A machine shop owner in Cambridge, Ontario found a used CNC mill priced at $180,000 and had nine days to close before another buyer took it. His bank wanted two years of financial statements and a full credit review. Six weeks, they told him. He lost the machine.
Equipment financing is a loan or lease used to buy business equipment, where the equipment itself is the security for the debt. That structure is why approvals move faster than a general business loan and why the credit bar sits lower: the lender already holds an asset it can sell. In Canada the choice usually comes down to an equipment loan, which makes you the owner from day one, or an equipment lease, which keeps ownership with the lender until you buy the asset out.
Which one costs less has almost nothing to do with the advertised rate. It depends on how long you plan to keep the equipment and what the buy-out looks like at the end. Here is how both structures work, what Canadian lenders actually check, and where these files stall. If you are still sizing the purchase, start with how much your business can borrow.
How equipment financing works in Canada
Every equipment deal starts with one question: can the lender sell this thing if you stop paying? A serialized, resaleable asset like a skid steer, a refrigerated van, a commercial oven or a dental chair is easy to value and easy to move. Custom-built machinery with three possible buyers in the country is not. That difference shapes your rate, your down payment and your term more than your credit score does.
The lender registers a security interest against the asset, under the Personal Property Security Act in most provinces and the Register of Personal and Movable Real Rights in Quebec, then pays your vendor directly. You take delivery and start a payment schedule. Terms usually run 24 to 84 months, matched against the working life of the asset, because no lender wants a six-year term on a machine with three years left in it.
What you can finance
Most Canadian equipment lenders will fund:
- New and used equipment purchased from a dealer
- Private-sale equipment, with an appraisal and a lien search
- Soft costs such as freight, installation and operator training, usually capped as a share of the invoice
- Equipment you already own outright, through a sale-leaseback that turns the asset back into working capital
Where the money comes from
Banks, credit unions, the BDC, manufacturer finance arms and independent lenders all write equipment paper. The federal Canada Small Business Financing Program guarantees part of a loan your bank makes to you, with up to $500,000 of that financing available for equipment and leasehold improvements, for businesses with gross annual revenue of $10 million or less.
One thing borrowers misread constantly: that program is delivered by the bank, not by the government. The guarantee changes how much risk the lender carries. It does not change whether the lender says yes. If the bank declines your file, the guarantee never enters the conversation, which is where alternative business financing picks up.
Equipment loan vs equipment lease: what each one really costs
Both structures get the machine on your floor this month. They part ways on ownership, tax treatment and what happens at the end of the term.
| Feature | Equipment loan | Equipment lease |
|---|---|---|
| Ownership | Yours from day one, lender registers a lien | Lender owns it until you buy it out |
| Upfront cash | Often 10% to 20% down | First and last payment, sometimes nothing down |
| Monthly payment | Higher for the same asset | Lower for the same asset |
| Tax treatment | Claim capital cost allowance plus loan interest | Payments usually deducted as an operating expense |
| End of term | You own it, free and clear | $1 buy-out, fair market value buy-out, or return it |
| Best fit | Assets you will still run after the term ends | Assets that date fast, or short contracts |
The tax side, in plain terms
Buy the equipment and the Canada Revenue Agency will not let you deduct the full price in the year you write the cheque. You claim capital cost allowance against a class instead. Most general business equipment sits in Class 8 at 20% on a declining balance, computer hardware sits in Class 50 at 55%, and the half-year rule cuts your first-year claim roughly in half. Loan interest is deductible on top of that.
A lease is tidier at tax time because the payment is normally an operating expense. The catch is that the CRA can treat a lease that is really a purchase in disguise as exactly that. Talk to your accountant before the structure is signed, not after.
One more line item people forget: GST or HST on the purchase. Most lenders finance the pre-tax price and leave the sales tax for you to cover at delivery, though some will roll it in. If your business is registered, you claim the input tax credit either way, all at once on a purchase and as the payments land on a lease. On a $180,000 machine in Ontario, that timing difference is real money in the first quarter.
The buy-out is where lease costs hide
A $1 buy-out lease is a purchase wearing a different name, and it gets priced like one. A fair market value lease looks cheaper every single month, then asks for something like 10% to 15% of the original price at the end if you want to keep the machine. Add that number to the monthly total before you compare anything.
Honestly, if you plan to run the equipment past the end of the term, a fair market value lease is usually the more expensive road, and the low monthly payment is precisely what hides it.
Watch how the cost gets quoted, too. A lease rate factor, a monthly factor and an annual interest rate are three different animals, and only one of them compares cleanly against a bank quote. Variable-rate equipment loans also move with your lender's prime rate, which tracks the Bank of Canada policy rate. The same quoting trap shows up in revenue-based financing, which we broke apart in factor rate versus APR.
Compare total cost to own, not the payment.
