Updated October 22, 2026
Quick answer
Both raise cash from equipment you own and let you keep using it. An equity loan keeps the machine in your name with a lien filed against it; a sale-leaseback sells it to a lessor and leases it back, so you give up ownership (often with a buyout at the end). Equity loans commonly advance 50-80% of forced liquidation value; sale-leasebacks can price closer to fair value, but the tax and ownership consequences are different.
The Side-by-Side
| Equity loan | Sale-leaseback | |
|---|---|---|
| Who owns the machine | You | The lessor, until any buyout |
| Security | UCC-1 lien on the machine | Ownership itself |
| Cash raised | A share of liquidation value | Often priced nearer fair value |
| Payments | Loan principal and interest | Lease payments |
| End of term | Lien released, you own it clear | Buy back, renew or return |
| Depreciation | Stays with you | Passes to the owner of the machine |
| On your balance sheet | Asset plus a loan | Depends on the lease terms |
Neither is cheaper in every case. The right one depends on how much cash you need, whether you want to own the machine at the end, and what the tax consequences are for your business.
When an Equity Loan Is the Better Fit
- You want to keep owning the machine and come out of the term with it free and clear.
- The machine still has depreciation left you want to keep claiming.
- You need less than the full value, so the lower advance is not a constraint.
- You have several machines and can pledge more than one, which raises the total without selling anything.
When a Sale-Leaseback Is the Better Fit
- You need the maximum cash the equipment can raise.
- The machine is largely depreciated, so there is little deduction left to give up.
- You would rather carry a lease payment than a loan, for reasons your accountant can explain for your situation.
Our sale-leaseback guide covers the structure in detail.
The Tax Questions to Ask Before You Sell
Selling a machine you have depreciated is a taxable event. If it sells for more than its depreciated tax basis, the gain attributable to depreciation you took is generally recaptured as ordinary income - which can surprise owners who took Section 179 or bonus depreciation in the year of purchase. An equity loan is not a sale, so it does not trigger that.
On the lease side, whether a sale-leaseback is treated as a true lease or as a financing for tax purposes depends on its terms, including the buyout. That changes what you can deduct. These are questions for your tax adviser before you sign, not after.
A Worked Example
Illustrative arithmetic, not a quote. A wheel loader, owned outright, fair market value $140,000, forced liquidation value $100,000:
| Equity loan | Sale-leaseback | |
|---|---|---|
| Cash raised | $65,000 (65% of FLV) | Up to roughly fair value, depending on the lessor |
| You still own it | Yes | No, until the buyout |
| Tax event at closing | No | Possible depreciation recapture |
If $65,000 covers the need, the equity loan raises it without a taxable sale. If the business needs more, the sale-leaseback can raise it, at the cost of ownership and a tax conversation.
Questions to Ask Before You Sign Either
- What value is the offer built on? Ask whether the number is a percentage of forced liquidation, orderly liquidation or fair value, and see the appraisal it came from.
- What is the total you will pay? For a loan, total payments over the term; for a lease, every lease payment plus the buyout. Compare totals, not monthly payments.
- How is the buyout set? A fixed amount, a percentage of the original price, or fair market value at the end - the last can be the most expensive if the machine holds its value.
- What happens if you sell the business or the machine early? Prepayment terms on a loan and early-termination terms on a lease differ widely.
- Who pays insurance, maintenance and taxes during a lease? In most equipment leases it is still you.
If two offers cannot be compared on those five points, ask for the missing figures in writing before you decide.
Frequently Asked Questions
Which raises more cash, an equity loan or a sale-leaseback?
A sale-leaseback often can, because it can be priced nearer the machine's fair value, while an equity loan advances a share of liquidation value. The difference narrows on older machines.
Do I keep using the equipment either way?
Yes. In both structures the machine stays on your jobsite. What changes is whether you own it during the term.
Does a sale-leaseback have tax consequences?
It can. Selling depreciated equipment may trigger depreciation recapture, and how the lease is treated depends on its terms. Speak to your tax adviser before you sign.
Can I buy the equipment back at the end of a sale-leaseback?
Usually, if the lease includes a purchase option. The buyout price and how it is set vary by lessor and should be read before signing.
Sources & Further Reading
- IRS Publication 946: How To Depreciate Property — The authority on Section 179 and depreciation for business equipment - the deduction you give up when you sell a machine.
- IRS Publication 544: Sales and Other Dispositions of Assets — How gain on selling depreciated business property is taxed, including depreciation recapture.
Figures above describe ranges commonly seen across lenders and reflect published guidance as of the date on this page. Confirm current terms with the cited source or your lender before acting.