How Canadian businesses finance machinery, tools and technology, and when a general term loan is the better choice.
Equipment financing is a loan or lease used to acquire business equipment, where the equipment itself normally serves as collateral. Because the asset secures the financing, it can be easier to obtain than unsecured credit, and the repayment term is usually matched to how long the equipment will be useful. A general term loan, by contrast, can fund almost any business purpose, but without a specific asset behind it the lender may rely more on your revenue, credit, a personal guarantee or other security.
Some lenders finance the full purchase price, while others ask for a down payment. Soft costs such as delivery, installation or training may or may not be included, so ask before you sign.
Both options let you use the equipment while you pay for it, but ownership and end-of-term options differ.
Most tangible equipment with a clear value and a reasonable resale market can be financed, including:
Used equipment can often be financed too, although lenders may shorten the term or ask for an inspection or appraisal depending on the age and condition of the item.
| Factor | Equipment financing | General term loan |
|---|---|---|
| Use of funds | Only the specific equipment being purchased | Almost any business purpose |
| Collateral | The equipment itself | Business assets, a personal guarantee, or none for smaller unsecured loans |
| Where funds go | Usually paid directly to the vendor | Deposited into your business account |
| Term length | Typically tied to the useful life of the equipment | Set by the lender based on amount and risk |
| Approval focus | Your business plus the value of the equipment | Mostly your revenue, cash flow and credit |
| Flexibility | Low: tied to one asset | High: can cover equipment and other costs together |
| If you default | The lender can repossess the equipment | Depends on the security in the agreement |
A term loan can make more sense when the equipment is inexpensive, when you are buying several small items from different vendors, or when the purchase comes with other costs such as renovations, training or extra inventory. It can also suit equipment that has little resale value, since equipment lenders may be reluctant to finance items they could not easily resell.
An equipment lender reviews two things at once: your business and the asset. On the business side, expect the usual questions about time in business, revenue, existing debt and the owner's credit. On the asset side, the lender considers:
How equipment is financed can affect your taxes. Owned equipment is generally depreciated for tax purposes through the capital cost allowance system, while payments under a true lease may be treated differently. The rules depend on the asset class and the structure of the agreement, so talk to your accountant before choosing between a loan and a lease.
The lending partners we work with typically look for businesses that have been operating for at least 12 months, with around $30,000 CAD or more in monthly revenue, located outside Quebec. Most industries are eligible, but transportation and trucking businesses are not, so commercial truck and trailer financing for carriers falls outside what we can help with. Approval and terms are always set by the lender after its own review.
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Check my options →Yes, many lenders finance used equipment, particularly when it is in good condition and has a resale market. Expect the lender to ask for details such as the age, hours or mileage, and serial number, and possibly an inspection or appraisal. Older equipment may qualify for a shorter term than new equipment.
Not always. Some lenders finance the full purchase price for well-qualified businesses, while others ask for a down payment, especially for used or specialized equipment or newer businesses. A down payment lowers the amount financed and the lender's risk, which can make approval easier and reduce your total cost.
Buying, usually with a loan, suits equipment you will keep for most of its useful life. Leasing can suit technology or equipment you expect to upgrade, since you can return it at the end of the term. Tax treatment differs between the two, so compare the total cost and ask your accountant.
It can be easier than getting an unsecured loan, because the equipment secures the financing, but lenders still look at revenue and credit. Newer businesses may face a down payment requirement or shorter terms. The lending partners we work with typically look for at least 12 months of operating history.