The 5-point file lenders check before approving
Equipment underwriting is narrower than general business lending, which is good news if your credit is bruised. Call it the 5-Point Equipment File. Almost every Canadian lender is reading the same five things.
1. The asset
Make, model, year, serial number, hours or mileage, and whether a resale market for it exists in Canada. Age caps are real. Many lenders stop somewhere between ten and fifteen years depending on the asset type, and anything past that gets a shorter term or a decline.
2. The vendor quote
A proper invoice or quote in your exact legal business name, with the price broken out from taxes and soft costs. A quote made out to you personally when the borrower is a corporation stops the file cold, and it happens more often than you would think.
3. Time in business and deposits
Most equipment lenders want six to twelve months of operating history and three to six months of business bank statements. They are reading for consistent deposits, not a spotless balance. What they scan for line by line is covered in what Canadian lenders look for in your bank statements.
4. Credit, read in context
Banks treat the score as a gate. Alternative lenders treat it as one input among five. A 590 attached to two years of steady deposits and a resaleable asset is a completely different file from a 590 with four NSF charges last month. The second one is the actual problem, and it has nothing to do with the number.
5. Existing registrations
Before funding, the lender runs a PPSA search, or the Quebec equivalent, to see what is already registered against your business and against the asset itself. An old lien that a previous lender never discharged is one of the most common reasons a clean file sits for a week. Discharges are the borrower's job to chase, not the new lender's. If you have financed equipment before, pull your own search early.
Trades and construction files run through this checklist constantly, and we covered that version in contractor business loans in Canada. None of it requires a perfect file. It requires a complete one.
How to apply, and what slows the file down
The application itself is short. The delays almost always come from paperwork nobody warned you about.
- Get the written quote from the vendor, in your legal business name, with serial numbers on used equipment.
- Download six months of business bank statements as PDFs from your bank, not phone screenshots.
- Confirm the year, hours and condition of any used asset in writing.
- Apply, and be specific about the term you want and why the equipment's working life supports it.
- Read the end-of-term clause and the buy-out before you sign anything.
- The lender pays the vendor directly and you take delivery. Here is how that process runs on our side.
Decisions on a complete equipment file often come back inside 24 to 48 hours, and for approved files funding can follow the same week. When a file drags instead, it is nearly always one of these:
- The quote sits in the wrong legal name
- The used asset carries an undischarged lien from a previous loan
- The requested term runs longer than the equipment will realistically last
- The seller is a private party with no invoice and no appraisal
- The request bundles the machine plus working capital with no separate reason for the cash
Solid Capital is a Canadian alternative lender built for this exact gap: business owners whose file reads far better than their credit score does. We underwrite the whole picture, bank statements, revenue history and the asset behind the deal, rather than stopping at one number, and a Canadian advisor reads every file personally. Start an application at solidcapital.ca. It takes about five minutes and there is no impact to your credit to apply.
The equipment is the collateral. That single fact changes how the whole file gets underwritten, and it is why a purchase your bank needed six weeks to think about can be answered in two days. Get the quote. Pull the statements. Then ask.
Frequently Asked Questions
Can you get equipment financing with bad credit in Canada?
Often, yes. Because the equipment itself secures the loan, many Canadian equipment lenders will look at files in the 550 to 600 credit range when the business shows consistent deposits and the asset has a resale market. Expect a larger down payment or a shorter term. Recent NSF activity or an unfiled tax balance will hurt the file more than the score does.
How much down payment do you need for equipment financing in Canada?
Anywhere from nothing to about 20%. New equipment from an established dealer, bought by a business with solid credit, can sometimes be financed at 100% plus soft costs. Used equipment, private sales, newer businesses and weaker credit usually move you to 10% to 20% down, or to a first-and-last payment structure on a lease.
Is it better to lease or buy business equipment in Canada?
Buy it if you will still be running it after the term ends and it holds its value, like a trailer, a press brake or a commercial mixer. Lease it if the technology dates quickly or the contract paying for it is short. Compare the total cost to own, including any end-of-term buy-out, rather than the monthly payment.
Can you finance used equipment in Canada?
Yes. Most lenders fund used equipment, including private sales, but they will want the serial number, an appraisal or comparable sale data, and a lien search confirming the seller can transfer it clean. Age caps are common, with many lenders stopping between ten and fifteen years depending on the asset type.
How long does equipment financing take to get approved?
A complete application on a standard asset is often decided within 24 to 48 hours, and in many cases funding reaches the vendor within a few business days for approved files. Private-sale purchases, specialized machinery and files missing a proper vendor invoice take longer, sometimes by a week or more.
Can a new business get equipment financing in Canada?
It is harder, but not out of reach. Businesses under six months old usually need a larger down payment, a personal guarantee or a co-signer, and lenders lean more heavily on the owner's personal credit. A vendor finance program offered through the equipment manufacturer is often the easiest first door for a brand new business.
