Equipment Leasing vs Financing
Choosing between equipment leasing and financing is one of the most important decisions for your aesthetic practice. Both options have distinct advantages depending on your business goals, cash flow, and long-term plans. Let's break down the key differences to help you make the best choice.
Leasing vs Financing: Quick Comparison
Equipment Financing
How It Works
You borrow money to purchase equipment and make fixed monthly payments. At the end of the term, you own the equipment outright.
Pros
- Ownership at end of term
- Lower total cost over time
- Tax depreciation benefits
- Interest expense deduction
- Builds business equity
- No usage restrictions
Cons
- Higher monthly payments
- Less flexibility to upgrade
- Responsible for maintenance
- Technology may become outdated
- Requires larger down payment
Best For
Established practices with stable cash flow who want to own equipment and maximize long-term value.
Equipment Leasing
How It Works
You rent equipment for a fixed period with lower monthly payments. At the end, you can return, upgrade, or purchase the equipment.
Pros
- Lower monthly payments
- Easy equipment upgrades
- Full payment tax deduction
- Maintenance often included
- Preserve working capital
- Test equipment before committing
Cons
- Higher total cost over time
- No ownership without buyout
- Usage restrictions may apply
- Limited customization options
- Ongoing payments indefinitely
Best For
New practices, seasonal businesses, or those wanting to stay current with technology upgrades.
Cost Analysis Example
Let's compare the costs for a $200,000 aesthetic laser system over 5 years:
Equipment Financing
Equipment Leasing
Note: This example assumes 6% interest rate for financing and 8% lease rate. Actual costs will vary based on creditworthiness, equipment type, and market conditions.
Tax Implications
Equipment Financing
Deductible Expenses
- Interest payments (100% deductible)
- Depreciation (Section 179 or MACRS)
- Maintenance and repairs
- Insurance costs
Section 179 Benefits
You may be able to deduct the full cost of equipment in the first year (up to $1,160,000 in 2023).
MACRS Depreciation
If not using Section 179, depreciate equipment over 5-7 years using MACRS method.
Equipment Leasing
Deductible Expenses
- Lease payments (100% deductible)
- Maintenance (if not included)
- Insurance costs
- Upgrade fees
Operating Lease Treatment
Lease payments are treated as operating expenses, providing immediate tax benefits.
No Depreciation
Since you don't own the equipment, you can't claim depreciation benefits.
Key Decision Factors
Cash Flow
Choose Leasing if: You need to preserve cash flow and prefer lower monthly payments.
Choose Financing if: You have stable cash flow and can handle higher payments.
Technology Updates
Choose Leasing if: You want to upgrade equipment regularly as technology advances.
Choose Financing if: You're comfortable with longer-term equipment ownership.
Tax Strategy
Choose Leasing if: You prefer immediate tax deductions and simpler accounting.
Choose Financing if: You want to maximize depreciation benefits and build equity.
Business Stage
Choose Leasing if: You're a new practice or testing new services.
Choose Financing if: You're an established practice with proven revenue.
Equipment Type
Choose Leasing if: Equipment technology changes rapidly (lasers, software).
Choose Financing if: Equipment has long useful life (furniture, basic tools).
Long-term Goals
Choose Leasing if: You prefer flexibility and minimal commitment.
Choose Financing if: You want to build business assets and equity.
Leasing vs Financing FAQ
Which is better for a new medspa?
Leasing is often better for new practices as it preserves cash flow and allows you to test equipment before committing to ownership.
Can I deduct lease payments on my taxes?
Yes, lease payments are typically 100% deductible as operating expenses, providing immediate tax benefits.
What happens if I want to upgrade leased equipment?
Most leases allow upgrades during the term, though terms vary. You may need to pay upgrade fees or extend the lease.
Is financing always cheaper in the long run?
Generally yes, but it depends on interest rates, lease terms, and how long you plan to use the equipment.
Can I negotiate lease terms?
Yes, lease terms are often negotiable, including payment amounts, upgrade options, and end-of-term choices.
What if I want to buy leased equipment?
Most leases include a buyout option at the end of the term, typically at fair market value or a predetermined amount.
Ready to Choose Your Equipment Solution?
Our financing specialists can help you determine whether leasing or financing is the best choice for your practice. Get personalized recommendations based on your specific situation and goals.
