Equipment Financing Explained for Canadian Businesses

Equipment financing explained simply: you borrow money to buy one specific piece of equipment, and that equipment secures the debt. A truck, a commercial oven, a tractor, a delivery van, a server rack. Instead of judging your business in the abstract, the lender starts with the asset — what it's worth, how quickly it loses value, and how easily it could be sold if you stopped paying.

That one feature shapes everything else: the term, the rate, the paperwork, and how much of your own money goes in. To be clear about who's talking: LoanGoose is a loan matching and comparison service, not a lender. We don't set rates, approve applications, or make credit decisions.

Why the asset leads the conversation

With unsecured borrowing, the lender's only comfort is your promise and your credit history. With equipment financing there's a second way to get paid: repossess it and resell it. That changes the questions. Is there a resale market for this model? Does it hold value, or does a new version land every couple of years and gut the used price? Can it be moved, or is it bolted to a floor? Does the serial number survive?

Answer those well and lenders get comfortable. Answer them badly — picture specialized machinery with one plausible buyer in the country — and you'll be asked for a bigger down payment, a shorter term, or a personal signature.

Your side of the file still matters: time in business, revenue trend, existing debt, and how you've handled credit. If borrowing is new to you, the Financial Consumer Agency of Canada's overview of FCAC — personal loans walks through how lenders assess a file, and much of it applies to a small corporation too.

The main ways to structure equipment financing

Five structures cover most of what you'll be offered. The difference that matters most is who owns the equipment, because that decides who absorbs the loss when it ages.

Compare any offer against at least one other source of money. Dealer financing is convenient, but convenience is a feature you pay for, and it's rarely the cheapest option in the room.

What actually drives the cost

Pricing comes from a stack of variables: the lender's own cost of funds, your credit history, the length of the term, the size of the down payment, whether the equipment is new or used, and how liquid its resale market is. Short version — the easier an asset is to sell, the less it costs to borrow against.

Lender funding costs move with things like the policy rate, which you can track at Bank of Canada — rates. That's why quotes shift between the day you ask and the day you sign.

There is a legal ceiling on cost, though. The Criminal Code sets the criminal rate of interest at 35% per year, calculated by a defined method that aggregates interest and certain charges (Criminal Code s. 347 — criminal rate of interest), and that version has been in force since 2025-01-01. That figure is a line past which a loan becomes a criminal matter, not a target anyone should aim for.

Read the disclosure for how interest is calculated, not just the headline rate. Compounding conventions differ between products — a Canadian fixed-rate mortgage is compounded semi-annually by law, and that is not the only convention in the market. Ask the lender to show the total cost of borrowing over the term, including fees and any end-of-term balloon.

Payday-style lending sits at the opposite end of the market and has nothing to do with equipment. A payday loan is generally up to $1,500 for a term of 62 days or less, and where a province licenses the model, federal regulations cap the cost of borrowing at $14 per $100 advanced; a province may set a lower cap and the lower figure applies (FCAC — payday loans). Quebec does not license payday lending at all, which effectively prohibits the model there. Reaching for that kind of money to buy equipment usually means the plan doesn't work yet.

Secured borrowing and your whole balance sheet

If you're thinking about using home equity to fund equipment, know the shape of the rules at federally regulated lenders. A home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80% (FCAC — mortgages). Separately, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44% and apply a qualifying stress-test rate above the contract rate under Guideline B-20 (OSFI Guideline B-20 — residential mortgage underwriting).

Translation: adding an equipment payment can push your ratios and complicate your next renewal. And if the equipment stops earning, the house is still the collateral. Say that trade-off out loud before you sign anything.

What you'll need to apply

Files move faster when the paperwork is complete. Most lenders will ask for:

• Legal business name, registration number and address
• Two or three years of financial statements or tax filings, if you have them
• A quote or invoice listing make, model, year and serial number
• Consent to a credit check — there are two national bureaus, Equifax Canada and TransUnion Canada, and you're entitled to a free copy of your report from each (FCAC — credit reports and scores)
• A down payment, if one is required, which depends on the asset and your file

When equipment financing is the wrong call

It's a good tool with a narrow job. It stops making sense when:

• The term runs longer than the asset's useful life, so you're paying for something already worn out
• The asset loses value faster than you pay it down
• You're using it to plug a cash flow hole rather than buy something that earns
• You have to sign personally for debt the business can't service on its own
• The monthly payment only works if your best-case revenue shows up

None of those are moral failings. They're signals to wait, buy smaller, or rent the equipment for a season and see whether demand is real. Tax treatment of the interest and the asset depends on your circumstances, so that conversation belongs with your accountant, not with this page.

If the payments stop

A secured lender can take the equipment. If the resale doesn't cover what you owe, the shortfall usually doesn't vanish — read that clause before you sign, not after.

If the business fails and the debt can't be repaid, the formal options are a consumer proposal or bankruptcy, and only a licensed insolvency trustee can administer either (Office of the Superintendent of Bankruptcy Canada). A consumer proposal stays on your credit report for three years after completion, or six years from filing, whichever comes first. A first bankruptcy stays on your credit report for six years after discharge. Neither is a good outcome. Both are survivable.

If you believe a lender treated you unfairly, complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada (FCAC — complaints), while provinces license and supervise most other lenders, and each has a consumer protection office (FCAC — provincial and territorial regulators).

Questions to ask before you sign

Six questions, every time:

1. What is the total cost of borrowing over the full term, not just the rate?
2. Who owns the equipment, and what happens on the last day of the term?
3. Is there a balloon payment, and can it be refinanced?
4. What does paying early cost me?
5. Am I signing personally, and what does that expose?
6. What insurance, maintenance or usage conditions are attached?

Equipment financing works best when the machine earns more than it costs, the term matches the asset's life, and the payment survives a slow quarter. If any of those three is shaky, the honest answer might be to wait — and a comparison service can help you see the options without pushing you toward one.

LoanGoose is a loan matching and comparison service, not a lender. The lowest rates are only available to the most qualified applicants.