How to Get Equipment Financing in Canada: A Step-by-Step Guide for Businesses

How to Get Equipment Financing in Canada: A Step-by-Step Guide for Businesses

Buying new equipment can help a Canadian business increase production, improve efficiency, take on larger contracts, or replace outdated machinery. But paying for a major equipment purchase entirely from your business cash reserves can put unnecessary pressure on your working capital.

That’s where equipment financing in Canada can help.

Equipment financing allows businesses to spread the cost of machinery, vehicles, technology, and other business assets over time rather than paying the entire purchase price upfront. Depending on the lender and financing structure, you may be able to finance equipment through a term loan, equipment lease, vendor financing, or another business financing solution.

In this guide, we’ll explain how to get equipment financing in Canada, what lenders look for, what documents you may need, and how to prepare a stronger financing application.

What Is Equipment Financing?

Equipment financing is funding specifically used to purchase or acquire business equipment and other long-term assets.

Depending on the lender and type of financing, eligible purchases can include:

• Manufacturing machinery
• Construction equipment
• Commercial vehicles and trucks
• Restaurant equipment
• Agricultural equipment
• Computers and technology
• Specialized tools
• Production equipment
• Medical and laboratory equipment
• Renewable energy equipment

An equipment loan is typically structured so that you make regular payments over an agreed period. In many cases, the equipment itself serves as collateral for the financing.

The repayment period may be matched to the useful life of the equipment, helping businesses avoid a large upfront cash expense.

According to BDC, equipment financing can be used for machinery, automated equipment, robotics, hardware, specialized equipment, commercial vehicles, and other business equipment. BDC.ca+1

How to Get Equipment Financing in Canada

The equipment financing process can vary between lenders, but most applications follow a similar path.

1. Determine What Equipment You Need

Before approaching a lender, identify exactly what you want to purchase.

Start by determining:

• The type of equipment
• New or used equipment
• Purchase price
• Expected useful life
• Installation costs
• Shipping and transportation costs
• Training costs
• Maintenance requirements
• Expected productivity improvements

Getting a detailed quote from the equipment supplier can make the financing application easier because lenders commonly want to understand exactly what the financing will be used for.

2. Calculate How Much Financing You Need

Don't automatically assume that the equipment's sticker price is the amount you should borrow.

Your total project cost may include:

Equipment + shipping + installation + training + related costs = total financing requirement

For example, if a piece of machinery costs $100,000, you may also have transportation, installation and employee training expenses.

BDC recommends accounting for additional costs associated with an equipment purchase, including transportation, installation, maintenance, training and potential downtime. BDC.ca

Some lenders may also finance certain costs beyond the purchase price. For example, BDC states that its equipment financing may cover up to 125% of the equipment purchase price for eligible borrowers and expenses. BDC.ca

The exact amount available depends on the lender, borrower and financing structure.

3. Review Your Business Finances

Lenders want to know whether your business can comfortably handle the proposed payments.

Before applying, review:

• Annual revenue
• Profitability
• Existing debt
• Monthly cash flow
• Business credit history
• Personal credit history, where applicable
• Available working capital
• Debt-to-equity ratio
• Recent financial statements

A lender may also examine how the new equipment is expected to affect your business.

For example, if you're financing a $150,000 piece of equipment, be prepared to explain whether it will:

• Increase production capacity
• Reduce labour or operating costs
• Increase sales
• Allow you to accept new contracts
• Replace unreliable equipment
• Improve efficiency

BDC notes that lenders generally want to understand the financial impact of the equipment and how it will contribute to sales, profitability or productivity. BDC.ca

4. Prepare Your Equipment Financing Documents

Having your documentation ready can make the application process smoother.

Depending on the lender and size of the financing request, you may be asked for:

• Business registration information
• Equipment quotation or purchase agreement
• Business plan or financing proposal
• Recent financial statements
• Interim financial statements
• Business tax returns
• Personal tax information
• Cash-flow projections
• Details of existing debt
• Information about business owners
• Personal net worth information
• Details about the equipment and its intended use

BDC says financial institutions commonly request company information, financial statements, financial projections and an explanation of how the financing will be used. BDC.ca+1

For a larger equipment purchase, expect the lender to conduct a more detailed review of your business and financial position.

5. Compare Equipment Financing Options

Canadian businesses have several ways to finance equipment.

The main options include:

Equipment Loans

An equipment loan provides financing specifically for purchasing equipment.

The equipment may be used as security for the loan, depending on the lender and financing arrangement.

This can be useful when you want to own the equipment while spreading the purchase cost over several years.

Equipment Leasing

With an equipment lease, the business pays to use the equipment for a specified period rather than necessarily purchasing it outright at the beginning.

Depending on the lease agreement, you may have an option to purchase the equipment at the end of the lease.

Leasing can be worth considering when equipment becomes outdated quickly or when preserving upfront cash is a priority.

