Three structures, three different risk transfers
| Dimension | Outright purchase | Finance lease | Operating lease |
|---|---|---|---|
| Upfront cash | 100% (or equity share) | 5–20% deposit | 1–3 months rental |
| Ownership at end | Immediate | Transfers for nominal sum | Returns to lessor |
| Residual risk | Buyer | Buyer | Lessor |
| Balance sheet | Asset and any debt | Asset and lease liability | Right-of-use asset (IFRS 16) |
| Typical tenor | n/a | 3–7 years | 2–5 years |
| Obsolescence exposure | High | High | Low |
| Effective cost | Lowest if cash available | Moderate | Highest per year, lowest commitment |
Worked example: $1.2M packaging line
Assume a $1.2M line, 7-year useful life, and a business generating $480K of incremental annual contribution. Purchase with cash consumes the full amount immediately and returns roughly 40% IRR over seven years. A five-year finance lease at 8% with 10% deposit costs about $22K per month, leaving positive monthly cash flow from month one and preserving $1.08M of liquidity for working capital and marketing — usually the deciding factor for a growing operator.
The real question is not cost of capital
It is what else the cash could earn. If retained liquidity funds inventory that turns six times a year at 20% margin, leasing at 8% is straightforwardly accretive even though it looks more expensive on paper.
Decision checklist
Lease when most of these are true
- Technology cycle is shorter than the asset's mechanical life
- Cash is more valuable deployed in working capital or market entry
- The contract underpinning the volume is shorter than the asset life
- Tax position benefits from expensing rentals rather than capital allowances
- The asset has a strong secondary market, which lowers the lease rate
- Balance sheet covenants restrict additional term debt
Buy when most of these are true
- Utilisation is high and stable over ten years or more
- The machine is custom-engineered with weak resale value
- Concessional or ECA-backed long-term debt is available
- Ownership is required for grant, incentive or collateral purposes
- Internal maintenance capability is strong
Questions & answers
Frequently asked questions
Is leasing more expensive than buying?
Per unit of financing, yes — lease rates typically sit above secured bank debt. In total business terms it is often cheaper, because it preserves liquidity that earns a higher return elsewhere and removes residual value risk.
Can custom-built machinery be leased?
Sometimes, but lessors price residual risk heavily on assets with no secondary market. Expect higher deposits, shorter tenors and often a full-payout finance lease rather than an operating lease.
How does IFRS 16 affect the balance sheet decision?
Under IFRS 16 most leases appear on the balance sheet as a right-of-use asset and a liability, so off-balance-sheet treatment is no longer the driver it once was. Cash flow, residual risk and flexibility now dominate the decision.
Can you compare lease and purchase quotes for the same machine?
Yes. We routinely run both structures side by side on the same equipment scope so the cash-flow difference is explicit before a supplier is selected.
Industrial financing
Financing routes for financing & investment
Financing is scoped alongside the RFQ, not after supplier selection — the funding route changes the optimal supplier, currency, incoterms and delivery schedule. Global B2B Group never lends, never takes a success fee from buyers and is not tied to any institution. Below are 7 routes buyers commonly compare; amounts, tenors and eligibility are set by each institution.
Export Credit Agencies
State-backed cover (Euler Hermes, SACE, EKF, UKEF, Atradius, K-Sure) on equipment exported from the supplier's country, usually combined with a commercial bank loan.
Best for: Imported production lines and turnkey plants from EU, UK, Korea or Japan
- Eligible country content
- Equity contribution
- Bankable feasibility study
Development Banks & DFIs
IFC, EBRD, AfDB, ADB, IDB, FMO, Proparco and bilateral development windows funding industrial capex with concessional pricing and long grace periods.
Best for: Food security, cold chain, energy efficiency and job-creating projects in emerging markets
- ESG / E&S compliance
- Audited financials
- Development impact case
Commercial Lending
Bank term debt and capex facilities secured against project cash flow, equipment and corporate balance sheet, in local or hard currency.
Best for: Established operators expanding proven capacity
- Debt-service capacity
- Security package
- Sponsor equity
Equipment Leasing
Operating and finance leases that keep machinery off the balance sheet, preserve working capital and align payments with production ramp-up.
Best for: Single machines, packaging lines, handling fleets and phased upgrades
- Asset resale value
- Insurance
- Upfront deposit
Vendor Financing
Supplier-supported deferred payment and instalment structures negotiated inside the RFQ, before supplier selection narrows your leverage.
Best for: Buyers who want a single contractual counterparty for supply and payment terms
- Supplier credit appetite
- Bank guarantee or LC
- Milestone schedule
Project Finance
Limited-recourse SPV structures where the facility's own cash flow repays the debt, with independent technical and market due diligence.
Best for: Greenfield plants, integrated processing complexes and utility-scale infrastructure
- Offtake agreements
- EPC contract
- Independent engineer report
Government Programmes
Industrial localisation incentives, capex grants, interest subsidies, free-zone benefits and agri-processing schemes that reduce effective project cost.
Best for: Projects in priority sectors, special economic zones or import-substitution plans
- Local registration
- Job creation targets
- Application windows
How financing is structured
1. Scope & budget
Technical scope and realistic capex band are fixed first — lenders price the project, not the wish list.
2. Route selection
We map which of these routes may fit your country, sector, project size and sponsor profile.
3. Bankable package
Feasibility, offtake, DSCR model and equipment quotations assembled into a lender-ready file.
4. Introductions
Independent introductions to ECAs, DFIs, banks, lessors and equity partners — no exclusivity, no success fee to buyers.
Get a funding route assessment
Human-led, with no paid placement and 100% free for buyers. We return the routes that realistically fit your project, with the requirements and documentation checklists each institution publishes.
Next steps
Put this into practice
Request machinery quotes
No paid placement · Human-led · No cost to buyers
Related
Continue reading
Continue with our commercial resources
Hand-picked next steps for this topic — special purpose machinery and industrial project financing.
Internal links