Ridgepoint Credit, a small-business funding service in Owensboro, Kentucky, explains how Daviess County, KY owners decide whether to lease or buy equipment. The article compares fair market value leases, $1 buyout leases and equipment loans, works through examples from auto repair shops and gas stations, and lists the questions to ask partners before choosing.
The three ways to pay for equipment
An equipment loan, or equipment financing, means the business buys the equipment and repays in installments; the equipment is usually the collateral. A fair market value (FMV) lease means the partner owns the equipment, the business pays to use it, and at the end the business can return it, renew or buy it at its market value. A $1 buyout lease has higher payments but ends with the business owning the equipment for a nominal sum. In practice, a $1 buyout behaves much like a loan.
Fair market value lease vs $1 buyout: choosing the ending
| FMV lease | $1 buyout lease | |
|---|---|---|
| Payments | Lower | Higher |
| End of term | Hand it back, extend, or pay the market price | Own for a nominal amount |
| Suits | Equipment that dates or will be replaced | Gear you mean to run for years |
| Watch for | Return conditions and the buyout price | Total payments versus a loan |
Is it better to buy or lease equipment? Four questions
- How long will you use it? Years of use favor buying; a short horizon favors an FMV lease.
- Will next year's model make it obsolete? Diagnostic tools and technology date quickly; lifts and tables do not.
- Who maintains it? Some leases bundle service; most loans do not.
- What does the total cost look like? Add up every payment, the down payment and any buyout, and compare.
Example: an auto repair shop
Daviess County, KY had 48 auto repair and maintenance employer establishments in 2023 (County Business Patterns), most of them small. A shop like that typically buys its lifts, which last for many years, and might lease its scan tools and ADAS calibration equipment, which need updating as vehicles change. The auto repair page covers the rest of a shop's funding needs.
Hypothetical, for arithmetic only: if an illustrative scan tool will be replaced in three years, an FMV lease over three years avoids owning a dated tool at the end; if a lift will serve fifteen years, financing it to own makes the later years payment-free. None of this is an offer.
Example: a gas station
The county had 59 gasoline stations with employees in 2023 (CBP). Stations face the same split. Dispensers and canopy lighting last long enough to buy; payment terminals and point-of-sale systems date quickly and often suit a lease. Coolers sit in between, depending on how long the owner expects to keep the store layout.
Vehicles: van, pickup or truck
Work vehicles are usually financed to own, especially when they carry upfits like shelving or racks. The commercial vehicle financing calculator estimates a monthly payment, total interest and total cost with the down payment. For leasing a vehicle, compare total lease payments plus any buyout by hand.
Cash down: what it moves and what it does not
A down payment lowers the amount financed, the monthly payment and the total interest on a loan. On a lease, a security deposit or advance payment plays a similar role. Owners who can put cash down without straining operations reduce the total cost; owners who need that cash for payroll or stock may be better off keeping it and accepting a higher payment. The calculator shows how much a different down payment moves the numbers.
Questions to ask a partner before choosing
- What is the total of all payments, including any buyout?
- What are the return conditions on an FMV lease?
- Can the equipment be upgraded mid-term?
- Is a down payment or security deposit required?
- Does the agreement place a lien on other assets?
The equipment financing page covers used equipment and what partners review. The Owensboro, KY page has the county figures, and the blog has more articles.
By Ridgepoint Credit · Updated
