Equipment lease rate factors, explained with real math
Financing a truck, an oven, or a machine, you'll hear a number like "0.032." It's called a lease rate factor, and like the MCA world's factor rates, it's a real number engineered to sound like nothing. Here's what it actually means.
The one-line formula
A $60,000 truck at a 0.032 factor: $60,000 × 0.032 = $1,920 every month.
Sounds manageable. Now finish the math nobody does out loud: over a 48-month term, $1,920 × 48 = $92,160 total — you're paying $32,160 in financing cost on a $60,000 machine. That's roughly 13% per year simple, and the true effective rate is higher, because you don't keep the full $60,000 of value the whole time.
Run your own numbers
Lease rate factor calculator
The end-of-lease trap: $1 buyout vs. FMV
$1 buyout lease: at the end, the equipment is yours for a dollar. It's effectively a loan wearing a lease costume — higher monthly payment, clean ending.
FMV (fair market value) lease: lower monthly payments — but at the end you must buy the equipment again at market value, return it, or keep paying. The cheaper-looking option frequently costs more in total, and the difference hides in the fine print.
Equipment financing vs. taking an MCA for equipment
If the money is for equipment, equipment financing almost always beats a cash advance — the machine itself secures the deal, so lenders charge 7–20% annually instead of an MCA's 60–150%+. The MCA's only edge is speed and looser approval. If a funder is pushing an advance for an equipment purchase without mentioning equipment financing exists, that tells you whose interest they're serving. Compare against SBA and other options here.
Common questions
Is a lease rate factor the same as an interest rate?
No — it's a payment multiplier. To compare with a loan rate, compute the total financing cost and annualize it (the calculator above does this). Factors are quoted because they sound smaller than the equivalent rate.
What's a good lease rate factor?
It depends on term, credit, and the buyout structure — the same 0.032 can be fair on a $1-buyout and expensive on an FMV lease. Always evaluate the total paid plus the end-of-term cost, never the factor alone.
Can I deduct lease payments?
Often, and Section 179 may let you deduct purchased equipment quickly too — the tax treatment differs between true leases and $1-buyouts. Ask your accountant which structure wins for your situation; the answer changes the real cost.