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How Small Business Owners Can Estimate Their Equipment Financing Capacity in Canada
Most Canadian small business owners can estimate their equipment financing capacity by doing three things: calculate their cash flow, apply a simple coverage ratio (usually around 1.25x), and then translate that into a rough maximum monthly payment and loan/lease amount.
Lenders don’t start with “What rate can we give you?” They start with “How much can this business safely afford to pay each month?” BDC is quite explicit that the maximum loan amount “corresponds with the borrower’s ability to repay the loan,” not just what they ask for.(BDC.ca)
This guide walks you through a practical, owner-friendly way to answer: “Roughly how much equipment financing could I qualify for?” before you ever fill out an application.
You can’t control every lending rule, but you can get a good read on how much monthly payment your cash flow supports. That monthly number is the real “ceiling” on your equipment financing.
Canadian lenders usually size business credit using a debt service coverage ratio (DSCR) or similar “fixed charge” coverage metric. BDC and other senior lenders commonly look for at least 1.25x coverage, meaning you should generate 25% more cash than your annual principal + interest payments.(BDC.ca)
In plain language:
If your business has about $125,000 in annual cash flow available for debt, you can usually support around $100,000 in total annual loan/lease payments.
From there, the question becomes: How big of an equipment lease or equipment loan does that translate to?
That’s where a structured approach—and tools like Mehmi’s online Calculator—make life easier.
Before you estimate anything, you need the same basic data a lender will pull apart.
The key inputs are:
Have these handy and you’re already ahead of most applicants. When you later talk to a provider like Mehmi about Equipment Financing, you’ll be speaking their language.
Once you’ve got cash flow and existing debt payments, you can estimate what’s left for new equipment.
Use a simple version of EBITDA:
That gives you a rough cash-flow number similar to what lenders call EBITDA.(BDC.ca)
Add up all your current annual term loan and lease payments.
Example (made-up numbers):
Most banks and development lenders like to see at least 1.25x coverage—sometimes more.(BDC.ca)
Coverage ratio (DSCR) =
EBITDA ÷ (existing debt payments + new debt payments)
To estimate capacity, invert it:
Max total annual debt payments ≈ EBITDA ÷ 1.25
Using the example:
Divide by 12 to get max monthly payment:
That $7,000/month is your rough ceiling across all new equipment financing. A more conservative owner might use DSCR 1.5x or even 2.0x as BDC suggests is “healthy,” especially in volatile sectors.(BDC.ca)
Now that you have a target monthly payment, you want to know: what equipment budget does that support?
In a perfect world you’d use a finance calculator, but you don’t need to reinvent the wheel. Tools like BDC’s Business Loan Calculator and Mehmi’s online Calculator allow you to test different loan amounts, rates, and terms until the payment lands near your target.(BDC.ca)
A rule of thumb:
Remember, Mehmi can structure Equipment Leases with different residuals and terms, so two different financing amounts can still land near the same monthly payment if the structures differ.
Cash flow might say “yes,” but lenders also cap financing based on the equipment itself.
Some lenders will finance 100%+ of the purchase price of equipment, including soft costs like delivery and installation. For example, BDC’s equipment loan can cover up to 125% of the purchase price to include related costs.(BDC.ca)
In practice, your limit depends on:
The national SME surveys show collateral requirements have increased in the last few years, meaning more small firms must pledge assets to secure debt.(ISEDC)
If your DSCR suggests you can support $500,000 of equipment but the lender caps advance at 80% of purchase price, your actual budget is closer to $625,000 total cost with ~$500,000 financed and the rest as down payment or other funding.
Two businesses with the same cash flow might qualify for different amounts because of credit, history, and sector risk.
Credit isn’t everything—Mehmi also looks at the story, experience, and asset strength—but it does influence whether you’re at the high or low end of what your DSCR suggests.
Eligibility pages for Canadian equipment lenders routinely name time in business as a core factor, alongside revenue, cash flow, and credit history.(jocovafinancial.com)
Lenders also adjust capacity based on perceived risk:
This is where Mehmi’s Eligible Equipment and sector-specific underwriting really matter. If your equipment is right in our sweet spot, you might be able to stretch closer to your DSCR capacity than with a generic bank term loan.
Estimating “how much you qualify for” is not the same as “how much you should take.”
