504 clock — if the equipment qualifies and you can wait 30 to 90 days, the 504 stack halves the monthly payment; apply through a Certified Development Company.
[x] Keep six months of reserves after a cash purchase — below that line, finance it instead.
[x] Run the payment through our business loan calculator with your own rate and term before committing.

The machine earns the same revenue under all three routes. The difference is $1,834.16 of timing, a $21,000 shield in year one or spread over five, and $46,932.81 of forgone return if you pay cash. Price the quote, claim the shield, keep the reserves — and let the machine pay for itself under the route that leaves the business strongest in month 61. Our Section 179 guide works the deduction election, and our SBA 7(a) vs 504 comparison prices the two SBA programs.