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How Equipment Financing Protects Your Operating Line of Credit in Canada
Equipment financing helps preserve your operating line of credit by moving long-term asset purchases onto their own fixed repayment plan so your line stays available for short-term needs like payroll, inventory, and unexpected shocks. In practice, that means less stress, more flexibility, and a better relationship with your bank.
Most owners only realize this after they’ve done it the hard way—maxing out their bank operating loan on a big equipment purchase, then having no room left when a major customer pays 30 days late. Let’s walk through how it should work.
Your operating line of credit is meant for short-term working capital swings—things like receivables timing, inventory, and emergencies—not 5–7 years of machinery payments.
In Canada, banks and development lenders define a business line of credit (often called an operating loan) as a short-term, flexible facility you can draw on and repay as needed, tied to a pre-set limit.(BDC.ca) BDC notes that operating lines typically cover 30–90 days of cash-flow needs, especially when you’ve delivered work but are waiting to be paid.(BDC.ca)
Big picture:
Recent federal data shows Canadian businesses rely heavily on credit from banks and other private lenders to smooth cash flow and fund growth.(Bank of Canada) When your operating line is healthy—unused capacity, regular cycling up and down—you have options. When it’s jammed full of long-term equipment debt, those options disappear.
That’s the problem equipment financing is meant to solve.
Using your operating line of credit for equipment seems convenient—but it quietly loads long-term risk onto a tool built for short-term swings.
At first, it feels smart: you avoid extra paperwork, you can “just use the line,” and the bank might even suggest it. The issues show up later:
BDC and other Canadian lenders are pretty blunt: lines of credit are short-term tools, whereas working capital loans and equipment financing are designed for multi-year projects and asset purchases.(BDC.ca)
My honest view: if your operating line is consistently over 70–80% drawn because of equipment, you don’t have a working capital problem—you have a structure problem.
Equipment financing moves the cost of long-term assets onto their own fixed, predictable repayment structure, freeing your operating line for what it’s actually good at.
In Canada, equipment financing generally means a dedicated facility to fund machinery, vehicles, technology, and other long-life assets, either through loans or leases. BDC describes it as financing that lets you buy or lease tangible assets that will benefit your business for several years.(BDC.ca) Industry advisors highlight that these structures preserve cash flow and let you stay current with technology without paying everything upfront.(BDC.ca)
At Mehmi, the primary tools here are:
These tools have three key advantages over just drawing your bank line:
You can finance equipment through term loans as well, but leasing often gives more flexibility and less upfront strain:
Mehmi leans leasing-first via our Equipment Leases, then supplements with Asset Based Lending or term loans only where it clearly adds value.
If your operating line is already jammed with equipment costs, a sale-leaseback can effectively “rewind the tape.”
With Mehmi’s Refinancing or Sales Leaseback:
End result: the equipment cost is now on a term structure where it belongs; your operating line is freed for receivables, inventory, and opportunity.
An Equipment Line of Credit is not the same as a bank operating line:
This lets you keep adding or upgrading equipment without constantly renegotiating with your bank or loading up your operating line.
Structured properly, equipment financing doesn’t just “fund assets”—it actively protects and enhances your bank line.
Equipment has its own repayment plan, so your operating line sits at a lower, more variable balance. BDC and others emphasize that lines of credit work best when they’re used to bridge short-term cash gaps, not stuck at max.(BDC.ca)
Bankers notice the difference between:
Lower utilization buys you room for mistakes and opportunities.
Many operating lines come with covenants—ratios the bank expects you to maintain. If your line is permanently full, you’re more vulnerable if margins dip or sales slow.
By shifting equipment to dedicated Equipment Financing, you:
This is especially important as interest rates and credit standards have tightened in recent years.(Statistics Canada)
Lines of credit typically float with prime.(Canada) When rates jump, the cost of carrying long-term equipment on your operating line jumps too.
Leases and structured term facilities (like Mehmi’s Asset Based Lending) can use fixed or better-managed rates over the life of the asset, which:
Companies that separate tools generally have a cleaner stack:
That’s the logic behind Mehmi’s split between Equipment Financing and Business Loans like the Working Capital Loan, Line of Credit, and Invoice or Freight Factoring—each tool has a job.
