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How Small Businesses in Canada Can Finance New Equipment Without Choking Their Cash Flow
Financing new equipment without strangling cash flow comes down to one idea: use dedicated equipment financing, not your day-to-day cash oroperating line, and match payments to how your business actually earns money.
That usually means a mix of:
In 2023, almost half of Canadian SMEs (49.3%) requested some form of external financing—debt, leases, trade credit or government programs—because paying major investments straight out of cash simply isn’t realistic anymore.(ISEDC) If you try, you usually starve the business of working capital.
Below is a practical, Canadian-focused playbook for getting the equipment you need while keeping your cash flow breathing.
Paying for major equipment out of everyday cash can leave you short for payroll, inventory, and tax remittances.
BDC puts it bluntly: financing a new piece of equipment “out of your everyday cash can be a big burden on your cash flow and could even put your business at risk,” which is why bankers usually recommend a dedicated equipment loan instead.(BDC.ca)
Two things make a straight cash purchase risky:
Meanwhile, Statistics Canada estimates that Canada’s non-residential capital stock has an average remaining useful service life ratio around 63–64%, signalling that many businesses actually need to reinvest in equipment to stay competitive.(Statistics Canada)
Bottom line: you should be investing—but not by emptying your cash reserves every time you need a truck, CNC, oven, or server.
If you remember only one concept, make it this: long-term assets need long-term money, structured around your cash flow.
Canadian lenders size most business borrowing using a debt service coverage ratio (DSCR or fixed-charge coverage). BDC notes that banks commonly want to see coverage of at least 1.25x—meaning your annual cash flow should be at least 25% higher than your annual principal + interest payments.(BDC.ca)
In practice, that means:
Mehmi builds this into its structures by default—especially through our Equipment Leases, Equipment Line of Credit, and Asset Based Lending solutions—so the financing works with your cash flow instead of against it.
Equipment leasing lets you use gear now and pay for it gradually, keeping your cash and bank lines available for daily operations and growth.
Canadian lessors highlight that leasing:
Through Mehmi’s Equipment Leases and broader Equipment Financing services, a typical structure might:
You can also sanity-check whether your gear fits our risk box using the Eligible Equipment page, then have us structure the lease around your real-world cash cycle.
Opinion: Owners often obsess over the lease rate and ignore the payment shape. For cash flow, the structure matters more than the last 0.5% of rate. A slightly higher rate with the right term and seasonal pattern is usually safer than a rock-bottom rate that forces a payment you can’t comfortably cover.
For some businesses and asset types, a classic equipment loan or government-assisted term loan still makes sense—especially when you want straight ownership and longer amortization.
BDC’s equipment loans are a good example of the model: they can finance up to 125% of the purchase price of new or used equipment to cover related costs like shipping, installation and training, and can stretch repayment up to 12 years while letting you match payments to your cash-flow cycle.(BDC.ca)
Other tools, like the federal Canada Small Business Financing Program (CSBFP), exist to help small firms secure term loans for equipment and improvements by sharing risk with lenders.(ISEDC)
Where Mehmi fits:
Used together, these tools let you stretch amortization and free your internal cash for hiring, inventory, and marketing.
If you’re constantly adding or upgrading equipment—say, a fleet, shop, or manufacturing line—one-off leases can get clumsy. That’s where Asset Based Lending and Equipment Lines of Credit come in.
BDC’s 2025 SME Investment & Financing Outlook notes that while a smaller share of SMEs plan to invest in machinery and equipment in the next 12 months, those that do still rely heavily on external debt and lease financing to fund it.(BDC.ca)
Mehmi responds to that pattern with:
This approach is especially powerful if you:
The key cash-flow win: equipment expansion doesn’t hammer your bank line, and you can plug upgrades into a structure that was designed for them.
If you’ve paid cash for equipment in the past—or used your operating line or a high-cost loan—Refinancing or Sales Leaseback can unwind that strain and turn iron back into working capital.
The logic is simple:
BDC and other lenders emphasize that using everyday cash for major equipment can be a serious burden and that financing is often safer.(BDC.ca) Sale-leaseback is effectively your do-over: you retroactively put the asset on a term structure.
With Mehmi’s Refinancing or Sales Leaseback solutions, we:
The proceeds can:
You’re left with a predictable lease payment and more breathing room in your day-to-day cash flow.
