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Alternatives to a Traditional Bank Loan for Business Equipment in Canada
Canadian small businesses don’t have to rely on a traditional bank term loan to buy equipment. In Canada, you can tap equipment leases, non-bank equipment lenders, asset-based lending, government-backed loans, vendor programs, and sale-leasebacks—often with lower upfront cash and more flexible structures than a standard bank loan.
Almost half of Canadian SMEs (49.3%) requested some form of external financing in 2023, including debt, leases, trade credit, and government financing.(Statistics Canada) That’s a clear sign that owners are already looking beyond the “one big bank loan” model.
This guide walks through your main alternatives, when they make sense, and how a partner like Mehmi can help you structure equipment financing that fits your business—not just your bank’s policy manual.
Traditional bank loans can be great tools, but they’re not always the best way to finance equipment—especially for smaller or growing businesses.
Chartered banks tend to focus on:
On top of that, program evaluations of the Canada Small Business Financing Program (CSBFP) note that many SMEs still struggle to obtain sufficient term financing and that the program itself exists specifically to increase availability of loans by sharing risk with lenders.(ISEDC)
That’s your hint: if Ottawa has to backstop bank lending to make deals work, you shouldn’t assume “ask the bank for a term loan” is your only option.
Alternatives like Equipment Financing, Asset Based Lending, and specialty lessors (like Mehmi) can:
The goal isn’t to ditch your bank—it’s to stop asking one tool to do every job.
Equipment leasing is the most common and practical alternative to a traditional bank loan for business equipment in Canada.
Leasing lets you use the equipment now while paying over time, often with minimal upfront cash. BDC’s guidance on buy vs lease is blunt: buying is usually cheaper over the life of the asset, but leasing “generally requires less cash upfront, putting less strain on cash flow” and can help you stay current with new equipment.(BDC.ca)
Instead of one big draw on a bank loan, you get:
Independent lessors and equipment finance companies also tend to understand used and niche equipment better than generalist bank lenders.
Mehmi’s Equipment Leases and broader Equipment Financing approach typically allow you to:
You can sanity-check whether your machinery, vehicles, or technology fit our appetite using the Eligible Equipment page, then work with us to design payment plans that match your revenue cycle.
Non-bank lenders and specialty finance firms offer equipment loans that behave similarly to bank loans but with more flexible underwriting and structures.
BDC’s own equipment loan is an example: they can finance up to 125% of the purchase price of new or used equipment to cover shipping, installation, training, and related costs and allow you to match payments to your cash-flow cycle.(BDC.ca) Other Canadian financiers highlight the same 125% financing model for equipment.(fundinghq.ca)
Specialty non-bank lenders often:
For a Mehmi client, that might translate into a Secured Loan or tailored equipment facility that complements, not replaces, your bank relationship.
Where these loans shine vs a traditional bank term loan:
Asset-based lending (ABL) is a way to borrow against the value of your assets—equipment, inventory, receivables—rather than just your historical financial ratios.
BDC defines asset-based lending as a loan granted primarily on the value of the assets offered as collateral.(BDC.ca) ABL providers (including major banks and independent lenders) emphasize that this structure is well-suited for companies with substantial assets, fast growth, or seasonal swings.(Essex Lease Financial Corporation)
For equipment-heavy businesses—manufacturing, transport, construction—ABL can be a powerful alternative when a standard bank term loan is constrained by covenants or past results.
Mehmi’s Asset Based Lending takes this practical view: if your equipment holds real value and your business has momentum, we can often support more borrowing than a traditional bank term loan, and with structures that flex as you grow.
Yes, they still involve banks—but government-backed programs are a distinct alternative to a plain, unguaranteed bank term loan.
The Canada Small Business Financing Program (CSBFP) makes it easier for small businesses to access loans by sharing the risk between lenders and the federal government.(ISEDC) Under current guidelines, you can obtain up to $1,000,000 in term loans, of which up to $500,000 can be used for equipment and leasehold improvements (with a $150,000 cap for intangibles and working capital within that amount).(ISEDC)
That’s still “bank financing,” but:
BDC’s dedicated Equipment Loan and Technology Equipment Loan are similar alternatives: they specifically target equipment and allow financing of up to 125% of the purchase price with payment schedules tailored to your cash flow.(BDC.ca)
Where Mehmi comes in: we often work alongside these programs—letting a CSBFP or BDC loan fund part of a project while Mehmi handles additional equipment via Equipment Financing, or fills gaps when a bank is unwilling or slow.
Vendor financing is when the equipment seller also arranges the financing (either directly or via a partner). It’s another alternative to walking into your bank and asking for a term loan.
Canadian equipment suppliers, especially in manufacturing, transport, and technology, frequently offer vendor financing with quick approvals and built-in payment plans. However, BDC points out some drawbacks: vendor finance may lack flexible terms like principal postponements or extra coverage for installation and training costs that banks or independent lenders can provide.(BDC.ca)
Mehmi’s Vendor Program is a way to have the best of both worlds: vendors can still offer “in-house financing,” but the structure, underwriting, and flexibility sit with a specialized equipment finance partner who works primarily in your interest as the end customer.
