Refinancing high-cost equipment loans into better terms
TL:DR If you’re stuck with expensive equipment loans, merchant cash advances, or short-term deals, you can usually refinance into lower-cost, longer-term structures by using the equipment itself as collateral. In practice, that means options like sale–leaseback, equipment refinancing, and asset-based lending, often combined with a small working capital or consolidation loan. The goal is to trade “bleeding every month” for predictable payments that fit your cash flow – without giving up the equipment you rely on.
Why so many Canadian businesses want out of bad equipment debt
Refinancing isn’t just about chasing a slightly better rate. For a lot of Canadian business owners, it’s about getting out of a trap.
Here’s the backdrop:
- The Bank of Canada has cut its policy rate to 2.25% as of October 29, 2025. (Bank of Canada)
- Yet the average interest rate on small-business debt financing hit 7.3% in 2024, according to Innovation, Science and Economic Development Canada. (ISED Canada)
- Many owners are still carrying pandemic-era debt, with one 2024 snapshot showing 65% of businesses have COVID-related debt averaging about $108,000. (Bizfund)
- Rising interest and debt costs are now the third-most expected obstacle for businesses, cited by 34.1% across Canada. (Statistics Canada)
Layer on top of that the fact that some “fast” equipment loans and merchant cash advances effectively cost 35–45% annually once you do the math, (EBF) and it’s no surprise many owners feel squeezed.
The good news: if your equipment still has decent value and your business is operating, you usually have more options than you think.
When does it actually make sense to refinance equipment debt?
Key point: Refinancing is worth exploring when it meaningfully improves cash flow, risk, or flexibility – not just because someone is offering a new loan.
Here are common triggers where a refinance conversation is smart, not just wishful thinking:
1. Payments are strangling your cash flow
Your current equipment loan or lease might have:
- A short remaining term with very high payments
- A rate that’s climbed with market changes
- A structure that doesn’t match the revenue pattern of your projects
If your debt payments are crowding out payroll, fuel, or inventory, refinancing into a longer term or lower rate can make the difference between survival and burnout.
2. You used the wrong product to buy equipment
This happens a lot:
- Equipment bought using a merchant cash advance,
- Credit cards and personal lines of credit, or
- Super-short online loans with daily or weekly payments.
These were designed as working-capital tools, not 5–10-year assets. When this sits on your books for too long, you’re overpaying and under-reporting risk to yourself.
Refinancing into a proper equipment lease or asset-based structure can shift that cost onto a realistic timeline.
3. You want to consolidate multiple small debts
It’s common to see a business with:
- Two or three small equipment loans,
- A couple of MCAs,
- A maxed credit card – all linked to growth and gear.
A well-structured refinance can consolidate these into one or two predictable facilities, ideally with better pricing and a clearer security structure.
4. Your overall risk profile has improved
If you’re:
- More established,
- More profitable, or
- Sitting on a stronger equipment base
…than when you originally financed, you may now qualify for more competitive terms from mainstream or specialist lenders. That’s especially true now that overall rates have come down from their 2023–24 peak. (ISED Canada)
5. You need capital for new opportunities
You might be eyeing a:
- New contract, route, or division
- Expansion into another province
- Fleet or shop upgrade
Refinancing existing equipment can free up capital, so you’re funding growth instead of just servicing old mistakes.
Main refinancing options for high-cost equipment loans
Key point: Most refinancing strategies fall into five buckets: restructuring with your existing lender, refinancing to a new lender, sale–leaseback, asset-based lending, and consolidating “bad” debt into structured, secured facilities.
Let’s walk through each in a Canadian context.
Option 1: Restructure with your current lender
Sometimes the simplest move is to re-negotiate what you already have. That might include:
- Extending the term to reduce monthly payments
- Moving from a floating rate to a fixed rate (or vice versa)
- Capitalizing arrears or fees and rolling them into a new schedule
Pros:
- Typically faster and cheaper to arrange
- No new lender to educate on your business
- Less paperwork
Cons:
- Lender may have limited appetite or rigid policy
- If you’re already in arrears, leverage is lower
- They might only offer cosmetic changes (e.g., minor term tweaks)
This is worth a try, but you shouldn’t stop here if your debt remains clearly out-of-market on rate or structure.
