An equipment finance agreement makes the business the owner from day one, with the partner holding a security interest, while a lease leaves ownership with the lessor and offers return, renewal or buyout at the end. Aspenwater Credit, a small-business funding broker in Dover, Delaware, compares the two for Kent County owners. Partners set terms; accountants advise on tax treatment.
Who is choosing between them in Kent County, DE
Equipment decisions come up across the county's main sectors. In 2023 Kent County had 385 construction employer establishments, 298 restaurants and other eating places and 341 ambulatory health care establishments (U.S. Census Bureau, County Business Patterns 2023). A contractor's loader, a restaurant's dish machine and a practice's imaging unit can each be offered as an equipment finance agreement, a lease or a loan, and the choice changes what the business owns.
Most of these businesses are small: 59.6 percent of the county's 4,971 employer establishments had fewer than five employees (U.S. Census Bureau, County Business Patterns 2023). Small firms feel end-of-term surprises most.
The equipment finance agreement (EFA)
Under an EFA the business owns the equipment from the start. The partner pays the vendor, holds a security interest and files a lien, and the business makes fixed payments until the balance is paid. At the end, the lien is released and nothing more is owed. It works much like an equipment loan, with simpler paperwork in many cases.
The lease
Under a lease the lessor owns the equipment and the business pays to use it. What happens at the end depends on the type:
- Fair market value (FMV) lease: lower payments; at the end you return the equipment, renew, or buy it at its market value then.
- $1 buyout lease: higher payments; you take ownership for a nominal amount at the end, so it behaves much like an EFA.
- Other fixed buyouts: a set purchase price at the end, between the two.
Side by side
| Equipment finance agreement | FMV lease | $1 buyout lease | |
|---|---|---|---|
| Owner during the term | Your business | The lessor | The lessor |
| At the end | You own it, lien released | Return, renew or buy at market value | You own it for a nominal amount |
| Monthly payment | Covers the full cost | Lower | Covers the full cost |
| Good fit | Equipment you will keep for years | Technology you may replace | Keeping it, with a lease structure |
A conventional equipment loan or business term loan is the third option, useful when several items or some installation work are being bought together.
Equipment financing vs a capital lease: the accounting question
A common question is whether a lease counts as debt on the books, and how payments and depreciation are treated for tax. Those answers depend on the agreement and on accounting and tax rules, and they belong with your accountant.
Paperwork differences that matter
- Insurance: both usually require you to insure the equipment and name the partner or lessor.
- Liens: EFAs carry a lien; many leases also have a filing, so check what it covers.
- Early payoff: EFAs may allow it with a payoff figure; leases often charge the remaining payments.
- Return conditions: FMV leases set wear-and-tear standards and return costs.
Read the end-of-term section of any lease twice. Notice periods for returning equipment, automatic renewals and who pays for shipping on return can add cost that never appears in the monthly payment.
Partners also check that the business is properly registered; the Delaware business license and gross receipts tax guide explains how those records are read.
Choosing in practice
Ask two questions: will you still want this equipment when the term ends, and how quickly will it be outdated? Keep it for years, choose an EFA or a $1 buyout. Likely to replace it, look at an FMV lease and price the end-of-term options before signing. Then compare offers in total dollars, as how a request moves describes. More on each structure is in equipment financing and leasing, and more articles on the blog.
By Aspenwater Credit · Updated