On a $40,000 piece of restaurant equipment, the choice between leasing and financing usually swings $5,000–$15,000 in total 5-year cost. Loan tends to win when you want to own and use Section 179. Lease tends to win when monthly cash flow is tight or the equipment ages out fast (POS systems, espresso machines).
Loan side: standard amortization on the full equipment cost over 60 months at the loan APR. Lease side: amortizes (cost − residual) over 60 months at the lease money factor (which is usually 1–3% higher than a loan APR equivalent), then adds the residual buyout if you take ownership at end.
When you want to own outright, when Section 179 in year 1 matters for your tax bill, when the equipment will outlive the loan (walk-ins, hoods, dishwashers — 10–20 year asset lives), or when you can absorb the higher monthly. Loan also wins on resale: when you upgrade in year 7, you can sell the asset and recoup 30–50% of original cost.
When the equipment ages out fast (POS systems get replaced every 4–5 years, espresso machines every 6–8), when monthly cash flow is the binding constraint, when you don't want the depreciation paperwork, or when the operating-expense tax treatment fits your accounting setup better. Lease also wins for chains and multi-unit operators who want off-balance-sheet treatment.
Maintenance and repair: leases sometimes bundle service; loans don't. Insurance: required either way, similar cost. End-of-term hassle: returning leased equipment that's seen 5 years of restaurant use can mean wear-and-tear charges of $500–$3,000. Build a 5–10% buffer into the lease total cost to account for return charges.
Because the lender is taking residual-value risk — they're betting on what your equipment will be worth at end of term. That risk premium typically adds 1–4% to the effective APR vs an equivalent loan.
No — the IRS treats a $1 buyout lease as a capital lease (essentially a loan) for tax purposes. You depreciate the asset and deduct interest, just like financing. The 'lease' label is mostly cosmetic.
FMV/operating lease payments are fully deductible as operating expense. Capital lease ($1 buyout) payments are split between principal and interest — only interest is deductible, plus depreciation on the asset (Section 179 eligible).
Loan, by definition. Each loan payment reduces principal, which builds asset equity on your balance sheet. Lease payments build no equity — they're rent.
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