How to use this calculator
- Enter the equipment price and your down payment as a percentage.
- Add sales tax and loan fees. Choose whether to finance the tax or pay it upfront.
- Enter the rate and term from your quote. Add a balloon if the offer has a large final payment.
- Enter your marginal tax rate to estimate the value of expensing the equipment in year one.
How equipment financing works
An equipment loan lets you buy machinery, vehicles, technology or tools and repay the cost over time. The equipment itself secures the loan, so rates are often lower and approval easier than for unsecured business loans. You own the equipment from day one, and the lender holds a lien until the loan is repaid.
Worked example
A contractor buys a $120,000 excavator with 10% down, 7% sales tax financed and a $500 documentation fee, at 8.5% for 60 months.
- Amount financed: $120,000 − $12,000 + $8,400 tax + $500 fee = $116,900.
- Monthly payment: $2,398.38; total interest $27,003.
- APR including the fee: about 8.68%.
- If the full $128,400 cost (price plus tax) is expensed in year one at a 26% combined tax rate, the tax savings are about $33,400 — more than a year of payments.
Section 179 and bonus depreciation
Two tax rules, both explained in IRS Publication 946, let many businesses deduct the cost of equipment immediately instead of depreciating it over several years:
- Section 179 expensing — elect to deduct qualifying equipment placed in service during the year, up to an annual dollar limit. The 2025 tax law raised the limit to $2.5 million, with a phase-out beginning at $4 million of equipment purchases, both indexed for inflation after 2025. The deduction can’t exceed your business taxable income.
- Bonus depreciation — 100% first-year bonus depreciation was restored permanently for qualifying property acquired after January 19, 2025. Unlike Section 179, it isn’t capped by taxable income.
Equipment loan vs lease
| Item | Equipment loan | $1 buyout lease | Fair-market-value lease |
|---|---|---|---|
| Ownership | You own it now | You own it for $1 at the end | Return, renew or buy at market value |
| Monthly payment | Moderate | Similar to a loan | Lowest |
| Tax treatment | Depreciate or expense | Usually treated like a purchase | Payments usually deductible as rent |
| Best for | Long-lived equipment | Owning with low upfront cash | Tech that becomes obsolete quickly |
Estimating a lease payment
A lease payment is worked out the same way as a loan with a balloon, so you can use this calculator for a lease quote. Enter the lease rate and term.
For a $1 buyout lease, leave the balloon at 0%. For a fair-market-value lease, enter the residual value the lessor assumes as the balloon. Leases often collect the first payment, and sometimes the last, at signing, so the lessor’s quote can differ slightly from this estimate.
For a full comparison of loans, $1 buyout leases and fair market value leases, including taxes, read equipment financing vs. leasing.
How to qualify and get a better rate
- Two or more years in business and steady revenue open up bank and SBA loan options. Estimate an SBA 7(a) loan with the SBA loan calculator.
- Strong personal and business credit scores lower your rate.
- A larger down payment and a shorter term reduce the lender’s risk.
- Get quotes from your bank, the equipment manufacturer’s finance arm, and at least one independent lender — then compare APRs.
- For large, long-lived assets, ask about the SBA 504 program.
Section 179 vs bonus depreciation
Both let a business deduct equipment in the year it is placed in service instead of depreciating it over several years. Section 179 is capped and limited to your business income; 100% bonus depreciation has no cap for property acquired after January 19, 2025. Financing the purchase doesn’t block either deduction.
Read the full guide: Section 179 vs bonus depreciation: which to use.
Equipment loan or lease?
A loan and a $1 buyout lease both end with you owning the equipment; a fair market value lease has lower payments, but you hand it back or pay its value at the end. Convert every lease quote into an APR so you can compare it fairly with a loan, and remember that buying can qualify for Section 179 while lease payments are deducted as an expense.
Read the full guide: Equipment financing vs leasing: costs, taxes and trade-offs.
Frequently asked questions
What is a typical equipment loan rate?
How long are equipment loan terms?
Do I need a down payment?
Can I deduct the full cost of equipment in the first year?
What is a balloon payment?
Sources
- Publication 946, How To Depreciate Property (Section 179 and bonus depreciation) — Internal Revenue Service
- 504 loans — financing for major fixed assets — U.S. Small Business Administration
- Loans — funding programs for small businesses — U.S. Small Business Administration