Bank vs private lenders Canada

Écrit par

Alec Whitten

Publié le

November 25, 2025

Bank vs. Alternative Equipment Lenders in Canada: What Actually Changes for Your Business?

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For most Canadian owners, the real difference between bank equipment financing and alternative equipment lenders comes down to this:

Banks usually offer cheaper money with more conditions and slower decisions.
Alternative equipment lenders usually offer faster, more flexible money at a higher sticker price—but often with less red tape.

In a world where the Bank of Canada’s policy rate is down to 2.25% as of October 29, 2025 but business borrowing costs remain relatively high, the trade-off between rate, speed, and flexibility is sharper than ever. (Bank of Canada)

This guide breaks down those trade-offs in plain language, so you can decide when to lean on your bank, when to call a specialist like Mehmi, and when to use both.

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How banks look at equipment deals

Banks are built to be low-cost, conservative lenders. That’s great when you fit their box. It’s frustrating when you don’t.

Banks focus on your balance sheet, not just the machine

When you ask your bank for equipment financing, they’re looking at the whole business:

Past financial performance (multi-year financial statements).
Debt service coverage ratios.
Net worth and leverage.
Credit history of the owners.
Collateral they can take (real estate, GSA on assets). (BDC.ca)

They may absolutely consider equipment value, but it’s just one part of a broader credit picture.

That’s why:

Strong, profitable companies with clean statements often get excellent rates.
Start-ups, thin-margin firms, or owners with past credit issues hit a wall—even when the equipment itself is solid.

Banks price off prime and BoC, but spreads matter

With the Bank of Canada’s rate at 2.25%, you’ll often see bank loans priced as “prime + spread” or similar. (Bank of Canada)

BDC notes that even as the policy rate has fallen by more than 2 percentage points in the last year, business loan rates haven’t fallen nearly as much because of risk premiums and funding costs. (BDC.ca)

Translation:

The headline rate looks low.
The real rate for a small business is still chunky, especially if your risk profile is anything but textbook.

Banks like packages, collateral, and covenants

Banks are also big on bundling:

Commercial mortgage + operating line + term loan for equipment.
General security agreement (GSA) over “all present and after-acquired property.”
Financial covenants (minimum net worth, debt service coverage, etc.).

For the right business, this package is fine—it’s efficient. But it means:

Your equipment borrowing can eat up valuable bank collateral room.
Breaching covenants for any reason can spook the bank, even if the equipment is performing.

For that reason, many operators prefer to keep hard equipment with a dedicated lessor, and use their bank for buildings and pure working capital via a line of credit.

How alternative equipment lenders operate

Alternative lenders are essentially saying:

“We’ll move faster, lean more on the equipment and the story, and accept more risk—but we’ll price for it.”

The alternative lending market is growing fast

Non-bank and alternative lenders are now a major part of Canada’s credit ecosystem:

One market report estimates Canada’s alternative lending market (all sectors, not just business) at USD 18.4B in 2025, with projected growth to over USD 30B by 2029. (Research and Markets)
Commentary from Canadian finance professionals suggests that 25–40% of SMEs use some form of alternative financing alongside or instead of bank loans. (Medium)
The Competition Bureau and Innovation, Science and Economic Development (ISED) both highlight access to diverse financing as a key competitiveness issue for SMEs. (Competition Bureau Canada)

So if you’re using a dedicated equipment lender like Mehmi, you’re not “weird” or “desperate”; you’re operating the way many SMEs now do.

Underwriting is more forward-looking and asset-focused

Alternative equipment lenders tend to:

Put more weight on current cash flow and future potential than on perfect past statements. (Medium)
Look at equipment value, resale market, and useful life in more detail.
Accept B or even C credit if the asset and story make sense.

That’s particularly helpful if:

You’ve had a rough year but new contracts are in hand.
You’re in growth mode and financials lag what’s actually happening.
You’ve been declined or slow-walked by your bank.

Mehmi, for example, leans heavily into this approach across equipment leases, heavy equipment financing, and truck and trailer financing.

Speed and structure are the big advantages

Typical alternative lenders:

Approve standard equipment deals in 24–72 hours, sometimes faster. (Bizfund)
Offer structured payments (seasonal, step-up, even skip payments) that better match your revenue.
Build add-on capacity into equipment lines of credit, so you can keep adding gear without a full re-underwrite every time.

Yes, the headline rate is usually higher. But in return you get:

Faster access when timing matters (e.g., auction purchases, seasonal opportunities).
Structures that are designed around specific assets and industries, not a generic policy manual.

Cost vs access: looking beyond the interest rate

If you only compare interest rates, banks almost always win. But BDC and others keep reminding owners that rate is only one of several decision factors. (BDC.ca)

What else matters?

1. Total cost of delay

Question: if a new truck, CNC machine, or oven adds $8,000 per month in margin, how much does waiting six weeks for a cheaper bank deal actually cost you?

Lost margin while you wait.
Lost contracts you couldn’t accept.
Overtime and maintenance costs on old equipment.

