Equipment Lease vs Loan: Which is the Better Choice for Biotechs?

The life sciences industry is both competitive and capital-intensive, which often puts early-stage biotech and biopharma companies in a challenging position when it’s time to procure new equipment. Given the limited cash flow and credit young life sciences companies typically have, buying equipment outright isn’t always practical.

However, gaining access to essential equipment is critical. The right lab equipment helps biotechs stay competitive and innovative, allowing for efficient research and development, streamlined processes, and potential entry into new markets. For example, a biotech aiming to develop a new drug or therapy may need access to specialized equipment to drive its research forward.

When it comes to acquiring new equipment, one of the most important decisions is whether to lease or take out a loan. Both options have benefits—leasing often offers low upfront costs, while loans provide ownership. However, the choice can significantly impact cash flow, taxes, and financial flexibility.

To help you make an informed decision, we’ll review the key differences between equipment leases and loans so you can choose the best option for your biotech’s unique needs.

Equipment Leases

An equipment lease is an agreement where a company rents equipment from a leasing company (lessor) over a set period of time. The lessee makes monthly payments to use the equipment, but the lessor retains ownership throughout the lease term.

Benefits of Equipment Leases

• Lower upfront costs & improved cash flow: Leasing typically requires no large down payment, helping businesses preserve capital for other essential needs. Monthly payments spread out equipment costs, making it easier to manage cash flow—especially for small businesses.
• Predictable payment terms & financial flexibility: Lease agreements feature fixed monthly payments, providing budgeting consistency. Leases can be customized to meet business needs, such as longer terms for lower monthly payments.
• Maintenance, upgrades, & tax benefits: Some leases include maintenance and repair services, reducing unexpected costs. Leasing also allows businesses to upgrade equipment regularly, which is beneficial for industries requiring cutting-edge technology. Additionally, certain lease payments may be tax-deductible, adding further financial advantages.

Leasing is especially beneficial for companies that need flexibility. It provides access to the latest technology and can often be renewed or upgraded, helping businesses avoid obsolescence while staying competitive.

Types of Equipment Leases

There are two primary types of equipment leases:

• Operating leases: Typically have lower monthly payments and are treated as operating expenses on the income statement. The lessee does not own the equipment at the end of the lease term but may have options to purchase it at fair market value.
• Capital leases: Function more like a loan, with the leased asset appearing on the balance sheet as a capital expense. These leases usually have higher monthly payments, but at the end of the lease term, the lessee can buy the equipment, making it a long-term investment.

If you're interested, you can learn more about the differences between operating and capital leases here.

Equipment Loans

An equipment loan allows a business to purchase equipment outright by borrowing funds from a lender. The company owns the equipment and repays the loan, plus interest, over a set period.

Key Benefits of Equipment Loans

• Ownership & control over equipment: Ownership provides long-term cost savings and flexibility, allowing businesses to modify or resell equipment as needed. For core assets critical to daily operations, loans ensure permanent access to essential equipment.
• Interest rates & tax deductions: Interest on equipment loans is often tax-deductible, reducing a business’s overall tax burden. Loan interest rates are generally lower than unsecured credit since the equipment serves as collateral. Additionally, stable monthly payments improve financial planning.
• Flexible loan terms: Equipment loans can be structured to match cash flow cycles and the expected lifespan of the equipment. This ensures biotech companies can budget effectively while maintaining access to necessary tools.

Equipment loans are an excellent choice for businesses that need long-term control and are looking for cost-effective financing for essential equipment.

Types of Equipment Loans

Several financing options can help businesses purchase equipment:

• Traditional term loans: Fixed-rate loans that provide a lump sum upfront, repaid through monthly payments over a set period.
• SBA loans: Government-backed loans designed to support small businesses with lower interest rates and longer repayment terms.
• Lines of credit: A flexible financing option that allows businesses to draw funds as needed for equipment purchases, with interest paid only on the amount borrowed.

Lease vs. Loan—Which is Right for Your Biotech?

Choosing between an equipment lease or loan depends on your biotech’s operational needs, budget, and long-term growth strategy. Each financing option offers distinct advantages, and the right choice will ultimately depend on factors such as cash flow, equipment lifespan, and tax considerations.

Leasing: Flexibility & Lower Upfront Costs

Leasing is ideal for biotech companies that need equipment for a defined period or expect frequent technological advancements. This financing method provides:

• Lower upfront costs: Leasing typically requires little to no down payment, preserving working capital for other business needs.
• Predictable budgeting: Fixed monthly payments help with cash flow management and expense forecasting.
• Upgrade flexibility: Leases allow businesses to upgrade, swap, or return equipment at the end of the term, ensuring they always have access to the latest technology.
• Easier approval process: Companies with weaker credit histories may find leasing more accessible, as the leasing company (lessor) retains ownership and often views the equipment itself as collateral.
• Reduced maintenance responsibility: Some leases include service and repairs, relieving businesses of unexpected maintenance costs.

