# Loan vs Lease vs EFA vs $1 Buyout

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Last modified: 2026-05-29T19:39:17+00:00
Type: efin_guide

## Summary

Loan vs Lease vs EFA vs $1 Buyout. Comprehensive guide covering the topic in depth, with worked examples, current data, and cross-references.

## Content

Equipment financing structures fall into four main categories: loans, operating leases (FMV), capital leases ($1 buyout), and Equipment Finance Agreements (EFAs). Each has distinct tax, accounting, and economic implications.

Side-by-side comparison


FeatureLoanFMV Lease$1 Buyout LeaseEFA

Ownership during termBorrowerLessorLessorBorrower (treated as)
End of termBorrower ownsFMV buyout / return / extend$1 buyout, automaticBorrower owns
Residual riskBorrowerLessorBorrower (token)Borrower
Section 179 eligibleYesNoYesYes
Tax deductionDepreciation + interestFull paymentsDepreciation + interestDepreciation + interest
Balance sheet (ASC 842)Asset + liabilityROU asset + lease liabilityROU asset + lease liability (finance lease)Asset + liability
Typical down payment0-20%0-10%0-15%0-15%
Approval speedModerateModerate-fastOften fastFast



Loan

Traditional equipment loan. You own the equipment from day one. Lender holds a security interest (UCC-1). You make principal + interest payments.

Pros: ownership clarity, Section 179 eligibility, interest deductibility.

Cons: depreciation risk on you, typically higher down payment.

Best for: equipment you plan to keep long-term, capital expenditures you want to fully expense via Section 179.

FMV Lease (Operating Lease)

The lessor owns the equipment. You lease it for the term and choose at end: pay FMV to take title, return, or extend.

Pros: payment deductibility, lower monthly payments, residual risk on lessor, flexibility at end of term.

Cons: no Section 179 eligibility, ownership conditional, end-of-term buyout uncertain in cost.

Best for: equipment you may not keep long-term, tax situations where current-year expense deduction matters, equipment that depreciates faster than wears (technology, vehicles).

$1 Buyout Lease (Capital Lease)

Functionally a loan disguised as a lease. The IRS treats it as a conditional sale. At end of term, you pay $1 and take title.

Pros: Section 179 eligible, often higher LTV than traditional loans, sometimes vendor-friendly approval, depreciation deductibility.

Cons: balance sheet impact under ASC 842 (now appears as asset + liability), less end-of-term flexibility than FMV.

Best for: equipment you definitely want to own, faster approval needed, vendor financing programs.

EFA (Equipment Finance Agreement)

Hybrid loan-lease document. Treated as a purchase for tax and accounting (you own from day one).

Pros: Section 179 eligible, faster approval than loans, simpler documentation than some structures.

Cons: less common; some lenders do not offer; documentation similar to lease but legal effect different.

Best for: vendor financing programs, situations where lender prefers EFA for portfolio reasons.

Decision framework

Pick a loan or capital lease or EFA when:

You want maximum Section 179 deduction
You plan to keep the equipment long-term
You want ownership clarity from day one
Equipment holds value well


Pick an FMV lease when:

You prefer expensing over depreciation
You expect to refresh equipment regularly
You want lower monthly payments
You want residual risk on the lessor


Common questions

Are loans always better tax-wise? Not necessarily. Section 179 produces large first-year deduction, but FMV lease payment deductions can match or exceed total tax benefit depending on income and bracket.

Which has lower payments? FMV lease typically has the lowest monthly payment (because principal amortization is lower). Loan and $1 buyout payments are similar.

Which is fastest to approve? EFA and $1 buyout lease structures often approve fastest in vendor finance programs. Loans take longer for full underwriting.

What about TRAC leases? TRAC is a trucking-specific lease structure with lessee residual risk. See TRAC lease explained.

Action steps


Identify your priorities: ownership, tax benefit, cash flow, flexibility
Talk to your CPA about Section 179 implications
Get quotes for multiple structures from the same lender
Calculate total cost across each structure
Choose based on best fit, not just monthly payment