Equipment leasing and sale-leaseback
Paying to use equipment that a lessor owns, with options to buy it at the end, or selling equipment you already own to a lessor and leasing it back to raise cash. Little or no deposit, but you may pay more in total and own nothing at the end.
- Secured on assets
How it works
In a lease, the lessor buys the equipment and you pay to use it for a set term. The Office of the Comptroller of the Currency (OCC) says leasing lets you get up to 100% financing for the right to use an asset, which conserves your capital. What happens at the end depends on the kind of lease:
- Dollar-out ($1 buy-out) lease: you can buy the equipment for a nominal sum, such as $1, at the end. The OCC treats it as the functional equivalent of a loan.
- Fair market value (operating or "true") lease: the lessor keeps ownership and the equipment's value at the end of the term, and you hand it back, renew, or buy it at its value then. The lessor gets the tax benefits of owning it and can share them through lower payments. The OCC notes these have become less common at banks.
- TRAC lease (terminal rental adjustment clause), mostly for trucks, tractors and trailers: the lease states the equipment's value at the end. You choose a higher end value for lower monthly payments, or the other way round. At the end you pay that value; if the equipment sells for less, you pay the difference, and if it sells for more, you get the excess.
Sale-leaseback: you sell equipment (or property) you own to a lessor and immediately lease it back, so you raise cash and keep using it. Nothing moves. Under the accounting rules (ASC 842), if control does not really pass to the buyer, the deal is treated as a loan secured on the asset rather than a sale.
Tax and accounts: if you lease, you generally cannot depreciate the equipment, because you do not own it; you deduct the lease payments instead. Under the same rules, leases still show on your balance sheet as liabilities, which can change the financial ratios lenders look at. An equipment finance agreement, where you own the equipment from the start, is covered under equipment loans and finance agreements. Ask your tax preparer which works better for you.
Read the agreement for: the total of all payments, the end-of-term options and their price, who insures and maintains the equipment, and whether you can end the lease early and at what cost.
Upsides and downsides
Upsides
- Up to 100% of the equipment's cost, so little cash up front
- A fair market value lease lets you hand back equipment that goes out of date
- A sale-leaseback raises cash from equipment you already own without losing its use
Downsides
- You may pay more in total than buying, and own nothing at the end of a fair market value lease
- You cannot depreciate leased equipment yourself
- Ending a lease early can be costly, so read the terms first
Risks
- The lessor can take the equipment back if you miss payments
- In a TRAC lease, you pay the difference if the equipment is worth less than the stated end value
- A sale-leaseback that is really a loan can be treated as one in your accounts and by other lenders
What it costs
- How it is priced
- Lease payments set by the lessor from the equipment's price, the term, your credit and the value it expects at the end
- Costs that are easy to miss
- The buy-out price, or the TRAC end value, if you want to keep the equipment
- End-of-lease charges, where the agreement has them
- Insurance and maintenance you may have to pay for
Up to the full price of the equipment; for a sale-leaseback, what the lessor will pay for equipment you own.
Choosing between quotes? Equipment finance agreement or lease: compare financing and leasing the same equipment
Does it fit?
Could fit when
- You need vehicles, machinery or technology and want to keep your cash
- You own equipment and want to raise cash from it while still using it (a sale-leaseback)
Unlikely to fit when
- You neither need equipment nor own any to sell and lease back
- The business has no sales yet
Who can use it
- Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative, Nonprofit
- Needs sales (revenue)
- Equipment the lessor can identify, value and resell if it has to
- Lessors still check your credit and cash flow, and may ask for a personal guarantee
Am I ready?
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- Equipment quote
- Financial records
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Regulation and protections
Regulators: Office of the Comptroller of the Currency (OCC); Federal Deposit Insurance Corporation (FDIC); Federal Trade Commission (FTC); State lending and financial regulators.
Who runs it: Private providers, nationwide.
Federal Truth in Lending rules (Regulation Z) do not cover business finance. Bank lessors are supervised by their regulators, and the FTC Act bans unfair or deceptive practices by other lessors. Most state commercial financing disclosure laws leave leases out; see below.
Rules that differ by state
- California: A lessor that is not a bank or credit union must give you a disclosure, including an APR, before you sign an offer of $500,000 or less, if the lease includes an option to buy the equipment. (California Financial Code, Division 9.5: Commercial Financing Disclosures (sections 22800 to 22807))
- New York: New York's commercial financing disclosure law covers equipment financing that is not a lease, so a true lease comes without its disclosure. (New York Financial Services Law section 801: definitions (closed-end financing includes equipment financing that is not a lease))
- Florida, Georgia, Kansas, Missouri, Utah: These states' commercial financing disclosure laws do not cover leases, so equipment leases come without a state cost disclosure. Ask for the total of all payments in writing. (Florida Statutes 559.9612: scope of the Florida Commercial Financing Disclosure Law; Utah Code 7-27-102: application of the Commercial Financing Registration and Disclosure Act; Georgia SB 90 (2023), as passed (Act 78): O.C.G.A. 10-1-393.18(b); Kansas Statutes 75-785: exceptions to the Commercial Financing Disclosure Act (2024); Revised Statutes of Missouri 427.300: Commercial Financing Disclosure Law)
Types of provider: Banks and their leasing companies; Independent leasing companies; Manufacturers', dealers' and franchisors' own leasing arms.
Also consider
What has changed
No changes since this page was published. It was last checked against its sources on October 20, 2026.
Sources
- OCC Comptroller's Handbook: Lease Financing (version 2.0, September 2023): dollar-out, operating, TRAC and sale-leaseback · checked October 20, 2026
- IRS Publication 946: How To Depreciate Property (leased property) · checked October 20, 2026
- 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit · checked October 17, 2026
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