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How Does Asset Leasing Work?

Understand how asset leasing works in Canada—structures, payments, residuals, approvals, and end-of-term options. Compare leasing to loans and sale-leaseback.
How Does Asset Leasing Work?
Written by
Alec Whitten
Published on
August 31, 2025

The big picture

Asset leasing lets your business use revenue-producing equipment for a fixed term with predictable payments—without paying the full price upfront. You conserve cash, match costs to revenue, and keep options at the end of term to buy, renew, or return. At Mehmi, asset leasing sits within our broader Equipment Financing suite, alongside Equipment Loans, an Equipment Line of Credit, and Refinancing & Sale-Leaseback. We also own the equipment we sell—browse current inventory.

What counts as “assets” in leasing?

Typical leased assets include trucks and trailers, excavators and compact equipment, CNC machines, racking and material handling, restaurant and hospitality equipment, and medical/diagnostic devices. Confirm fit on Eligible Equipment.

Core lease structures (choose by goal)

Structure How it works End-of-term Best for
FMV (Fair Market Value) Lowest monthly; you pay for use during the term. Buy at FMV, renew, or return. Fast-changing tech or when cash flow is king.
Fixed or $10 Buyout Lease-to-own with a nominal or preset buyout. Purchase for the fixed amount. Long-life assets you’ll keep (trucks, yellow iron).
Percentage Residual (e.g., 10%) Lower payments now; known buyout later. Pay the % to own, or return. Balanced path to ownership.
Conditional Sales Contract (CSC) Lease-style docs with loan-like economics. Title per contract at completion. Simple ownership path with familiar paperwork.

Learn more: Equipment Leases · Conditional Sales Contracts

How the payment is built

Your monthly is a function of the ticket size, term, residual/buyout, rate/fees, and any bundled soft costs (delivery, install, taxes). A higher residual usually lowers the monthly but shifts cost to the end if you buy. Model scenarios in minutes with our calculator.

Lever Effect on monthly Trade-off
Residual / Buyout Higher residual → lower payment Cash (or financing) needed at term end
Term length Longer term → lower payment Higher total paid over time
Upfront cash More down → lower payment Reduces liquidity
Bundled soft costs Smooths cash outlay Raises financed amount slightly

The end-of-term decision

Every lease ends with a choice to buy, renew, or return/upgrade. FMV provides maximum flexibility; fixed or percentage buyouts give a clear path to ownership. If the buyout is material, you can finance it via an Equipment Loan or use Sale-Leaseback to unlock equity while keeping the unit in service. Details on returns (wear/tear standards, hours/odometer) are in your lease and should be reviewed 90–120 days before maturity.

The step-by-step process

  1. Select equipment: Choose from Mehmi’s in-house inventory or ensure the asset is eligible.

  2. Estimate payments: Use the calculator (e.g., 48 vs 60 months; FMV vs fixed residual).

  3. Apply: Provide ownership details, bank statements, and a quote/spec sheet. Startups can use In-House Financing.

  4. Approval & docs: Clear answers typically within 24–48 hours once your file is complete.

  5. Fund & deliver: We coordinate payout and delivery; you insure and accept the asset.

  6. Operate & plan: Track hours/mileage; calendar a pre-return review well before maturity.

Lease vs loan vs sale-leaseback (at a glance)

Option Ownership during term Monthly cost Cash impact End of term Use case
Lease (FMV / Fixed / % Residual) Lessor Lower Low to moderate upfront Buy, renew, or return Cash-flow focus; upgrades expected
Loan Borrower Moderate Down payment common Own outright Keep the asset many years
Sale-Leaseback Lessor (you lease it back) Varies Cash received up front Buyout/renew/return Unlock equity in owned gear

Explore: Equipment Leases · Equipment Loans · Refinancing & Sale-Leaseback

Industry snapshots

Accounting and tax notes (Canada)

Most SMEs care about cash flow and after-tax cost. Lease payments are commonly deductible as an expense; buying with a loan enables CCA depreciation plus interest deductions. Treatment varies by structure and reporting standard (ASPE/IFRS). Coordinate with your accountant before you sign.

Case study: Balanced residual, stronger cash position

A GTA fabricator needed a CNC and dust collection upgrade. We structured 60 months with a modest fixed residual, rolling install and taxes into the lease. Monthlies landed below a comparable loan, production ramped on schedule, and the client plans to exercise the buyout at term end. If cash tightens, the residual can be financed via an equipment loan or converted through sale-leaseback while the machine stays in service.

FAQs: Asset leasing

Is leasing always cheaper than buying?
 Monthly—often yes. Lifetime cost—sometimes no if you’ll keep the asset well beyond term. Compare in our calculator.

Can I lease used assets?
 Often yes, subject to age/condition and secondary-market strength. Check Eligible Equipment.

What affects my payment most?
 Residual, term, rate/fees, asset type/age, and whether you bundle soft costs. See Equipment Leases.

What if I need frequent purchases?
 Use an Equipment Line of Credit to streamline repeat acquisitions.

How do I handle end-of-term?
 Buy, renew, or return—decide 90–120 days pre-maturity. If buying, consider an Equipment Loan or Sale-Leaseback.

Do startups qualify?
 Yes—with newer assets, reasonable terms, and In-House Financing or a modest down payment.

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Model 48 vs 60 months and different residuals in the Equipment Financing Calculator, then feel free to contact our credit analysts for a tailored structure via Contact Us.

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