Sometimes the extra interest you pay with an alternative lender is far less than the profit you’d otherwise leave on the table.

2. Collateral and flexibility

Another key factor: what does each option do to your future flexibility?

A bank deal might be cheaper, but if it uses up your remaining collateral, you might be stuck when a building opportunity or acquisition pops up. (BDC.ca)
An equipment-specific lender that secures only the machine leaves your bank lines more open for working capital loans, real estate, or acquisitions.

That’s why a lot of Mehmi clients treat bank capacity like prime waterfront land—they want to save it for big strategic moves, not every forklift.

3. Documentation load and covenant risk

Banks usually require:

Full financial packages.
Compliance certificates.
Annual reviews and ongoing covenants.

Alternative equipment lenders tend to be lighter on ongoing reporting and covenants, especially for smaller-ticket deals. (Medium)

For a lean small business, that overhead is a real cost—even if it doesn’t show up in an APR.

When bank financing is the better tool

Banks and Crown lenders like BDC still play a critical role. You don’t replace them; you use them where they’re strongest.

Best bank-use cases

Generally, banks shine when:

You’re financing buildings or major leasehold improvements.
You’re an established business with solid historical profits.
You can wait a bit for approval.
You’re comfortable with more security and covenants.

Great bank scenarios:

Buying your own shop or yard, financed with a commercial mortgage, while leasing equipment separately.
Using a bank line of credit purely for receivables and inventory.
Bringing in government-backed programs (like CSBFP) for certain assets and improvements. (ISED Canada)

In Mehmi’s world, that often looks like:

Bank mortgage + LOC
Mehmi equipment leases on machinery, trucks, or furniture
Occasional top-up via a secured loan or unsecured loan when working capital gets tight

When alternative equipment lenders are the better tool

Alternative lenders become especially powerful when speed, flexibility, or story matter more than absolute lowest rate.

Great alternative-lender scenarios

Time-sensitive equipment purchases
- Auction deals.
- End-of-quarter vendor discounts.
- Replacement of failed gear that’s stopping production.
Imperfect credit or transitional situations
- Past tax arrears now in a payment plan.
- One bad year on the books due to a lost contract or big write-off.
- Strong backlog, but not yet reflected in statements. (Medium)
Niche or specialized assets
- Certain types of yellow iron, medical devices, or industry-specific equipment that banks don’t fully understand.
- Mixed private sales and vendor purchases.
Preserving bank capacity
- You want your bank free for a building, acquisition, or broader business loans strategy.

In those cases, working with a specialist like Mehmi for asset based lending, refinancing or sales leaseback, or tailored equipment leases often makes more sense than pushing harder at the bank.

Blended strategies: using banks and alternative lenders together

The most resilient SMEs mix and match funding sources. A recent paper on SME financing calls this a “toolkit” approach—very few firms get everything from one lender anymore. (GlassRatner)

Here’s how that can look in practice.

Example blended structure

Bank:
- Commercial mortgage on owner-occupied building.
- Operating line secured by receivables and inventory.
Mehmi / alternative lender:
- Equipment leases for new production machinery, trucks, or restaurant fit-out.
- Equipment line of credit for ongoing fleet or equipment refreshes.
- Refinancing or sales leaseback on owned gear to unlock equity.
Supplemental facilities (if needed):
- Working capital loan to support growth.
- Secured or unsecured loans for specific projects.

With that setup:

Your bank relationship stays strong and focused.
Your equipment strategy stays nimble and responsive.
You’re not over-reliant on a single lender’s risk appetite or policy changes.

Mehmi leans into this blended approach, working alongside banks rather than trying to replace them, and coordinates with equipment vendors through its vendor program.

How Mehmi fits into the bank vs. alternative conversation

Mehmi is squarely on the alternative equipment lender side of the table, but with a very Canadian, credit-analyst mindset:

We understand that bank financing is usually your cheapest capital.
We design equipment financing to complement that, not collide with it.
We focus on hard assets: transportation, construction, manufacturing, hospitality, healthcare and more—see our industries overview and detailed eligible equipment.

In practice, that means:

Fast, structured leases for trucks, trailers, yellow iron, production lines, medical gear, and fit-outs.
Asset-based solutions when you’ve built up a lot of equipment value.
Clear, people-first communication so you always know where you stand.

If you’re trying to decide whether a specific purchase should sit with your bank or with a specialist, running numbers through Mehmi’s online calculator, then chatting with an advisor via Contact Us, is a good way to test both scenarios.

You can read more about Mehmi’s approach on the About Us page and in the wider blog, or find quick answers in the FAQ.

Anonymous case study: Ontario contractor blends bank and alternative equipment funding

Background

A mid-size civil contractor in southwestern Ontario had:

30 employees.
A yard and shop they owned with a bank mortgage.
A bank operating line secured by receivables and inventory.

They landed a multi-year municipal contract that required:

Two additional excavators.
A larger dump truck.
A compact track loader and attachments.

Total equipment budget: $1.3M across multiple vendors.

