Charlesworth Tree Care and Fencing pled guilty to the charges brought by the Health and Safety Executive (HSE) following the incident in June 2010.
Lancaster Magistrates' Court heard that the unnamed 72-year-old man from Lancaster had been feeding wood into a diesel-powered logger when the accident occurred, severing all but the skin on his palm.
Surgeons managed to sew his hand back together in a six-hour operation, but he lost part of his little finger amputated and has very limited movement in his hand.
The HSE investigation found the level of guarding on the logger fell well below the minimum legal standards, which would have prevented the user reaching under the blade.
Speaking after the hearing, HSE inspector Michael Mullen said: "This case should act as a warning to firms to make sure all their equipment meets minimum safety requirements, no matter how frequently or infrequently it is used."