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Canadian equipment leasing glossary
Plain-language glossary of Canadian equipment leasing terms so business owners can read, negotiate, and compare lease offers with confidence.
Short version: This is a wiki-style glossary of Canadian equipment leasing terms, written in plain English. If you’ve ever stared at a lease proposal and thought “what does any of this actually mean?”, this is for you.
You can skim by heading, or scroll alphabetically. Wherever it makes sense, I’ll point to how Mehmi and other Canadian lessors use the term in real-world structures.
Key point: Every equipment lease in Canada has a few recurring characters: the business using the gear, the company financing it, and often a vendor or broker in the middle. Get these straight and the rest of the language gets easier.
Lessee: Your business (or sometimes you personally) that uses the equipment and makes the payments under the lease.
Lessor: The finance company or lender that technically owns the equipment and leases it to you.
Vendor (or dealer): The company that sells the equipment (truck dealer, manufacturer, local equipment dealer, etc.).
Broker: A middle person who arranges the lease between you and one or more lessors.
CFLA: The industry association representing Canada’s asset-backed finance, equipment and vehicle leasing companies. (Canadian Finance & Leasing Association)
Key point: Most Canadian equipment leases fit into a few big buckets: operating vs capital/finance leases, FMV vs fixed-buyout leases, and sale-leasebacks. Knowing which one you’re being offered matters more than memorizing every sub-term.
Operating lease: A lease where you use the equipment for a set time and return it, without expecting to own it.
Capital lease / finance lease: A lease that behaves like a loan for accounting and tax, because most of the economic benefits and risks of the equipment are effectively transferred to you.
Common signs:
CRA lets certain lessees elect to treat these as borrowings, deducting an interest component and claiming CCA like an owner, if conditions are met. (Canada)
FMV lease: A lease where the end-of-term buyout price is “fair market value” at that time.
Fixed buyout lease: A lease with a pre-set end-of-term purchase price, sometimes as low as $1.
These structures are common with heavy equipment financing and truck and trailer financing when the customer clearly wants long-term ownership.
Lease-to-own: Any lease structure designed with a clear path to eventual ownership, usually through a small fixed buyout.
Master lease agreement (MLA): A framework contract that sets the overall legal terms between you and the lessor.
Sale-leaseback: You sell equipment you already own to a lessor and immediately lease it back.
This is one way Mehmi uses refinancing or sales leaseback structures to unlock equity from a fleet or machine line when owners need working capital. CFLA describes this type of asset-backed finance as using the equipment itself as the main security, whether by lease, loan, or conditional sales contract. (Canadian Finance & Leasing Association)
Key point: Beyond the headline monthly payment, leasing language hides how the deal actually behaves: interest, residual, fees, and special payment patterns.
Term: The length of the lease, usually in months (e.g., 36, 48, 60).
Residual value (RV): The assumed value of the equipment at the end of the lease.
Residual assumptions drive your payment: higher residual = lower payments, but more uncertainty later.
Base rate / implicit rate: The interest component baked into your lease payments, even though you may only see a total monthly number.
Interim rent: A pro-rated payment from delivery date to the official start date of the lease.
Example:
Step-up payments: A schedule where payments start lower and increase over time.
Seasonal payments: A schedule tailored to busy and slow seasons (e.g., higher payments May–September and lower or skipped payments in off-season).
Balloon payment: A large payment at the end of the term, after a series of lower regular payments.
Soft costs: Non-equipment costs often tied to the project—delivery, installation, wiring, training, warranties, software, etc.
Key point: For Canadian business owners, the important questions are usually “Can I deduct this?” and “How does GST/HST work on this lease?” The jargon here explains those mechanics.
CCA: Canada’s tax depreciation system.
Leasing costs: The lease payments you can deduct when equipment is used to earn business income.
ITCs: The mechanism that lets GST/HST-registered businesses recover GST/HST paid on business expenses, including lease payments.
Place of supply: Rules that determine which province’s GST/HST rate applies to your lease.
Asset-backed financing: Financing where the equipment itself is the main security, such as a lease, loan, conditional sales contract, or equipment line of credit. (Canadian Finance & Leasing Association)
Key point: Any serious Canadian lease is really about who owns what, and what happens if things go wrong. These terms live in the fine print but matter a lot in a tough year.
Security interest: The lender’s legal claim over equipment or other assets if you default.
Personal guarantee: A promise by an owner to make payments if the company can’t.
Cross-default: A clause that says if you default on one agreement, it can trigger default on other agreements with the same lender.
Cross-collateralization: A clause that allows collateral on one loan or lease to secure other obligations to the same lender.
In practice, if you have multiple schedules under a master lease, problems with one piece of gear can affect the rest—something Mehmi’s advisors will talk through when structuring multi-asset programs.
Assignment of lease: When the lessor sells or transfers the lease to another finance company.
Early termination: Ending the lease before the end of the term.
Key point: The underwriting and paperwork side may feel opaque, but the terms are fairly standard once you translate them.
