Equipment vendors love to quote a monthly payment. "Only $1,275 a month" sounds manageable in a way that "$76,489 over five years" does not, even when they describe the same deal. The way you pay for equipment changes the total cost, the tax deduction, what you own at the end, and how much flexibility you keep. It deserves the same scrutiny as the equipment itself.
This guide explains the four common structures, shows the math on a hypothetical purchase, and lists the contract terms that turn a reasonable deal into an expensive one.
Key takeaways
- A $1 buyout lease is financing in all but name. You own the equipment at the end, and for tax purposes it is generally treated as a purchase.
- A fair market value (FMV) lease is a rental. Payments are lower, but you do not own the equipment unless you pay a buyout at the end, and that buyout is often negotiated rather than fixed.
- Convert every quote to an interest rate and a total dollar cost. A "rate factor" is not an interest rate.
- Paying cash is cheapest on paper but drains working capital, which is the thing new practices run out of first.
- Read the contract for evergreen renewals, return conditions, prepayment terms, and clauses that keep payments due even if the equipment fails.
The four ways to pay
1. Cash
You pay the full price up front. No interest, no lender, no lien. You own the equipment immediately and can depreciate it (including first-year expensing where it qualifies; see our Section 179 guide). The cost is the cash itself: it is no longer available for payroll, marketing, a slow collections month, or the next opportunity.
2. Equipment loan
A bank, credit union, or practice lender lends you the purchase price, usually secured by the equipment and often by a personal guarantee. You own the equipment from day one and repay principal and interest over a set term. Loans for a startup are often bundled into a larger practice loan; see practice startup financing.
3. $1 buyout lease (also called a capital lease or conditional sale)
You make fixed payments for the term, then buy the equipment for a nominal amount, typically $1. Economically, this is a loan with different paperwork. For federal tax purposes, a lease where you will clearly own the equipment at the end for a nominal price is generally treated as a purchase, so you depreciate the equipment rather than deducting payments as rent.
4. Fair market value (FMV) lease
You pay to use the equipment for the term. At the end you can return it, renew, or buy it at its fair market value at that time. Because the lessor expects to recover part of its money from the equipment's residual value, payments are lower than on a $1 buyout. If the lease qualifies as a true lease for tax purposes, you generally deduct the payments as a business expense and the lessor takes the depreciation.
A variation, the 10 percent purchase option lease, fixes the end-of-term buyout at a stated percentage of the original cost. It sits between the two.
| Feature | Cash | Equipment loan | $1 buyout lease | FMV lease |
|---|---|---|---|---|
| Own it at the end? | Yes, from day one | Yes, from day one (lender holds a lien) | Yes, after $1 | Only if you pay the FMV buyout |
| Monthly payment | None | Moderate | Moderate to higher | Lowest |
| Total cost | Lowest | Price plus interest | Price plus implied interest and fees | Payments plus buyout, if you buy |
| Typical federal tax treatment | Depreciate; first-year expensing may apply | Depreciate; first-year expensing may apply | Generally treated as a purchase | Generally deduct payments as rent |
| Used equipment | Any source | Depends on lender; some limit age or private-party sales | Depends on lessor | Less common for used |
| Best fit | Strong cash position, small purchases | Long-lived equipment you will keep | Buyers who want ownership and vendor convenience | Technology you expect to replace |
Worked example: one $60,000 purchase, four ways
The following numbers are hypothetical, chosen to illustrate the mechanics. Real rates depend on your credit, the lender, the equipment, and the market. The payments are calculated with standard loan math, payments monthly in arrears over 60 months, with no fees, deposits, or taxes included.
Example: a practice is buying $60,000 of equipment. It has four offers:
- Cash from reserves that would otherwise earn a hypothetical 4 percent a year.
- Bank equipment loan at a hypothetical 8 percent APR for 60 months.
- $1 buyout lease from the vendor's finance partner, quoted at a monthly payment that works out to about 10 percent.
- FMV lease priced at the same 10 percent implied rate, with the lessor assuming the equipment will be worth $9,000 at the end. At the end, the practice buys it for a hypothetical $9,000 FMV.
| Cash | Loan at 8% | $1 buyout at ~10% | FMV lease at ~10% | |
|---|---|---|---|---|
| Up front | $60,000 | $0 | $0 | $0 |
| Monthly payment | None | $1,216.58 | $1,274.82 | $1,158.60 |
| Total of payments | None | $72,995 | $76,489 | $69,516 |
| End-of-term buyout | None | None | $1 | $9,000 if you buy |
| Total if you end up owning it | $60,000 (plus about $13,000 of forgone interest at 4%) | $72,995 | $76,490 | $78,516 |
| Total if you return it | n/a | n/a | n/a | $69,516, and you own nothing |
What the example shows:
- The FMV lease has the lowest payment and the highest total cost if you keep the equipment. Low payments are not the same as a cheap deal.
- A two-point rate difference between the bank loan and the $1 buyout costs about $3,500 over five years on $60,000. That is real money for the convenience of vendor financing.
