Can Debt Financing Be Used to Buy Assets?

Short Answer

Yes — debt financing can absolutely be used to purchase assets. In fact, this is one of the most common reasons businesses borrow money. Companies often use debt to acquire income-generating assets such as trucks, construction equipment, manufacturing machinery, or even office technology.

The logic is simple: if the asset will help your business earn more revenue than the cost of the loan or lease, debt financing can be a smart growth tool.

How Debt Financing Works for Asset Purchases

Debt financing refers to borrowing money from a lender with a commitment to repay (with interest) over time. For assets, this typically takes the form of:

• Equipment Loans – You borrow to buy equipment outright, repay monthly, and eventually own the asset free and clear.
  
  
• Equipment Leases – Instead of ownership up front, you pay for use. You may buy the asset at the end of the term.
  
  
• Asset-Based Lending – You borrow against the value of equipment, receivables, or inventory.
  
  
• Refinancing & Sale-Leaseback – You sell an asset to a lender and lease it back, unlocking cash while continuing to use it.
  
  
• Business Term Loans – General-purpose loans that can fund larger equipment purchases or expansion.
  
  

What Assets Can Be Purchased With Debt Financing?

Almost any income-producing or business-critical asset can be financed. Examples:

• Transportation: Heavy-duty trucks, trailers, light duty trucks.
  
  
• Construction: Excavators, loaders, dozers.
  
  
• Manufacturing: CNC machines, fabrication equipment.
  
  
• Agriculture: Harvesters, tractors, combines.
  
  
• Hospitality & Food: Commercial ovens, refrigeration, POS systems.
  
  
• Healthcare: Medical & dental equipment.
  
  

Why Use Debt Financing Instead of Paying Cash?

1. Preserve Working Capital – Keep cash free for payroll, marketing, and operations.
   
   
2. Match Costs to Revenue – Spread payments over the useful life of the asset.
   
   
3. Tax Benefits – Loan interest and lease payments are often tax-deductible.
   
   
4. Faster Growth – Acquire assets today instead of waiting years to save cash.
   
   

For example, a trucking startup in Mississauga might need $250,000 for two tractors. Paying cash would drain their liquidity. By using a structured loan, they keep funds available for fuel, insurance, and drivers — while earning revenue from the trucks right away.

Risks & Considerations

Debt financing is powerful, but businesses should weigh:

• Interest Costs – Adds to total expense of the asset.
  
  
• Repayment Obligations – Fixed payments reduce flexibility if cash flow slows.
  
  
• Collateral Risk – Some loans are secured by the equipment; default could mean repossession.
  
  
• Over-Leverage – Too much debt limits borrowing power later.
  
  

Case Study: Construction Equipment Purchase

A contractor in Calgary needed a $180,000 excavator to bid on a municipal contract. Paying cash was impossible, so they used an equipment loan with 15% down.

• Loan term: 60 months
  
  
• Interest rate: ~9%
  
  
• Monthly payments: manageable within contract revenue
  
  

The machine allowed them to win projects that doubled annual revenue. The financing costs were outweighed by growth.

FAQ: Debt Financing for Asset Purchases

1. Can startups use debt to buy assets?
Yes, though lenders may require a down payment, collateral, or personal guarantee.

2. Is debt financing better than leasing?
It depends. Loans build equity in the asset, while leases lower payments and improve flexibility.

3. What assets cannot be financed?
Generally, consumables or assets without resale value (like office supplies) are not financed.

4. Is debt financing a liability?
Yes — on the balance sheet, loans appear as liabilities. But they create an asset on the other side, which can improve capacity and revenue.

5. Can I finance used equipment?
Yes. Many lenders and brokers, including Mehmi, finance both new and used equipment. See our inventory.

6. How do I know if debt financing makes sense?
If the asset will generate more profit than the financing cost, debt financing is often the right move. Use our calculator to estimate.

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Final Thoughts

Debt financing is one of the most effective tools for Canadian businesses to acquire critical assets. From trucks and trailers to excavators and medical equipment, using loans, leases, or asset-based lending lets you grow now while preserving cash.

Ready to explore options? Contact our credit analysts for a tailored financing strategy.

Are you looking for a truck? Browse our used inventory.