Underwriting: The risk assessment process the lessor uses to decide if they’ll approve your deal and on what terms.
They look at:
Mehmi leans on industry-specific criteria using its industries overview because risk looks different for a trucking firm versus a dental clinic.
Application package: The basic documents needed to underwrite a deal:
Well-organized packages move faster; Mehmi’s FAQ and broker guidelines spell out what’s expected for Canadian deals.
Commitment letter: The written offer from the lessor, setting out key terms: amount, term, payments, conditions precedent, and any security or guarantees.
Schedule (asset schedule): An add-on to the master lease listing specific equipment, term, and payment details for that batch.
Key point: If you’re an equipment dealer or OEM, leasing language also shows up in vendor financing conversations—you’ll see a few extra terms on that side.
Vendor finance / vendor program: A formal partnership between a dealer and a finance company to offer in-house leasing to customers. (bdc.ca)
$X per month: A payment-first quote often used in ads (“Only $799/month!”).
Trade-up / upgrade clause: A contract term that lets you swap into new equipment before the end of the lease, usually by rolling some obligations into a new schedule.
Key point: Mehmi’s role is to translate this jargon into practical funding strategies—not just hand you a long lease document and hope you’re fine.
On any given day, Mehmi might:
If you’re reading through a proposal and hit a term that isn’t clear—even if it’s not on this list—flag it. A good lender or advisor should be able to explain it in one paragraph, not three pages.
You can dig into Mehmi’s blog for deeper dives on topics like CCA vs leasing, GST/HST on leases, and underwriting, or contact the team directly through Contact Us if you want help decoding a quote that’s already on your desk.
Background
A Toronto-area logistics company was adding a mix of:
The owner received three proposals from different leasing companies. Each used different combinations of terms: FMV, TRAC, capital lease, residual, seasonal payments, interim rent, etc. He admitted he “understood maybe half the words.”
Challenge
The company needed:
The owner’s bank was willing to do term loans but pushed for a large down payment and a GSA across the business. That would have squeezed the operating line just as they were adding routes.
How the glossary helped the conversation
When the owner sat down with a Mehmi advisor, they walked through a simplified, wiki-style glossary very similar to this one and translated each proposal:
Using that language, they built a hybrid structure:
Outcome
His reflection later was simple:
“Once I understood what ‘FMV lease’ and ‘cross-default’ actually meant in plain English, the right choice was obvious.”
That’s the real goal of a glossary like this: not to turn you into a leasing lawyer, but to give you just enough language to spot what actually matters in the deal.
1. What’s the practical difference between an operating lease and a capital/finance lease in Canada?
An operating lease is usually treated as a rental: you use the equipment for a period, return it, and deduct lease payments as an expense. A capital or finance lease effectively transfers most of the benefits and risks of ownership to you; accounting rules may put the asset and liability on your balance sheet, and CRA allows certain large leases to be treated like loans with CCA instead of straight lease deductions if you file an election. (Canada)
2. Are equipment lease payments tax-deductible for Canadian businesses?
Yes. When equipment is used to earn business income, lease payments are generally deductible as leasing costs in the year you incur them, subject to specific limits for passenger vehicles and special elections for large leases. The CRA “Leasing costs” guide explains this and outlines the forms (T2145/T2146) used if you choose to treat certain leases as loans for tax purposes. (Canada)
3. How does GST/HST work on equipment leases in Canada?
For most commercial equipment leases, you pay GST or HST on each lease invoice, not on the full purchase price upfront. The applicable rate is based on place-of-supply rules, which look at where the equipment is ordinarily located and used. If your business is registered for GST/HST and uses the equipment in commercial activities, you usually recover that tax through input tax credits (ITCs) on your returns. (Canada)
4. What is asset-backed financing and how is it different from a regular bank loan?
Asset-backed financing is funding where the equipment itself is the primary collateral—through a lease, loan, conditional sales contract, or line of credit. The Canadian Finance & Leasing Association describes it as an alternative to classic loans where financing companies own or secure the asset and are repaid through regular payments. (Canadian Finance & Leasing Association) Bank loans often rely more heavily on overall covenants and general security agreements; asset-backed deals can be more flexible and focused on the gear and its cash flow.
5. What’s a vendor program in equipment leasing?
A vendor program is a partnership between an equipment dealer or manufacturer and a leasing company that lets customers arrange financing directly through the dealer. BDC notes that vendor financing can be compelling but needs careful review of terms. (bdc.ca) Mehmi’s vendor program lets Canadian dealers offer quotes with payments, while Mehmi handles underwriting and funding behind the scenes.
6. How can I quickly compare different Canadian equipment lease offers?
To compare offers, break them into a few variables: term, payment amount and pattern, residual/buyout, total cost over the term, security/guarantees, and GST/HST treatment. Tools like BDC’s guidelines on equipment financing and a calculator like Mehmi’s calculator help you calculate the total cost of use, not just the monthly payment. (bdc.ca) If you translate each offer into this glossary’s terms—FMV vs fixed buyout, step-up vs level, cross-default or not—differences become much clearer.
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