A healthier stack looks like this:
Mehmi’s Equipment Financing and Business Loans lines are designed to complement each other, not compete. The goal is to keep your overall DSCR in safe territory while you grow.
Contrarian view: Many owners ask, “What’s the maximum I can get?” A better question is, “How much can I borrow and still keep my DSCR above 1.5x, even if sales dip 10–20%?” That’s the kind of thinking that keeps you out of covenant trouble and cash-flow panic.
You now have the tools to estimate your capacity fairly well. Here are the traps to avoid.
A 2% lower rate looks great until your total borrowing pushes your DSCR down near 1.0x. Articles for Canadian business owners stress that loan term, flexibility, covenants, and collateral are often more important than the last few basis points on rate.(BDC.ca)
If you run the DSCR math using only the new equipment payment, you’ll overestimate capacity. You must include:
That’s why Mehmi will often walk through your full debt picture, not just the equipment quote.
BDC and other lenders often adjust EBITDA by subtracting current income taxes, unfunded capital expenditures, and dividends/distributions when calculating coverage.(BDC.ca) If you’re drawing heavily from the business, your real capacity is lower than the raw income statement suggests.
Banks may be stricter on collateral and DSCR but cheaper on rate. Specialty lenders and funders like Mehmi can be more flexible on structure and documentation, especially for B/C credit or unusual equipment, but will price for that flexibility.(jocovafinancial.com)
You don’t get extra points for estimating everything in your head. Free tools like BDC’s loan calculator and Mehmi’s Calculator help you test multiple scenarios—different amounts, terms, and rate assumptions—before you decide on a target budget.(BDC.ca)
A small metal fabrication shop in Ontario wanted to add a new CNC machine and upgrades to their existing line. Dealer quotes came in around $650,000 all-in, and the owner’s first instinct was, “Let’s see if we can finance the whole amount.”
Step 1 – Cash flow check
Based on a 1.25x DSCR target:
Step 2 – Running scenarios with a calculator
Using a conservative rate and realistic terms in a financing calculator similar to Mehmi’s Calculator, they learned:
Step 3 – Mehmi structure
When the owner approached Mehmi, the eventual solution blended:
They paid the remaining ~$200,000 of the project cost through a mix of cash and a phased second machine purchase after year two, when cash flow had grown.
Result:
A reasonable starting point is: aim for a DSCR of at least 1.25x after including the new equipment payments. That means your EBITDA should be at least 25% higher than your total annual loan and lease payments.(BDC.ca) Then use a loan or lease calculator (like BDC’s or Mehmi’s Calculator) to see what loan amount creates a payment that fits under that ceiling.
Many do. It’s common to see lenders finance 80–100% of the equipment cost, sometimes more if they include delivery, installation, and other soft costs. BDC, for example, can finance up to 125% of the purchase price for equipment, including related expenses.(BDC.ca) Mehmi can often structure leases and Asset Based Lending facilities that capture both hard assets and key soft costs within a safe advance rate.
It matters, but it’s not the only factor. Traditional lenders often look for personal scores in the high 600s or low 700s, while alternative lenders and specialized funders may consider scores in the mid-500s and up, at higher rates or with tighter terms.(Smarter Loans) Mehmi considers credit alongside cash flow, time in business, equipment type, and collateral when sizing your Equipment Financing request.
The DSCR approach still applies, but start-ups rely more on projections and owner strength. You can estimate capacity based on realistic year-2 or year-3 EBITDA, then work backward to an affordable payment and loan amount. Expect lenders to ask for more documentation (business plan, projections, personal guarantees) and to possibly cap amounts lower until the business proves itself. Combining a sensibly sized Equipment Lease with a Working Capital Loan is often the right approach.(BDC.ca)
Mehmi’s online Calculator lets you plug in a target amount, term, and rate assumption and see the resulting payment. You can then compare that payment to your DSCR-based ceiling. It’s not an approval tool, but it’s a fast way to test scenarios before you ask for a full Equipment Financing quote, or decide whether you also need a Working Capital Loan or Line of Credit to complete your project.
A heavily used operating line is a red flag for lenders because it suggests working-capital stress. But it doesn’t automatically shut the door. In fact, Refinancing or Sales Leaseback and Asset Based Lending exist partly to move equipment costs off your operating line and onto proper term structures. If your underlying business and equipment are strong, Mehmi may still be able to structure Equipment Leases that not only fund new assets but also help you restore breathing room on your line.(Statistics Canada)
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