If you run excavators, dozers, loaders, or skid steers for a living, the way you finance that equipment matters almost as much as the machine itself. Two of the most common options are an equipment finance agreement (EFA) and a traditional equipment lease. They can look similar on paper, since both come with a fixed monthly payment, but they work very differently when it comes to ownership, taxes, hour limits, and what happens at the end of the term. Here is a plain breakdown of each one, written for contractors and heavy equipment owners, so you can pick the structure that actually fits how you run your business.
TLDR
- An equipment finance agreement works like a loan. You own the machine from day one, make fixed payments, and owe nothing extra at the end.
- A traditional lease (fair market value) is closer to renting. The leasing company owns the machine, and at the end you buy it at market value, renew, or hand it back.
- EFA payments run a little higher, but you build equity in equipment that can stay productive for 10,000+ hours.
- Lease payments are usually lower, but expect hour limits, return conditions, and a buyout price you will not know until the end.
- Most contractors who plan to keep a machine for years come out ahead with an EFA or a $1 buyout lease.
- A fair market value lease makes more sense for short-term projects, fast-changing tech, or when the lowest possible payment matters most.
- First Capital offers both, with most decisions in 24 hours, programs for startups and bad credit, and financing on older, higher-hour equipment.
Call 888-565-6692 to speak with a financing specialist.
What Is an Equipment Finance Agreement?
An equipment finance agreement is a financing contract where you borrow the money to buy a machine and pay it back in fixed monthly installments over a set term. The equipment is titled in your company’s name from the start, and the lender holds a lien on it until the balance is paid. Once you make the final payment, the lien is released and the machine is yours free and clear.
On our commercial equipment leasing page, we describe it this way: you make fixed payments over a designated term and eventually own the equipment outright. It works much like a loan, but you pay a financing fee instead of interest. Payments run slightly higher than a lease, but there is no buyout cost waiting at the end.
How an EFA works for heavy equipment
- Ownership: Your business owns the excavator, dozer, or loader from day one.
- Payments: Fixed for the full term, so you always know your number.
- Terms: Typically 12 to 60 months, with some programs going out to 84 months depending on the amount financed.
- End of term: No balloon, no buyout, no return inspection. The machine is simply yours.
- Usage: No hour caps. Run it as hard as the job requires.
- Taxes: Because you own it, you can generally depreciate the equipment and may qualify for Section 179. Check with your tax professional.
What Is a Traditional Equipment Lease?
A traditional lease, often called a fair market value (FMV) lease or true lease, is basically a long-term rental. The leasing company owns the machine, and you pay to use it for a set period. At the end of the term, you usually have three choices: buy the equipment at its fair market value, renew the lease, or return it.
How a traditional lease works for heavy equipment
- Ownership: The leasing company owns the machine for the entire term.
- Payments: Usually lower than an EFA because you are only paying for the value the machine loses while you use it.
- End of term: Buy at fair market value, renew, or return. The buyout price is not set until the lease ends.
- Usage: Most FMV leases cap annual hours. Going over or returning a machine with excess wear can trigger extra charges.
- Taxes: Lease payments are often deductible as a business expense, but you do not own the asset, so you usually cannot take depreciation or Section 179 yourself.
There are also lease structures that sit between the two. A $1 buyout lease behaves a lot like an EFA, since you can purchase the equipment for $1 when the lease ends. A 10% purchase upon termination (PUT) lease lowers your monthly payment in exchange for a set 10% buyout at the end. A 10% option lease gives you the choice to buy at 10% or walk away. For semi-trucks and commercial vehicles, a TRAC lease sets a residual amount up front.
EFA vs Traditional Lease: Side-by-Side Comparison
Equipment finance agreement | Traditional (FMV) lease | |
Who owns the equipment | You, from day one | The leasing company |
Monthly payment | Slightly higher | Usually lower |
End of term | You own it, nothing more owed | Buy at fair market value, renew, or return |
Buyout cost | None | Unknown until the lease ends |
Hour limits | None | Common, with overage charges |
Wear and tear | Your call; it is your machine | Return conditions apply |
Builds equity | Yes | No |
Tax treatment | Depreciation, possible Section 179 | Payments often deductible as an expense |
Best for | Machines you plan to keep and run hard | Short-term needs or frequent upgrades |
Why Heavy Equipment Owners Often Lean Toward an EFA
Construction equipment is built to last. A well-maintained excavator, dozer, or wheel loader can keep working long after it is paid off, and quality yellow iron tends to hold its resale value. That changes the math compared to something like office tech that is outdated in three years.