Vendor Financing

Some equipment manufacturers, dealers and suppliers offer financing directly or through financial institutions.

Vendor financing can simplify the purchasing process because the equipment supplier may coordinate the financing alongside the sale.

However, compare the complete financing package rather than looking only at the convenience of one application.

Working Capital Financing

A working capital loan or business line of credit can sometimes be used for smaller equipment purchases.

However, matching the financing term to the useful life of an asset is important. BDC notes that term loans are generally more appropriate for expensive equipment with a longer lifespan, while working capital financing is designed primarily for short-term operating needs. BDC.ca

6. Ask About Government-Backed Financing Programs

Canadian businesses may also have access to government-supported financing programs.

One example is the Canada Small Business Financing Program (CSBFP). The program is designed to make it easier for qualifying small businesses to obtain financing from participating financial institutions by sharing risk with lenders. Eligible financing can include equipment and other business needs. ISED Canada

The program is delivered through financial institutions, so businesses should discuss eligibility and available financing with a participating lender.

Program rules, eligible expenses and financing limits can change, so verify the current requirements before relying on a government financing program.

7. Submit Your Application

Once you've selected a financing option, submit your application with the requested documentation.

The lender may assess:

• Your business's financial health
• Revenue and profitability
• Cash-flow capacity
• Credit history
• Existing debt
• The equipment being purchased
• The equipment's expected value
• Your down payment
• Your business plan
• The proposed repayment structure

For example, BDC currently lists Canadian operations, revenue-generating activity and good credit history among its general requirements for its equipment loan, with a minimum of 12 months of revenue-generating operations. These are BDC's criteria and should not be assumed to apply to every Canadian lender. BDC.ca

8. Review the Financing Agreement Carefully

If you're approved, don't look only at the interest rate.

Review the entire financing agreement, including:

• Interest rate
• Fixed or variable rate
• Loan term
• Amortization period
• Monthly payment
• Down payment
• Security or collateral requirements
• Personal guarantees
• Origination or administration fees
• Early repayment terms
• Late-payment provisions
• Payment frequency
• Renewal conditions
• Residual or buyout amount for leases

A slightly lower interest rate isn't necessarily the most important factor if the financing has less flexibility or creates cash-flow problems for your business.

What Credit Score Do You Need for Equipment Financing in Canada?

There is no single credit score that guarantees equipment financing approval across Canada.

Lenders generally consider the overall financial strength of the business rather than relying on one number.

Factors can include:

• Business credit history
• Personal credit history
• Revenue
• Profitability
• Cash flow
• Existing debt
• Time in business
• Collateral
• Down payment
• Industry
• Equipment type
• Loan amount

A strong credit profile can improve your financing options, but businesses with less established credit may have other financing possibilities depending on their financial position and the lender.

Can a New Business Get Equipment Financing?

Yes, but financing can be more difficult for a new business because lenders have less historical financial information to evaluate.

A startup may need to provide stronger evidence of its ability to repay the financing, such as:

• A detailed business plan
• Owner investment
• Industry experience
• Sales contracts
• Financial projections
• Equipment quotations
• Personal financial information
• Relevant collateral

Lender requirements vary considerably.

For example, BDC's general equipment-loan criteria currently include at least 12 months of revenue-generating operations, illustrating why startups should compare multiple financing sources rather than assuming that one lender's requirements apply universally. BDC.ca

Can You Finance Used Equipment in Canada?

Used equipment may be eligible for financing, depending on the lender, equipment type, age, condition and purchase price.

Before financing used equipment, consider:

• Equipment age
• Remaining useful life
• Maintenance history
• Condition
• Resale value
• Manufacturer support
• Availability of replacement parts
• Warranty
• Inspection requirements

A lender may place different conditions on used equipment because its value and remaining useful life can differ substantially from new equipment.

How Much Does Equipment Financing Cost?

The cost of equipment financing depends on factors such as:

• Amount borrowed
• Interest rate
• Loan term
• Down payment
• Business credit
• Equipment type
• Equipment age
• Collateral
• Lender
• Overall business risk

Don't compare financing offers based solely on the monthly payment.

A longer repayment period can reduce the monthly payment while increasing the total amount of interest paid over the life of the financing.

Example

Suppose a business finances $100,000 over five years.

A lender may offer a particular interest rate and payment schedule based on the business's financial profile. Another lender might offer a different rate, term, down payment or fee structure.

When comparing the offers, calculate:

Total financing cost = principal + interest + applicable fees

This provides a more complete picture than comparing monthly payments alone.

Is Equipment Financing Tax Deductible in Canada?

Equipment purchases and financing can have tax implications, but the treatment depends on the type of equipment, business structure, use of the asset and applicable tax rules.