If you already paid cash for equipment—or used your operating line or credit cards—refinancing or sale-leaseback is a practical alternative to taking on a new bank term loan.
In a sale-leaseback, you:
Canadian equipment finance providers frequently highlight that their loans can cover up to 125% of equipment cost and can be used to replenish working capital depleted by previous purchases.(helloDarwin) Sale-leaseback is simply applying that logic after the fact.
Mehmi’s Refinancing or Sales Leaseback option is designed for exactly this scenario. It’s an alternative to:
Instead, you unlock equity from the equipment itself and move the cost to a predictable Equipment Lease.
Some financing tools aren’t purpose-built for equipment but can still help when used carefully as part of a broader plan. They’re alternatives to a plain bank term loan—but they shouldn’t replace proper equipment financing.
Examples include:
Alternative-financing articles note that equipment leasing and these cash-flow tools together make up a Canadian alternative-lending market now measured in the billions, helping businesses grow when traditional bank lending is tight.(Medium)
Mehmi offers:
We’ll almost always recommend putting the “metal” on Equipment Financing first, then using these tools to support the project rather than carry the asset cost on their backs.
There’s no one best alternative; the right fit depends on your cash flow, assets, and risk tolerance. The good news: you can narrow it down quickly.
Canadian lenders commonly use a debt service coverage ratio (DSCR) of at least 1.25x when sizing borrowing—meaning your annual cash flow should be 25% higher than your annual loan and lease payments.(BDC.ca)
Then use Mehmi’s Calculator (or another loan calculator) to translate that into a monthly payment and rough equipment budget.
Don’t finance a 7-year asset over 15 years or a 3-year technology item over 10.
If you expect to upgrade frequently (e.g., tech, transport, some manufacturing gear), structures like FMV leases, Equipment Lines of Credit, and ABL can give you more ability to refresh. If you plan to own the same equipment for a decade, a $1 buyout lease or term loan may be fine.
Resist the urge to build a long-term equipment purchase out of overlapping lines of credit, credit cards, and merchant cash advances. It looks flexible at the start and feels painful later. Use those tools for genuinely short-term gaps only.
A mid-sized Ontario pallet manufacturer wanted to add a new automated saw line and expand its yard equipment.
The initial plan
They approached their bank for a single $1.5M term loan to cover:
The bank liked the long-term customer relationship but had concerns:
What they did with Mehmi instead
Working with Mehmi, they broke the project into pieces and used alternatives to a traditional bank loan:
Results
Most importantly, when lumber prices swung and a key customer delayed a project, the business still had room to breathe. The choice of alternatives—Equipment Leases, Asset Based Lending, and Refinancing or Sales Leaseback—made the difference between “tight but under control” and “we’re calling the bank every week.”
Yes. A bank loan is a lump sum you repay over time, usually secured by general business assets and personal guarantees. An equipment lease is tied specifically to the equipment, often requires less upfront cash, and can include flexible end-of-term options. BDC notes that leasing generally puts less strain on cash flow and can help keep equipment up-to-date, even if buying is sometimes cheaper over the full life of the asset.(BDC.ca)
Non-bank lenders like Mehmi specialize in equipment and alternative structures. That often means:
Meanwhile, your bank can keep focusing on operating accounts, real estate, and government-backed programs like CSBFP. You’re diversifying funding sources instead of putting all your financing eggs in one basket.
Asset-based lending focuses on the value of your assets—equipment, receivables, inventory—rather than just your historical profits and ratios.(BDC.ca) It can provide larger or more flexible facilities for asset-rich, growing businesses that might bump against the limits of traditional covariance-driven bank loans. The trade-off is more reporting and monitoring of your borrowing base.
They are, in the sense that they change the risk and approval calculus. CSBFP loans are partially guaranteed by the Government of Canada and can provide up to $500,000 for equipment and leaseholds (within a $1,000,000 total limit), often with longer terms than a standard unsecured bank loan.(ISEDC) For many businesses that can’t get a regular bank term loan, CSBFP or BDC equipment loans are genuine alternatives.
Vendor financing can be useful, especially for standard equipment packages. But BDC points out that vendor programs sometimes lack flexible features (like principal postponements or financing for soft costs) that independent lenders can offer.(BDC.ca) Using a Mehmi Vendor Program structure can give you vendor convenience and independent flexibility and pricing.
Start from your cash flow and risk tolerance. Estimate how much monthly payment your business can safely handle and keep your DSCR above about 1.25x.(BDC.ca) Then:
If you want help mapping that out for your own fleet, shop, or plant, Mehmi can walk through your equipment list, cash flow, and bank facilities and suggest a stack that doesn’t choke your cash.
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