Equipment Financing in a High Interest Rate Environment

Interest rates across Canada have climbed sharply since 2022—and many business owners are feeling the effects.

Whether you’re looking to upgrade machinery, replace vehicles, or automate operations, the cost of borrowing is higher in 2025 than it has been in years. That doesn't mean you should delay critical investments—but it does mean your financing strategy matters more than ever.

This article will help you understand:

• How interest rate hikes affect equipment financing
• Why “waiting it out” can backfire
• Strategies to reduce long-term costs
• When leasing might be smarter than buying
• How to protect your cash flow while still modernizing your business

The Reality of Rising Rates

Bank of Canada policy rates have risen steadily over the past 24–36 months to curb inflation. As a result, most business loans—especially unsecured or variable-rate loans—carry much higher interest than they did pre-pandemic.

Typical equipment loan ranges as of mid-2025:

Why Waiting to Finance May Not Be the Best Strategy

While it's tempting to delay equipment purchases during high-rate periods, there are risks:

• Further rate hikes could push costs even higher
• Old equipment breakdowns cost time, money, and credibility
• Lost opportunities (contracts, upgrades, staffing) from waiting
• Inflation continues to erode the buying power of your cash

Smart borrowing with protection built in is often better than waiting for a “perfect” rate that may not return for years.

Strategy #1: Choose Fixed-Rate Equipment Loans

With interest rates still volatile, a fixed-rate loan provides certainty. Your rate won’t change for the term—whether that’s 36, 48, or 60 months.

Benefits:

✅ Predictable monthly payments
✅ Protection if Bank of Canada raises rates further
✅ Better for budget planning in volatile environments

Explore: Equipment Leasing & Loans

Strategy #2: Opt for Shorter Loan Terms

In a high-rate environment, the total cost of borrowing rises with longer terms. A shorter loan might mean higher monthly payments—but you’ll pay less interest overall.

Example:
Borrowing $100,000 at 12.5%

You could save $14,000+ in total cost by choosing a 3-year term instead of 5 years.

If cash flow allows, ask your credit analyst about shorter-term options—even if it means a slightly larger monthly obligation.

Strategy #3: Consider Leasing Over Loans

When interest rates are high, equipment leases may offer better affordability for some businesses.

Why?

• Leasing companies often subsidize rates through vendor partnerships
• You don’t pay for full ownership upfront
• End-of-term flexibility (buy, return, or upgrade)

Best For:

• Assets with fast tech obsolescence (e.g. automation, diagnostics, IT)
• Businesses with seasonal revenue who want lighter monthly burdens
• Clients who prioritize cash flow preservation

Explore: Refinancing & Sale-Leaseback

Strategy #4: Bundle Costs Into One Structured Payment

Rather than financing just the equipment and paying for shipping, install, training, and taxes separately—combine them into your loan.

✅ Lower upfront costs
✅ Smoother cash flow
✅ All-in-one approval and disbursement

Many Mehmi clients bundle:

• Delivery and installation
• Custom accessories or software
• Warranty or service plan
• First year of consumables

Real Case Study: Beating the Rate Curve in 2025

Business: Ontario-based HVAC contractor
Challenge: Needed $82,000 in equipment for upcoming contracts, but concerned about high interest rates
Strategy:

• Chose fixed-rate lease at 11.75%
• Structured 42-month term with deferred first payment
• Bundled tools, software, and training costs into single monthly

Outcome:
Won the contract with no upfront expense, locked in pricing before rates rose another 0.5% the following quarter. Client expects ROI in under 14 months.

FAQs: Financing in a High-Rate Environment

Should I just wait for rates to go back down?
That’s a gamble. Rates may stay high into 2026 or beyond. Waiting often costs more in lost revenue or inflation.

Is a variable rate ever a good idea?
Not typically in 2025. Fixed rates protect your payment structure from market shocks.

Can I refinance later if rates drop?
Yes. Some Mehmi clients refinance or use sale-leaseback to take advantage of better terms later.

What credit score do I need in a high-rate climate?
Most lenders look for 600+ in 2025. Strong cash flow and time in business help you qualify for better terms.

Final Word: Rise Above the Rate Spike

You can’t control interest rates—but you can control your strategy.

With the right financing structure—fixed rates, shorter terms, or lease-based solutions—Canadian businesses can still invest in critical equipment, protect their capital, and grow confidently.

Need help navigating higher interest rates while securing new equipment?
Talk to a credit analyst or use our calculator to explore smart, rate-conscious financing options.

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