Equipment Financing for Startups

Why Equipment Financing Matters for Startups

Launching a new business in Canada is exciting — but also capital-intensive. Whether you’re a contractor, a trucking company, a restaurant, or a tech startup, your ability to deliver products and services often depends on having the right equipment. From trucks and construction machinery to commercial ovens and office technology, startup costs add up quickly.

For most new businesses, paying cash up front simply isn’t an option. That’s where equipment financing comes in. By spreading out payments over time, startups can access essential tools immediately without draining their limited working capital.

Instead of tying up cash in depreciating assets, you preserve liquidity for marketing, payroll, and day-to-day operations — the lifeblood of any young company.

Challenges Startups Face in Securing Financing

Startups often struggle to obtain financing through traditional banks. The hurdles usually include:

• Limited operating history: Lenders want 2–3 years of financial records. Startups rarely have this track record.
• Weaker credit: New owners may not have built strong credit profiles.
• High upfront costs: Equipment purchases are often six figures or more, creating a significant barrier.
• Cash flow unpredictability: Early-stage businesses may have irregular revenue streams.

These barriers make alternative financing solutions critical. Boutique lenders and independent financing firms like Mehmi Financial Group specialize in helping young businesses secure the equipment they need.

Types of Equipment Financing for Startups

There isn’t a one-size-fits-all solution. The right financing option depends on your industry, cash flow, and growth plans. Here are the primary options:

1. Equipment Loans

Equipment loans provide capital to purchase equipment outright. You make fixed payments over a set term until you own the asset.

Best for: Startups that want long-term ownership of equipment.

Advantages:

• Build equity in the equipment.
• Fixed payments help with budgeting.
• Interest may be tax-deductible.

Considerations: Lenders may require a down payment (often 10–20%).

2. Equipment Leases

With equipment leases, you pay to use the equipment for a set period without taking immediate ownership.

Best for: Startups needing flexibility or rapidly depreciating assets (like technology).

Advantages:

• Lower upfront cost.
• Option to upgrade to newer equipment at lease end.
• Payments may be tax-deductible as operating expenses.

Considerations: No equity unless you choose a lease-to-own structure.

3. Equipment Line of Credit

An equipment line of credit provides flexible funding you can draw on as needed.

Best for: Startups with evolving needs (e.g., a contractor needing different tools for each project).

Advantages:

• Borrow only what you need.
• Reusable credit line once repaid.
• Helps manage cash flow fluctuations.

Considerations: Interest accrues on the borrowed amount.

4. Sale-Leaseback / Refinancing

If you already own equipment, a refinancing or sale-leaseback allows you to unlock equity. You sell the equipment to the lender and lease it back.

Best for: Startups that invested heavily upfront and now need liquidity.

Advantages:

• Immediate access to cash.
• Continue using your equipment.
• Improves working capital for growth.

5. Asset-Based Lending

With asset-based lending, financing is secured by your equipment or receivables.

Best for: Startups with high-value assets but limited cash flow.

Advantages:

• Easier approval since collateral lowers lender risk.
• Flexible structures based on asset value.

6. Industry-Specific Programs

Certain industries have unique needs:

• Hospitality: Restaurants can explore rent-to-own programs.
• Transportation: Startups in trucking can review heavy-duty truck financing or trailer financing.
• Construction: New contractors may need construction equipment financing.

Tax Benefits of Equipment Financing

Financing isn’t just about affordability — it can also be a tax strategy.

• Lease payments: Often deductible as operating expenses.
• Loan interest & depreciation: With equipment loans, you can deduct interest and depreciate the asset.
• Cash preservation: Keeping more liquidity strengthens your startup’s balance sheet.

Consult your accountant to maximize tax advantages for your specific industry.

Case Study: A Startup Contractor’s Path to Growth

A small construction startup in Ontario needed $150,000 worth of machinery to take on larger contracts. Paying cash would have exhausted their funds, leaving nothing for payroll and materials.

Instead, they used an equipment lease with a buyout option. Their monthly payments were affordable, and by the end of the lease, they owned the machinery outright. With the right equipment in place, they doubled revenue in two years.

This example shows how financing creates opportunities for startups that otherwise couldn’t compete.

How to Qualify for Equipment Financing as a Startup

While startups face challenges, approval is possible with the right approach:

• Business plan: Show lenders your roadmap and revenue model.
• Personal credit: Strong personal credit helps offset lack of business history.
• Collateral: Offering collateral (the equipment itself or other assets) improves approval chances.
• Down payment: A larger upfront payment can reduce risk for the lender.
• Industry alignment: Lenders are more confident if the equipment clearly aligns with your business needs.

FAQ: Equipment Financing for Startups

1. Can a startup with no credit history get equipment financing?
Yes. While it’s harder, lenders often approve startups if the owner has strong personal credit or provides a down payment.

2. What’s better for startups: leasing or buying equipment?
Leasing offers flexibility and lower upfront costs, while loans build long-term equity. The best choice depends on your cash flow and growth plans.

3. How long are typical equipment financing terms?
Most range from 24–72 months, depending on the type of equipment and lender policies.

4. Do I need a down payment for equipment financing?
For loans, yes — usually 10–20%. Leases often require little to no upfront payment.

5. Can I finance used equipment as a startup?
Yes. Many lenders, including Mehmi Financial Group, finance both new and used equipment.

6. What industries benefit most from equipment financing?
Construction, transportation, hospitality, farming, and healthcare are common examples — all industries Mehmi serves. Explore all industries here.

Final Thoughts

Equipment financing is a lifeline for Canadian startups. It allows businesses to scale quickly, preserve working capital, and compete effectively. Whether through loans, leases, or asset-based options, startups can access the tools they need without waiting years to build financial history.

At Mehmi Financial Group, we help startups navigate these options with tailored solutions. Ready to explore your options? Use our calculator to estimate payments or contact us today to speak with a financing advisor.

Are you looking for a truck? Look at our used inventory.