If your bank is the only place you borrow, and everything sits on one line of credit, any change in that relationship hits hard.
By moving equipment onto specialized lenders and structures—such as Mehmi’s Equipment Leases or Asset Based Lending—you:
A half-empty operating line is a weapon:
Working-capital specialists point out that well-structured financing creates “liquidity buffers” that let businesses react quickly to market changes instead of freezing.(7 Park Avenue Financial)
In other words: when equipment financing pulls the long-term weight, your operating line can actually help you grow instead of just keeping you afloat.
Preserving your line doesn’t mean never touching it for equipment-related needs—it means using it strategically.
Here are situations where a mix makes sense:
Mehmi’s advisors often pair:
The key is to keep each piece honest: short-term tools for short-term needs, long-term tools for long-term assets.
If your line is already loaded with equipment, here’s a practical roadmap to fix it.
Pull your last 6–12 months of bank statements and:
If more than a third of the balance is long-term equipment and it’s not cycling down, it’s a red flag.
Create a simple list of all financed and unencumbered equipment:
This is exactly the type of schedule Mehmi will use to propose Equipment Financing, Asset Based Lending, or a Refinancing or Sales Leaseback solution.
Not every piece needs to move. Consider refinancing if:
Your Mehmi advisor can compare the cost of today’s structure against a potential Equipment Lease or Asset Based Lending solution.
Use Mehmi’s Calculator to model:
Compare total costs, but also look at risk: will you sleep better with a healthy line of credit and a fixed equipment payment?
Once the change is in motion:
Most banks will see this as a positive move—it shows you’re serious about managing working capital and reduces their short-term risk.
A southern Ontario manufacturer had:
The problem
Roughly $1.2 million of the line was effectively long-term equipment debt. The company was profitable, but every hiccup in receivables caused panic because there was simply no room left on the operating line.
What Mehmi did
After reviewing their equipment list and bank statements, we structured a two-part solution:
The proceeds were used to pay down the bank operating line and tidy up some high-interest short-term debt.
The outcome
Did the company pay some fees and interest to restructure? Yes. But they effectively traded a fragile, fully-tapped line for a stable stack: dedicated Equipment Financing, a right-sized operating line, and room to maneuver.
The core benefit is separation of roles. Equipment financing (especially leasing) matches loan terms to the life of the asset, with fixed payments and clear end-of-term options. Your operating line stays available for short-term working capital—receivables timing, inventory, and emergencies. Canadian lenders are clear that lines of credit are meant for short-term needs, while equipment loans and leases are for multi-year investments.(BDC.ca)
Usually yes. When your financials show that long-term assets are funded with term structures (leases or equipment loans) and your line of credit is cycling properly, your bank sees a more disciplined, lower-risk profile. Articles on how banks assess businesses emphasize the importance of appropriate financing structures and healthy liquidity, not maxed-out operating lines.(BDC.ca)
It can—but the real win is often risk reduction and flexibility. In many cases, leasing is not dramatically cheaper than using your line, especially if your line is at a low rate. However:
Think of them as complementary tools. A Working Capital Loan (cash-flow loan) finances growth projects and permanent working-capital needs over several years without tying up your line, while Equipment Financing covers long-life assets.(BDC.ca) Used together, they protect your operating line so it can focus on receivables and inventory, not long-term obligations. Mehmi offers both Equipment Financing and Business Loans (like Working Capital Loans and Lines of Credit) to build a stack that fits your situation.
Yes—this is actually one of the most common reasons to explore it. Through Refinancing or Sales Leaseback or Asset Based Lending, Mehmi can often move qualifying equipment off your operating line entirely, injecting cash that you can use to pay it down. As long as your business fundamentals are sound and the equipment has value, this can be a practical way to reset your structure and preserve your line.
As a rule of thumb, if the asset is tangible, productive, and has reasonable resale value, it’s probably eligible—trucks, trailers, machinery, medical and tech equipment, shop tools, and more. You can cross-check major categories on Mehmi’s Eligible Equipment page and then talk with us about specifics. If something doesn’t fit a standard Equipment Lease, we may still support it through Asset Based Lending or the right Business Loan product.
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