As your small business grows, you may reach a point where it makes sense to invest in equipment, such as vehicles, machinery, or technology. How you finance equipment can affect your cash flow, tax position, and how quickly that asset starts working for your business.

One of the most common questions at this stage is whether it’s smarter to lease or buy. Each option has its benefits, and the right choice often depends on your financial position, how long you’ll need the equipment, and how much flexibility you want over time.

This article explores the key differences between leasing and buying business equipment, with real-world scenarios to help you compare costs, tax treatment, and long-term value.

What kind of equipment could help your business grow?

From everyday tools to more substantial upgrades, the right equipment can help you work faster, serve more customers, or reduce your operating costs. Here are some common categories of equipment, along with real-world examples of how small businesses are using them to unlock growth.

  • Retail and ecommerce: POS systems, barcode scanners, display shelving, delivery vans. For example, a specialty food retailer upgraded to a mobile-enabled POS system that syncs with their ecommerce store. This reduced double-handling, enabled click-and-collect, and cut fulfilment time during peak seasons.
  • Hospitality and food service: Commercial ovens, fridges, espresso machines, dishwashers. A café in Wellington installed a high-speed dishwasher and a prep fridge with separate temperature zones. The result was faster table turnover and longer shelf life on fresh ingredients, lowering both wait times and food waste.
  • Trades and construction: Utes, trailers, excavators, scaffolding, power tools. Southbrook Hire used Prospa funding to rebuild a cherry picker and expand its fleet, which helped reduce downtime between jobs and attracted larger commercial clients who needed reliable turnaround times.
  • Professional services: Computers, printers, phone systems, video conferencing equipment. A small legal practice invested in dual-screen workstations and cloud-based VOIP phones. This enabled the team to review documents faster and respond more quickly to clients, even while working across multiple offices.
  • Automotive and mechanical services: Vehicle hoists, diagnostics tools, air compressors. Euro Garage Automotive used a Prospa Business Loan to upgrade its diagnostics tools and install a third hoist. These changes reduced job turnaround times, increased daily customer capacity, and supported their plan to expand into an adjacent space.
  • Creative industries: Cameras, drones, editing suites, lighting gear. A content production business purchased a drone and on-site editing setup to offer same-day turnaround for real estate and tourism clients. This opened up a premium service tier that quickly paid off the investment.

Should you lease or buy equipment for your small business?

When deciding how to finance equipment, many business owners look at leasing or buying as the two primary options. The right option depends on a few key factors: your cash flow, business goals, how long you expect to use the equipment, and the level of flexibility you need.

Equipment leasing gives you access to equipment without the upfront cost of ownership. You make regular payments over a fixed term, and at the end of the lease, you may have the option to upgrade, renew, or return the equipment. Leasing can be useful if you’re managing cash carefully or expect your needs to change over time.

Buying, whether outright or through an equipment loan, gives you full ownership. It typically involves a higher upfront cost, but it can offer better long-term value, especially if the equipment has a long lifespan and low ongoing maintenance needs.

Pros and cons of leasing vs buying business equipment

Choosing between leasing and buying depends on how the equipment fits into your business operations. Key considerations include cash flow, tax treatment, maintenance, and how often you expect to upgrade or replace the asset.

Leasing offers several advantages for new businesses, including predictable payments, lower upfront costs, and the option to upgrade equipment as your needs evolve. Many lease agreements also include servicing, which can reduce the risk of unexpected maintenance expenses early on.

Buying gives you full ownership and often more flexibility at tax time. Purchased equipment may be eligible for depreciation and interest deductions across several years. Leased equipment may still allow for deductions on payments or related costs, but the tax benefits of leasing vs buying for businesses often depend on how the lease is structured and how long you plan to use the asset.

Leasing vs Buying: key differences

Leasing Buying
Lower upfront cost Higher upfront cost or loan repayments
Predictable payments over a set term Full ownership from day one
Easier to upgrade or switch equipment Better long-term value for high-use assets
May include maintenance or servicing Responsibility for all maintenance and repairs
No asset ownership at end of lease (unless a buyout is included) Equipment becomes a business asset on your books
May offer limited tax deductions Eligible for depreciation and interest deductions
Useful for short-term or fast-changing equipment needs Ideal for essential, long-term equipment investments

 

Some businesses prefer leasing to preserve working capital and maintain flexibility. Others value ownership, especially when the equipment is core to operations and expected to last for years. For larger investments and high-value assets, business equipment loans can also be a viable option.

Businesses like Corcoran Smith Financial have used a Prospa Business Line of Credit to manage cash flow while investing in growth and expanding their operations in Southland.

The right choice depends on how the costs, risks, and returns align with your broader business goals.

Which is more cost-effective over time?

If you’re purely comparing dollars spent, buying usually works out cheaper in the long run, provided the equipment has a long usable life and doesn’t need frequent upgrades or repairs. Leasing can cost more over time, but offers flexibility, lower upfront impact, and reduced maintenance responsibilities.

Tax treatment also plays a role. Bought equipment may be eligible for depreciation and interest deductions over several years, which can reduce the effective cost. Lease payments may also be deductible, but the total benefit depends on how the lease is structured.

For example, a construction business investing in a durable excavator may see better long-term value by purchasing it outright. On the other hand, a creative studio working with fast-changing video tech may be better off leasing and upgrading regularly.

As you weigh up funding options, make sure to avoid these common cash flow mistakes.

Last step: funding your equipment upgrade

You’ve taken the first step in your 2025 growth strategy: deciding to upgrade your equipment. You’ve followed it by comparing the total costs of leasing versus buying. Now it’s time to take the final step: figuring out the best way to fund your lease or purchase. Prospa’s Business Loan Calculator lets you plug in your own numbers to estimate repayments and see which option might work best for your business.

Start using the calculator.