- Cash looks cheapest, but the forgone earnings on the cash (about $13,000 over five years at the hypothetical 4 percent, compounded) are in the same range as the loan interest. The true tradeoff is liquidity, not just interest.
How to decode a lease quote
Rate factors
Lessors often quote a rate factor instead of an interest rate. Multiply the equipment cost by the rate factor to get the monthly payment. In the example above, $1,274.82 divided by $60,000 is a rate factor of about 0.0212 on a 60-month term, which works out to roughly 10 percent. A rate factor looks small and harmless. Always convert it to an interest rate using a loan calculator (payment, term, and amount financed are all you need) so you can compare it to a loan.
What else to ask for in writing
- The amount financed, including any fees rolled in (documentation fees, installation, freight, software).
- The number of payments and whether any are due up front (first and last payment in advance changes the effective rate).
- Whether there is interim rent between delivery and the first scheduled payment.
- For FMV leases: how FMV is determined at the end, who decides, and whether there is a cap.
- What happens at the end if you do nothing.
Contract terms that turn a fair deal into a bad one
- Automatic renewal (evergreen) clauses. Some FMV leases renew month to month or for a longer term unless you give written notice within a narrow window before the end. Miss it and you keep paying.
- Return conditions. FMV leases often require you to return the equipment in specified condition, de-installed, crated, and shipped at your expense to a location the lessor picks. For a chair or pan, that can be a significant bill. See our shipping guide for why.
- Payments due regardless of performance. Many equipment finance agreements say payments continue even if the equipment breaks or the vendor goes out of business. Your warranty claim is against the vendor, not the lender.
- Prepayment terms. Some leases require all remaining payments if you pay off early, which eliminates the savings from paying ahead.
- Personal guarantees and blanket liens. A lender may take a lien on all business assets, not just the equipment, which can complicate a later practice loan or sale.
- Insurance requirements. You are usually required to insure the equipment and name the lessor as loss payee.
Tax treatment in plain English
Tax treatment follows substance, not the name on the contract. As a general rule:
- Cash, loans, and $1 buyout leases are treated as purchases. You depreciate the equipment, and under 2026 federal rules, qualifying new or used equipment can often be fully deducted in the year it is placed in service through bonus depreciation or Section 179, even though you are paying for it over time.
- True FMV leases are treated as rentals. You deduct payments as you make them. The lessor claims the depreciation.
With 100 percent bonus depreciation back for property acquired after January 19, 2025, the old argument that leasing is better for taxes is weaker than it used to be. Buying (with cash or financing) often produces a larger deduction sooner. Whether that is better depends on your income this year versus later years and your state's rules. Confirm with a CPA who works with dental practices before choosing a structure for tax reasons.
Used equipment: financing realities
Financing used equipment is common, but it has wrinkles:
- Some lenders limit the age of equipment they will finance or require an invoice from a business seller rather than a private individual.
- Vendor financing programs are often tied to new equipment from that vendor.
- Private-party purchases (a closing practice, a marketplace listing) may need to be paid in cash or financed through a general-purpose business loan or line of credit.
- Lenders may want a description with make, model, and serial numbers and may want to see the equipment's condition.
Because used equipment costs less, the amount financed is smaller, and many owners use cash or a line of credit for used purchases while financing new technology. Our new vs. used guide covers where each makes sense.
Decision rules
| Situation | Usually points toward |
|---|---|
| Long-lived equipment you will keep 10+ years (chairs, delivery, cabinetry, compressor) | Cash or a loan; own it |
| Technology you expect to replace in 3 to 5 years (scanner, some imaging) | FMV lease worth pricing, if return terms are reasonable |
| Startup with thin reserves | Finance and preserve working capital |
| Established practice with strong reserves and a small purchase | Cash, especially with a discount |
| Vendor offers promotional financing (for example, deferred payments) | Compare against the cash price with discount, not the list price |
| Planning to sell the practice within the term | Avoid long leases that cannot be assigned |
Before you sign any equipment financing
- Total of all payments plus buyout written down next to the cash price
- Rate factor converted to an interest rate
- All fees and up-front payments listed
- End-of-term options, notice windows, and renewal terms understood
- Return conditions and who pays de-installation and freight
- Prepayment and early payoff terms
- Assignment rights if you sell or relocate the practice
- Personal guarantee and lien scope reviewed
- CPA consulted on tax treatment
- Attorney review for large or unusual agreements
Wrap-up
Pick the structure that fits how long you will keep the equipment and how much cash you need to keep on hand, then negotiate the price and the financing separately. Run every offer through the same table: up front, monthly, total, and what you own at the end. For the tax side, see Section 179 and bonus depreciation. For the full cost of what you are financing, see what it costs to equip an operatory and the hidden costs of used equipment. Our practice loan calculator helps with the loan math.
Educational content only. It is not legal, financial, tax, or clinical advice. Prices and ranges are approximate and vary by region, condition, and year. Verify current rules with your state dental board and qualified professionals. ChairsideSource is not affiliated with any manufacturer, the ADA, or the DAT.