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How Does Equipment Leasing Work?

Learn how equipment leasing works in Canada—lease types, residuals, payments, tax, and approval steps. Compare leasing vs loans and run numbers.
How Does Equipment Leasing Work?
Written by
Alec Whitten
Published on
August 31, 2025

The quick take

Equipment leasing lets your business use revenue-producing assets (trucks, machines, kitchen equipment, medical devices) for a fixed term with predictable payments, low upfront cash, and a choice to buy, renew, or return at the end. It’s a core option inside Mehmi’s broader equipment financing suite alongside loans, an equipment line of credit, and refinancing & sale-leaseback.

How a lease is structured

  • Asset & eligibility: Choose gear that appears on Eligible Equipment or pick directly from Mehmi’s inventory (we own the equipment we sell).

  • Term & payments: Typically 24–72 months with level monthly payments.

  • Residual/buyout: Your pre-agreed end-of-term option (e.g., FMV, 10% residual, or $10 buyout) which shifts cost between the monthly and the end.

  • Costs included: Equipment, delivery/installation, some soft costs; taxes/fees can often be financed.

  • Obligations: Insurance, normal wear, and maintenance per the contract.

  • End-of-term choices: Buy for the residual, renew at a new rate, or return/upgrade.

Run scenarios in minutes with the calculator (e.g., 48 vs 60 months; with/without residual).

Common Canadian lease types (and when to use them)

Lease Type 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. Upgrades likely (IT, medical, POS), cash-flow focus.
Fixed or $10 Buyout Lease-to-own with a nominal or pre-set buyout. Purchase for the fixed amount. Assets you’ll keep long-term (trucks, yellow iron).
Percentage Residual (e.g., 10%) Lower payments now with a known buyout later. Pay the % to own or return. Balanced path to ownership.
Conditional Sales Contract (CSC) Lease-style docs; economics closer to a loan. Title per contract at completion. Straightforward path to ownership.

Explore: Equipment Leases · Conditional Sales Contracts

What drives your monthly payment

  • Asset class & age: New/high-resale assets price better than very old or highly specialized units.

  • Residual/buyout: A higher residual usually lowers the monthly but requires cash (or refinance) at the end.

  • Term length: Longer term → lower monthly, higher total paid.

  • Rate & fees: Credit strength, time in business, and sector risk influence pricing. Startups can still qualify via in-house financing.

  • Taxes & soft costs: Provincial sales tax, delivery/installation can often be rolled in.

  • Utilization & secondary market: Clear revenue use and strong resale support approvals.

Compare structures with the calculator and pressure-test payment tolerance.

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

Option Ownership During Term Monthly Cost Upfront Cash End of Term When It Fits
Lease (FMV / Fixed Buyout) Lessor Lower Low–Moderate Buy, renew, or return Cash-flow priority, upgrades expected
Loan Borrower Moderate Down payment common Own outright Keep asset many years; maximize equity
Sale-Leaseback Lessor (you lease it back) Varies Cash received up front Buyout/renew/return Unlock cash from owned gear

Read more: Equipment Loans · Refinancing & Sale-Leaseback

Who uses leasing (and why)

Accounting & tax notes (Canada)

Under ASPE/IFRS, many leases appear on-balance-sheet; practical focus for owners is cash flow, after-tax cost, and upgrade timing. Lease payments are commonly deductible as an expense, while buying with a loan enables CCA depreciation and interest deductions. Confirm specifics with your accountant. If ownership from day one is strategic, compare a loan structure on our Equipment Loans page.

Step-by-step process with Mehmi

  1. Choose equipment: Confirm it’s eligible or pick from inventory.

  2. Estimate payments: Use the calculator; test residuals and terms.

  3. Apply: Basic business info + quote/specs; startups welcomed via in-house financing.

  4. Approval & docs: Clear terms; typical answers within 24–48h.

  5. Funding & delivery: We coordinate payout and handover.

  6. End-of-term: Buy, renew, or return—your call.

Case study: Lower monthly, faster capacity

A GTA manufacturer needed a CNC and dust collection upgrade before peak season. A fixed-buyout lease kept monthly payments ~12% below a comparable loan by shifting part of the cost to the buyout. They met a big contract deadline, then exercised the buyout at term end and kept the machine on the floor.

FAQs: How equipment leasing works

Is leasing the same as renting?
 No. Renting is short-term access with no ownership path. Leasing is a financing arrangement with buy/renew/return options at the end.

Can I lease used equipment?
 Often yes, subject to age/condition and resale market. Start by checking Eligible Equipment or viewing inventory.

What credit do I need?
 Stronger credit helps, but many SMEs and startups qualify with the right structure (down payment, guarantees, or in-house financing).

What affects my monthly payment the most?
 Residual/buyout level, term length, rate, and asset type/age. Model these levers in the calculator.

Can I bundle delivery/installation and taxes?
 Frequently yes—rolling soft costs and taxes into the lease improves cash flow. We’ll structure this on your file.

What if I already own equipment but need cash?
 Consider a sale-leaseback to unlock equity while keeping the asset in service.

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Ready to map the lowest monthly that still fits your ownership plan? Model lease vs loan now with the Equipment Financing Calculator and feel free to contact our credit analysts via Contact Us for tailored terms.
Are you looking for a truck? Look at our used inventory.

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