An FMV lease favors use and end-of-term flexibility. A finance lease usually leads to nominal-price ownership. An EFA combines day-one ownership with fixed payments. An equipment loan is a conventional secured purchase. Choose by use, cash flow and ownership goals.
How does an FMV lease work?
The lessor owns the equipment during the term. Payments account for its expected remaining value. At the end, the business may return, renew or buy at fair market value, as the contract allows. This may suit equipment replaced frequently.
How does a finance lease or $1 buyout work?
A finance lease supports long-term use and a path to ownership. A common $1 buyout lets the business acquire the equipment for a nominal amount after the scheduled payments, subject to the contract. It may suit equipment kept well beyond the term.
How does an Equipment Finance Agreement work?
Under an EFA, the business owns the equipment from day one and makes fixed payments. The equipment secures the obligation until it is satisfied. There is no lease-end return or fair-market-value decision.
How does an equipment loan work?
An equipment loan funds a purchase through conventional term debt. The business owns the asset, while the lender generally holds a lien until payoff. A down payment may apply, and the business bears maintenance, obsolescence and resale risk.
How do the four structures compare?
Lessor owns the equipment.
Lessor is the legal owner; the structure is built toward ownership.
Business owns the equipment, subject to the financing provider’s lien.
Business owns the equipment, subject to the lender’s lien.
Return, renew or buy at fair market value, as allowed.
Buy for a nominal amount, often $1, under the contract.
Business keeps the equipment after the obligation and lien are satisfied.
Business keeps the equipment after payoff and lien release.
May be lower because expected residual value remains at the end.
Full-payout payments; often higher than a comparable FMV lease.
Fixed, full-payout contract payments.
Principal-and-interest payments; down payment, rate and term affect the amount.
Highest: return, renew or purchase, subject to the agreement.
Low: usually intended for ownership.
No lease-end decision; the business already owns the asset.
No lease-end decision; ownership continues after payoff.
Frequently replaced or fast-changing equipment.
Equipment expected to remain useful for years.
Buyers wanting ownership and fixed contract payments from day one.
Buyers preferring conventional secured term debt.
Actual payments and rights depend on the equipment, credit, term, pricing, fees and contract—not the product name alone.
How can tax treatment differ?
An FMV lease may qualify as a lease expense. A finance lease, EFA or loan may be treated more like a financed acquisition, making depreciation and interest relevant. Treatment depends on the contract, equipment, circumstances and current rules. Consult a qualified tax advisor.
Which structure may fit?
Use the table above to shortlist by ownership and flexibility. Then compare pricing, fees, guarantees, payoff and contract terms with the offer-comparison guide →