Leasing is an excellent option for high-tech or rapidly advancing equipment, where long-term ownership could result in obsolescence before the full investment is recouped.

Loans: Ownership & Long-Term Value

Equipment loans are better suited for businesses planning to use equipment for the long haul, particularly for essential lab or manufacturing equipment that is critical to daily operations. Benefits include:

• Full ownership: Once the loan is paid off, the business owns the equipment outright, eliminating monthly payments and building equity.
• Tax advantages: Loan-funded equipment may qualify for depreciation deductions and interest payment write-offs, potentially reducing taxable income.
• Greater control: Ownership provides the freedom to modify or resell equipment as needed.
• Cost savings over time: While loans require larger upfront payments, they may be more cost-effective in the long run compared to continuous leasing.

For companies with stronger credit and cash reserves, a loan may be the most cost-effective route, as interest rates are often lower than lease rates over time.

Making the Best Choice for Your Business

When deciding between a lease and a loan, consider:

• Short-term vs. long-term needs: If flexibility and frequent upgrades are key, leasing is the better choice. If the equipment will be used for years to come, a loan may be more practical.
• Financial position: Leasing preserves cash flow, while a loan offers long-term savings after repayment.
• Tax strategy: Lease payments may be deductible as business expenses, while loans allow for depreciation deductions.
• Equipment importance: Essential, long-term-use equipment often makes more sense to own, while rapidly evolving technology may be better to lease.

A financial advisor or equipment financing specialist can provide tailored insights to help you determine the most strategic and cost-effective financing option for your biotech company.

How to Qualify for Equipment Financing

Before securing an equipment lease or loan, businesses must meet certain eligibility requirements. Lenders and lessors assess various financial factors to determine creditworthiness, repayment ability, and risk level. Here’s what companies need to consider before applying:

Key Factors That Influence Approval

• Credit score & financial history: Lenders and lessors typically review a business’s credit report, payment history, and outstanding debt.
  • A higher credit score may result in lower interest rates and better loan terms.
  • Some leasing companies are more lenient with lower credit scores, especially if the equipment serves as collateral.
• Business revenue & cash flow: Strong, consistent monthly revenue and cash flow demonstrate a company’s ability to make timely payments.
  • Many lenders require a minimum annual revenue threshold for approval.
• Time in business: Established businesses (2+ years in operation) generally qualify for better financing terms than startups.
  • Some lenders may require a business to have at least one year of operating history before issuing a loan.
• Equipment type & value: The type of equipment being financed impacts approval.
  • High-value, essential equipment (e.g., lab instruments, manufacturing machinery) is easier to finance since it holds strong resale value.
  • Specialized or niche equipment may require additional financial backing or a higher credit score.
• Down payment & collateral:
  • Loans often require 10-20% down payments, but leasing generally does not require upfront payments.
  • Some financing agreements use business assets or personal guarantees as additional collateral.

How to Strengthen Your Application

• Improve your credit score: Pay off outstanding debts and resolve any credit disputes before applying.
• Showcase strong financials: Provide updated financial statements, profit & loss reports, and tax returns to demonstrate financial stability.
• Choose the right financing partner: Work with a lender or leasing company that specializes in your industry and equipment type.

Qualifying for equipment financing depends on creditworthiness, financial stability, and business needs. By preparing in advance, companies can secure better terms and increase approval chances.

Choosing the Right Equipment Financing for Your Biotech

Both equipment leases and loans provide biotech companies with cost-effective ways to acquire essential lab equipment, ensuring they can focus on research, development, and scaling operations without excessive upfront costs.

For early-stage and growing biotechs, choosing the right financing option can mean the difference between accelerating innovation and facing operational setbacks. Equipment financing helps preserve capital for critical expenses, such as hiring top talent, funding clinical trials, or expanding research capabilities.

• Leasing is ideal for businesses that prioritize cash flow flexibility and need the ability to upgrade or replace equipment as technology evolves.
• Loans may be a better choice for companies looking to own their equipment long-term and take advantage of depreciation-related tax benefits.

If leasing aligns with your business needs, Excedr can provide budget-friendly, flexible leasing solutions to help you acquire the lab equipment necessary for growth. Reach out today to explore how our leasing program can support your company’s success.