- You keep the equity. Every payment builds ownership in an asset you can keep, sell, or trade.
- No hour penalties. Busy seasons do not come with overage charges.
- No surprise at the end. You will not face a fair market value buyout that is higher than you expected.
- Collateral for later. A paid-off machine can be used to raise cash down the road through loans against construction equipment.
- Tax benefits up front. Owning the equipment may let you write off much of the cost in the year it goes into service under Section 179.
When a Traditional Lease Makes More Sense
A lease is not the wrong answer; it just fits a different situation. It can be the better call when:
- You need a machine for one project or one season and do not want to own it afterward.
- The equipment has fast-changing technology, such as GPS machine control or robotic total stations, and you want to upgrade at the end of the term.
- Keeping your monthly payment as low as possible matters more than ownership.
- You would rather hand the machine back than deal with resale.
Questions to Ask Before You Sign Either One
- How long do I plan to keep this machine, and how many hours a year will it run?
- What will I owe at the end of the term, and is that number fixed or based on market value?
- Are there hour limits or return conditions, and what do overages cost?
- Is there a prepayment penalty if I pay it off early?
- How are sales tax and insurance handled?
- Will this structure let me take Section 179? Confirm with your accountant.
What Contractors Say About Equipment Financing With First Capital
First Capital Business Finance holds a 4.5-star rating across 130 Google reviews. Here is what customers have said about financing equipment with our team:
“I was needing business capital and Dustin D. worked with me on an equipment loan to make it happen! They made this process as easy as possible and worked quickly to get it done for me.”
Megan Kirkland, Google review
“Had to finance an older piece of equipment and they were able to help. I’ve been in business 3+ years and the finance rate, while not inexpensive, is reasonable.”
Rick Bly, Google review
“If you are in need of funding for your business or equipment I recommend you reach out to First Capital.”
Rich Jackson, Google review
“We were funded within a week for our new equipment. When you run your own business, you can’t afford down time.”
Luke & Sarah Wever, Wever’s Tree Service, LLC
How First Capital Helps You Choose
We are not locked into one product, so we can match the structure to the machine and your business. Through our construction equipment financing programs, we offer EFAs, $1 buyout leases, 10% PUT and 10% option leases, fair market value leases, and TRAC leases for trucks.
- Fast decisions: Most applications get a decision within 24 hours.
- Older and higher-hour equipment: We have programs without the strict age and hour limits many banks use. Learn more about used equipment financing.
- Startups welcome: We have programs for new businesses buying their first machine.
- Good or bad credit: Including applicants with a discharged bankruptcy. See our bad credit heavy equipment financing options.
- Simple paperwork: Some programs do not require tax returns, financial statements, or bank statements.
We finance just about every piece of yellow iron, including excavators, bulldozers, skid steers, backhoes, and wheel loaders.
Frequently Asked Questions
Is an equipment finance agreement the same as a lease?
No. With an EFA, you own the equipment from the start, and the lender holds a lien until it is paid off. With a traditional lease, the leasing company owns the equipment, and you pay to use it.
Which has lower monthly payments, an EFA or a lease?
A fair market value lease usually has lower payments because you are only paying for the value the machine loses during the term. An EFA runs slightly higher, but you own the equipment with nothing more to pay at the end.
Can I use Section 179 with an equipment finance agreement?
In many cases, yes, because your business owns the equipment. $1 buyout leases are often treated the same way. Fair market value leases usually are not. Always confirm with your tax professional.
What are typical terms for construction equipment financing?
Most terms run 12 to 60 months, with some programs going out to 84 months depending on the amount financed. Down payments commonly range from 10% to 20%, depending on the lender and your credit profile.
Can I finance used or high-hour construction equipment?
Yes. Some lenders will not touch older machines, but First Capital has programs for older equipment with more hours.
Can a startup get an equipment finance agreement?
Yes. Guidelines are different for startups, so talk with one of our advisors about which programs fit.
Get the Right Structure for Your Next Machine
The best choice comes down to how long you will keep the machine, how hard you will run it, and what your cash flow looks like. If you plan to put real hours on your equipment and keep it for years, an equipment finance agreement is usually the stronger long-term play. If you need flexibility or the lowest payment, a lease may fit better.