Lines of credit and cards are great tools—but bad long-term equipment strategies.
BDC stresses that operating lines are meant to cover short-term cash-flow gaps, not multi-year capital projects, and that owners should carefully plan how much of a line they use and for how long.(BDC.ca)
For cash flow, that means:
Use bank working-capital tools for what they’re good at—and equipment tools for the heavy stuff. Mehmi’s Working Capital Loan, Line of Credit, and Invoice or Freight Factoring products are built for the short-term side of the picture, not to replace proper Equipment Financing.
Small businesses often start with the wrong question: “How much will the lender approve me for?” A better one is: “How much can I safely pay each month and still sleep at night?”
Canadian lenders, including BDC, typically use DSCR/FCCR to size borrowing; many want at least 1.25x coverage and view 2.0x as very healthy.(BDC.ca)
A simple process you can run before you even call anyone:
Then head to an online tool like BDC’s Business Loan Calculator or Mehmi’s Calculator and plug in a few scenarios (amount, term, rate) until the payment sits comfortably under your ceiling.(BDC.ca)
Now, when you talk to Mehmi about Equipment Financing, you’re not just asking “how much can you give me”—you’re saying, “here’s what my cash flow can safely support; what’s the best structure within that?”
Most healthy financing plans use a stack of tools, not a single product trying to do everything. For a typical small Canadian business, that might look like:
The more clearly you separate these jobs, the easier it is to grow without cash-flow emergencies every time you invest.
A small multi-location retailer in Ontario wanted to:
Their first instinct was to:
But the owner had just lived through a tight cash-flow period during a mild recession and didn’t want a repeat. They sat down with Mehmi instead.
Step 1 – Cash-flow reality check
Using the DSCR logic above and a two-year EBITDA average, we calculated:
Step 2 – Build the right stack
Together, we designed a structure that protected their cash:
Step 3 – Outcomes
They didn’t “get the biggest loan possible.” They got the right equipment financing stack for their cash flow. That’s the difference.
For most small businesses, a well-structured Equipment Lease is the most cash-flow-friendly option. Leasing generally requires less cash up front and spreads payments over the asset’s useful life, putting less strain on cash flow than buying outright.(BDC.ca) Mehmi’s Equipment Financing solutions can also include soft costs (like shipping and install) so you don’t drain cash for those either.
Keep long-term assets off the line. Use Equipment Leases, an Equipment Line of Credit, or Asset Based Lending to fund equipment and reserve the bank Line of Credit for short-term working capital like inventory and receivables. BDC specifically advises that operating lines are for short-term cash-flow management, not major long-term investments.(BDC.ca) If your line is already full of equipment costs, consider a Refinancing or Sales Leaseback to move those onto a term schedule and free the line back up.
Not necessarily. Over the full life of the asset, straight buying can be cheaper in pure dollars, but leasing can win on timing and risk. BDC notes that leasing usually requires less cash upfront and can reduce strain on cash flow compared with buying, especially when you factor in tax treatment and upgrade flexibility.(BDC.ca) For many small businesses, that improved liquidity is worth more than the small difference in total cost.
A simple rule of thumb is to maintain a debt service coverage ratio of at least 1.25x after including the new equipment payment.(BDC.ca) Start by estimating your EBITDA, subtract existing annual loan/lease payments, then use that DSCR to calculate a safe annual payment for new equipment. Tools like BDC’s loan calculator and Mehmi’s Calculator help you translate that payment into a rough financing amount and term.
Yes. Many Canadian lenders—including Mehmi—will finance used equipment that still has solid remaining life and resale value. Terms may be shorter or advance rates slightly lower than for brand-new gear, but you can still use cash-friendly structures like Equipment Leases, Equipment Financing, or Asset Based Lending. Check Mehmi’s Eligible Equipment list and talk to us about the age and condition of what you’re buying.
You’re not stuck. Refinancing or Sales Leaseback is built for this situation. Mehmi can purchase eligible equipment you own and lease it back to you, injecting cash into the business while leaving you with a manageable lease payment. That cash can pay down a maxed Line of Credit, clear high-cost short-term debt, or fund a new project—without having to sell the gear you rely on.
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