Generally, qualifying depreciable business property is accounted for through Capital Cost Allowance (CCA) rather than simply deducting the entire purchase price as a regular business expense in the year of purchase. The CRA groups depreciable property into different classes with different CCA rates. Canada+1

For example, CRA identifies Class 8 as covering certain business property such as machinery and equipment, with a 20% CCA rate, while other types of equipment can fall into different classes. Canada

Tax treatment can be complicated, particularly when equipment is leased, financed, partly used personally, or subject to special CCA rules.

For significant purchases, speak with a Canadian tax professional about the specific tax treatment of your equipment.

How to Improve Your Chances of Getting Equipment Financing

You can make your application easier for a lender to evaluate by preparing before you apply.

Show a Clear Business Case

Explain exactly why you need the equipment.

Instead of simply saying:

> "We need a new machine."

Explain:

> "The new machine is expected to increase production capacity by 25%, reduce processing time and allow us to take on two additional customer contracts."

Your lender needs to understand how the asset fits into your business strategy.

Keep Your Financial Records Organized

Have your financial statements, tax information, debt information and cash-flow projections ready.

Incomplete financial information can make the application process slower.

Get Multiple Equipment Quotes

Comparing equipment suppliers can help you establish a realistic purchase price and identify differences in warranties, service agreements and installation costs.

Don't Borrow More Than You Need

Financing too much can increase your monthly obligations and reduce cash-flow flexibility.

At the same time, remember to budget for costs such as installation, shipping, training and maintenance.

Match Financing to the Equipment

Consider the useful life of the asset when selecting the financing term.

A piece of equipment expected to remain productive for many years may be suitable for longer-term financing, while rapidly changing technology may require a different approach.

Maintain Adequate Working Capital

Don't use all your available cash for the equipment down payment if doing so leaves the business unable to cover normal operating expenses.

The goal isn't simply to acquire the equipment. Your business also needs sufficient cash to operate after the purchase.

Equipment Financing vs. Paying Cash

Both approaches have advantages and disadvantages.

Paying Cash

Potential advantages include:

• No loan interest
• No monthly financing payment
• No financing application
• Immediate ownership

Potential disadvantages include:

• Reduced working capital
• Less cash available for emergencies
• Less liquidity for growth opportunities

Equipment Financing

Potential advantages include:

• Preserves business cash
• Spreads payments over time
• Can help maintain working capital
• May allow a business to acquire productive assets sooner

Potential disadvantages include:

• Interest and financing costs
• Regular payment obligations
• Potential collateral requirements
• Possible fees or restrictions

The right structure depends on your business's cash position, expected return from the equipment and financing terms.

Frequently Asked Questions About Equipment Financing in Canada

What is the easiest way to get equipment financing in Canada?

Start by identifying the equipment and obtaining a supplier quote, then compare equipment loans, leasing, vendor financing and applicable government-supported programs. Prepare your financial statements, cash-flow projections and business case before applying.

Can I get equipment financing with bad credit?

Possibly. Approval requirements vary by lender, and credit history is only one factor that may be considered. A lender may also review revenue, cash flow, collateral, business history and the equipment being financed.

Do I need a down payment for equipment financing?

Not necessarily. Down-payment requirements vary by lender, equipment type, financing amount and the financial strength of the business. BDC notes that a down payment may be required depending on the financing structure and risk profile. BDC.ca

How long can equipment financing last?

Terms vary by lender and equipment. Some Canadian equipment loans can have multi-year repayment periods. For example, BDC states that eligible equipment loans can have repayment periods of up to 12 years, although the actual term depends on the financing assessment. BDC.ca

Can I finance equipment for a startup?

Some lenders and financing programs work with newer businesses, but requirements vary. Startups should expect lenders to place greater emphasis on the business plan, owner experience, projected cash flow and available equity or collateral.

Can I finance trucks and commercial vehicles?

Yes. Commercial vehicles such as trucks and specialized transport equipment can qualify for certain equipment financing products. BDC.ca

Final Thoughts: Getting Equipment Financing in Canada

Getting equipment financing in Canada starts with more than finding a lender.

You need to understand the equipment you're buying, calculate the complete project cost, demonstrate how the asset will benefit your business and choose a financing structure that fits your cash flow.

Before submitting an application:

> "The new machine is expected to increase production capacity by 25%, reduce processing time and allow us to take on two additional customer contracts."

Keep Your Financial Records Organized

1. Identify the equipment you need.
2. Get a detailed supplier quote.
3. Calculate the total project cost.
4. Review your business finances and credit.
5. Prepare financial statements and projections.
6. Compare loans, leases and vendor financing.
7. Ask about applicable government-supported programs.
8. Compare the full cost and terms of each offer.
9. Review the financing agreement carefully.
10. Consult your accountant about the tax implications.

With proper preparation, you can approach lenders with a clear financing request and a stronger understanding of what the equipment will cost your business over its useful life.

This article is for general informational purposes and does not constitute financial, tax or legal advice. Financing eligibility, rates, program rules and tax treatment can change. Confirm current terms with your lender and a qualified Canadian professional before making a financing decision.