Quick answer: Practical note: Even with a lease, many SMEs will still show a liability (lease liability) under current accounting frameworks. Choose the structure that fits cash flow and tax, then confirm presentation with your accountant.
Yes—an equipment loan is a liability. You record the equipment as an asset (property, plant & equipment) and the loan as a liability, split between current (next 12 months of principal) and long-term (the remainder). Each payment is part interest expense (P&L) and part principal (reduces the liability). Model loan vs. lease scenarios with the calculator or review Equipment Loans.
Related guide: What are Current Liabilities?.
Where it sits on your statements
- Balance sheet:
- Asset: the equipment at cost (less accumulated depreciation/CCA).
- Liability: the loan payable, split into current and non-current portions.
- Asset: the equipment at cost (less accumulated depreciation/CCA).
- Income statement:
- Interest portion of each payment is an expense.
- Depreciation/CCA reflects the asset’s cost recovery over time.
- Interest portion of each payment is an expense.
- Cash flow:
- Payments appear in financing activities (principal) and operating (interest), depending on your reporting policy.
- Payments appear in financing activities (principal) and operating (interest), depending on your reporting policy.
If you prefer lower monthly payments and an upgrade path, compare Equipment Leases; if you expect frequent purchases, consider an Equipment Line of Credit.
Loan vs. Lease: how liabilities are shown (at a glance)
| Structure | Balance Sheet Impact | P&L Impact | End of Term | Learn More |
|---|---|---|---|---|
| Equipment Loan | Equipment asset + loan liability (current & long-term) | Interest expense + depreciation/CCA | Own free & clear | Equipment Loans |
| Equipment Lease | Most leases create a lease liability with a right-of-use asset | Lease interest + amortization (or lease expense per standard) | $10 / 10% / FMV buyout or return | Equipment Leases |
BDC’s equipment-financing guide emphasizes the complete financing structure when comparing offers.
“Don’t focus only on interest rates”
For the equipment decision discussed here, compare the amount financed, payment schedule, collateral and remaining obligations alongside the quoted rate.
Tax basics (high level)
- Loans: Interest is generally deductible; principal is not—your cost is recovered through CCA (depreciation).
- Leases: Periodic lease payments are generally deductible to the business-use extent.
If you need to conserve cash upfront, you can also unlock equity using Refinancing & Sale-Leaseback.
When the liability changes
- Amortization and prepayments reduce the liability faster.
- Refinancing or sale-leaseback can replace a loan liability with a lease liability while keeping the asset in service.
- Line-of-credit draws for equipment also create a liability; you can convert draws to a term schedule later via an Equipment LOC.
Run payment, term, and residual scenarios in minutes with the calculator, or review structures on the Equipment Financing hub.
FAQ
Is an equipment loan always shown as current and long-term?
Yes—lenders and accountants typically split the next 12 months of principal as current and the remainder as long-term.
Do lease payments avoid liabilities?
Usually no. Many leases create a lease liability plus a right-of-use asset. See Equipment Leases.
Are loan payments tax-deductible?
Only the interest portion; you recover principal via CCA. If you prefer expensing payments, compare a lease.
What if I already own equipment but need cash?
Consider a sale-leaseback to unlock equity without taking the asset out of service.
Can I reduce the impact on monthly cash flow?
Yes—adjust term, consider a lease residual, or blend with Working Capital or Factoring for ramp-up costs.
How do I know which structure is best?
Model both on the calculator, then feel free to contact our credit analysts via Contact Us for a file-specific recommendation.
Mehmi also sells equipment directly—browse current inventory or confirm program fit on Eligible Equipment.
Authoritative references
- Innovation, Science and Economic Development Canada — Canada Small Business Financing Program:
The Canada Small Business Financing Program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
- U.S. Small Business Administration — 7(a) loans:
The 7(a) loan program is SBA’s primary business loan program for providing financial assistance to small businesses.
Program eligibility, lender criteria, tax treatment, and product terms can change. Verify current official guidance and final financing documents before making a decision.