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If you've ever felt overwhelmed by the jargon in equipment loan paperwork, you're not alone.
From “residual value” to “PPSA lien,” equipment financing can feel like a different language—especially for first-time borrowers or business owners exploring their options.
That’s why we created this plain-English glossary: a one-stop reference to help you feel confident in any financing conversation.
Bookmark it. Share it. Use it before your next call with a broker or lender.
The process of spreading loan payments evenly over time so that each payment includes both interest and principal. Most equipment loans are amortized monthly.
The total yearly cost of borrowing, including interest and any fees, expressed as a percentage. It helps you compare financing offers.
A large, lump-sum payment due at the end of a loan term. Some leases or short-term loans use balloon structures to lower monthly payments upfront.
The amount you may need to pay at the end of a lease to own the equipment. Often $1, 10%, or fair market value, depending on the lease type.
A lease structure that behaves like a loan—you gain full ownership at the end, and payments may be recorded as assets/liabilities on your balance sheet.
An asset pledged to secure a loan. In most cases, the equipment itself serves as collateral.
Explore: Secured vs. Unsecured Equipment Loans
The reduction in value of equipment over time due to use and aging. Important for tax purposes via Capital Cost Allowance (CCA) in Canada.
An upfront payment toward the cost of the equipment. Typically ranges from 0–30% depending on credit, lender, and asset type.
When a borrower pays off the remaining loan balance before the end of the agreed term. Some lenders allow early payoff without penalty; others may not.
A lease where you can return the equipment at the end, renew the lease, or buy the asset at its fair market value.
The estimated value of the equipment at the end of the lease term. Used to calculate your buyout or remaining balance.
Common in commercial vehicle financing. Lets you lease with a predetermined residual value. If actual value differs at end-of-term, you may pay or be reimbursed the difference.
A lease where the asset is treated as an expense and not shown on the balance sheet. Often used when equipment won’t be owned long-term.
A legal claim against equipment used as collateral. The lender registers a lien to secure repayment rights.
A public record of a lender’s lien against your business asset. Standard in most Canadian equipment loans.
A promise by the business owner to repay the loan personally if the business can’t. Common in startup or smaller business loans.
Explore: Personal Guarantees in Equipment Financing
The ratio of loan amount to the equipment’s purchase price. Lower LTV (e.g. 80%) may mean stronger approval odds or lower rates.
A lender metric that compares your cash flow to debt payments. A DSCR over 1.25 is typically viewed as healthy.
The total time over which you’ll repay the loan. Usually between 24–84 months for equipment financing.
Canada’s version of tax depreciation. Allows you to write off a portion of equipment value each year.
Explore: Tax Benefits of Equipment Financing
A credit you can claim for the GST/HST paid on business equipment, assuming your business is registered for HST.
A credit check that doesn’t affect your score. Used by Mehmi to prequalify clients before sending to lenders.
How long it takes to receive the loan. At Mehmi, many approvals happen within 24–48 hours.
Understanding financing language helps you avoid surprises and negotiate better terms. Whether you're leasing your first vehicle, refinancing a fleet, or layering funding tools—it all starts with a shared vocabulary.
At Mehmi, we make sure you know exactly what you're signing, why it matters, and how it helps you grow.
Still have questions about a term or concept?
Talk to a credit analyst or try our calculator to model terms and payments instantly.
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