Option 1: Bank-only solution

Their bank proposed:

Increasing the operating line and adding a 7-year term loan for the equipment.
Cross-collateralizing the new loan with their building and general security on all assets.
Adding a debt service coverage covenant.

The rate was attractive, but:

The combined package would use up nearly all of their remaining bank collateral room.
The approval process was tracking at 4–6 weeks.
The contractor was nervous about having all eggs in one basket.

Option 2: Blended bank + alternative equipment lender

Working with an equipment finance specialist similar to Mehmi, they structured:

Equipment leases – $1.1M
- 60-month terms, fixed buyouts.
- Seasonal payment profile with lower payments in winter.
- Security primarily on the equipment itself.
Small top-up bank term loan – $200k
- Used for yard improvements and a down payment on one yellow iron unit.
- Kept within existing bank security framework.

Result:

Bank capacity remained available for future real estate opportunities.
The contractor got credit approval and documentation in under two weeks, enabling them to order equipment in time for the construction season.
Cash flow impact was manageable, and seasonal structure matched their revenue curve.

Two years later:

Revenue was up more than 40% with healthy margins.
The bank happily renewed their operating line and discussed future real estate financing.
The contractor viewed the alternative lender as their “equipment department” and the bank as their “core treasury partner.”

Their comment:

“If we’d stuffed everything into the bank, we’d have saved a bit on rate and lost a lot on flexibility. Having both lets each do what they’re good at.”

FAQ: Bank vs. alternative equipment lenders in Canada

1. Are alternative equipment lenders safe compared to banks?
Most reputable alternative lenders are regulated financial institutions or well-established non-bank finance companies. They’re not deposit-takers like banks, but from a borrowing standpoint, the key is to check reputation, transparency, and how long they’ve been in the market. Industry reports show non-bank financial institutions holding a growing share of Canadian financial assets, reflecting their mainstream role. (Mortgage Professional)

2. Are rates from alternative equipment lenders always much higher?
Rates are usually higher than bank loans because alternative lenders take more risk and move faster. But the gap isn’t infinite, and total cost depends on structure, fees, and how quickly you can put the equipment to work. BDC and others stress that focusing only on rate can be a mistake—you need to factor in timing, collateral, covenants, and cash-flow fit. (BDC.ca)

3. Will using an alternative lender hurt my relationship with my bank?
In most cases, no. In fact, many banks quietly like having a reliable equipment finance partner in the mix, because it keeps you from over-extending your bank lines. BDC and federal policy documents explicitly position specialized lenders as complements to commercial banks, not competitors to be avoided. (Bank of Canada)

4. How fast can an alternative equipment lender approve financing?
For standard equipment and straightforward files, many alternative lenders can approve within 24–72 hours, and sometimes same-day for smaller tickets. Banks can move quickly too, but their processes and documentation requirements often make approvals slower—especially if they’re bundling the request with changes to your operating line or mortgage. (Bizfund)

5. When should I push harder with my bank instead of going to an alternative lender?
Push harder with your bank when:

You have strong, consistent profitability and low leverage.
You’re financing real estate or long-life improvements.
You don’t mind a slower process in exchange for the lowest possible rate.

Use an alternative lender (like Mehmi) when speed, flexibility, or equipment expertise matter more, or when you want to preserve bank capacity for bigger strategic moves.

6. How do I decide where a specific equipment purchase should sit—bank or alternative lender?
Ask yourself five questions:

How urgent is this purchase?
How much bank collateral room do I have left?
How complex or specialized is the equipment?
How strong are my current financials and covenants?
Do I expect a major financing need (building, acquisition) in the next 12–24 months?

If you need speed, want to avoid tying up collateral, or your story is stronger than your historical financials, a specialist in equipment financing like Mehmi is often the better fit. If it’s a slow, strategic move with textbook financials, your bank may be the cheaper long-term option.

Internal links used (list)

External citations used (list)

Business Development Bank of Canada (BDC), Equipment financing 101: Everything you need to know and How to choose a business loan: 5 factors to consider. (BDC.ca)
BDC, Monthly Economic Letter – June 2025 on business borrowing rates. (BDC.ca)
Bank of Canada, FAD press release October 29, 2025 and Understanding our policy interest rate. RBC, Bank of Canada interest rate announcement. (Bank of Canada)
Innovation, Science and Economic Development Canada (ISED), CSBFP comprehensive review report 2019–2024 and BDC legislative review consultation paper. (ISED Canada)
Competition Bureau Canada, Market study: Competition in financing for Canada’s SMEs. (Competition Bureau Canada)
Stan Prokop & other Canadian SME finance commentary on Medium, Alternative Business Financing in Canada and related pieces on bank vs alternative loans. (Medium)
Research and Markets, Canada Alternative Lending Market Size & Forecast 2025–2029. (Research and Markets)
MPA Magazine, Canadian nonbank lenders grow market share, outpacing traditional banks. (Mortgage Professional)
Briley Farber, The Hidden Truth: Financing Options for Canadian SMEs. (GlassRatner)
BizFund Canada, Private vs. Bank Business Loans in Canada: Key Differences. (Bizfund)

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