Option 2: Refinance into a new equipment facility
In many cases, a new lender can simply refinance the remaining balance of your existing loan:
- The new lender pays out the old one
- You sign a new agreement with better rate/terms
- The equipment secures the new deal
This can be structured as:
- A straight equipment lease under Mehmi’s equipment financing programs
- A term-style facility with stronger collateral support
- A blended structure if you’re adding new equipment at the same time
You might improve:
- Rate (especially if you’re coming off MCA-level costs)
- Term (longer repayment period = lower monthly payment)
- Covenants (more realistic reporting and ratios)
The trade-off is that you will likely incur payout penalties on the existing loan – which have to be weighed carefully in the math.
Option 3: Sale–leaseback to unlock equity
This is one of the most powerful tools for refinancing high-cost equipment debt.
With a refinancing or sales leaseback:
- The lender buys your equipment at an agreed value.
- You immediately lease it back under a new contract.
- You get a lump sum you can use to:
- Pay out expensive loans or merchant cash advances
- Consolidate scattered equipment debts
- Fund growth or working capital
You keep possession and use of the equipment, but shift its equity into cash and a fresh lease.
Sale–leaseback works best when:
- Your gear is in decent condition and not over-aged
- You have a clear use for the cash (paying out high-cost debt or funding growth)
- You’re comfortable with the new term length
Many Mehmi clients use this to clean up messy capital stacks and move onto a single, transparent lease schedule.
Option 4: Asset-based lending on your equipment fleet
If you have a number of good-quality units – trucks, trailers, heavy equipment, production machinery – asset based lending can refinance and consolidate:
- The lender advances a percentage of the orderly liquidation value of the fleet.
- Existing loans are paid out from the advance.
- You repay the ABL facility over time, with the fleet as collateral.
Pros:
- Can handle multiple assets and creditors at once
- Often more flexible than traditional bank loans on covenants
- May be available even when banks are uneasy with your sector
Cons:
- Requires appraisals and good records of what you own
- You must be comfortable pledging a broad pool of equipment
This is a strong fit for construction, transportation, manufacturing, and other asset-heavy businesses – especially where there’s a mix of older and newer equipment.
Option 5: Consolidating MCAs and short-term debt into structured loans
Many owners ask some version of: “Can I roll my merchant cash advances into something sane?”
The answer is often yes – but not usually by themselves. Instead, you:
Why that matters:
- MCAs in Canada often carry effective rates between 35–45% (EBF)
- In contrast, lines of credit and term loans are usually priced at prime plus a margin, often in the high single to mid-teens depending on risk. (WOWA)
Even if your new blended rate isn’t perfect, it’s usually far less punishing than stacked MCAs, and easier for an advisor to defend to future lenders and bonding companies.
Special mention: government-backed term loans
The Canada Small Business Financing Program (CSBFP) allows lenders to make term loans and lines of credit to small businesses with the federal government sharing part of the risk. (ISED Canada)
CSBFP loans can sometimes be used for:
- Purchasing or improving equipment
- Leasehold improvements
- Real property (buildings, land)
Refinancing is more limited and rule-bound, but in some cases, owners can work with their bank to consolidate eligible debt into a CSBFP-backed term loan. That can free up capacity for more flexible tools from non-bank lenders like Mehmi.
Lease vs loan: how refinancing changes the structure
Key point: You’re not stuck in “loan world” just because you started there. Refinancing often means shifting from a loan into a lease or ABL facility, which changes how the debt behaves.
Here’s a simple comparison:
Mehmi’s equipment financing overview covers both leases and other structures. The right answer depends on:
- How long you expect to keep the equipment
- How much residual value you want to assume
- Your accountant’s advice on tax and balance sheet optics
What lenders look for in a refinance request
Key point: A refinance is not an apology tour. It’s a chance to present a stronger, cleaner structure to lenders – but you need to show a believable path forward.
Most underwriters focus on five things:
1. Cash flow under new terms
They’ll test whether your business can comfortably handle the new monthly payment, not just whether the rate is lower. This often includes:
- Looking at 6–12 months of bank statements
- Comparing total debt service before and after refi
- Stress-testing for moderate revenue dips
2. Equipment value and condition
The equipment is the backbone of the deal. Lenders will check:
- Make, model, year, hours/kilometres
- Condition and maintenance history
- Any existing liens or registrations
This determines how much they’ll lend under asset based lending or a sale–leaseback.
3. Existing debt stack
A good refinance proposal outlines:
- All current equipment loans, leases, MCAs, and cards
- Payout figures and penalties
- Who will be paid out, who remains, and what security will be released
This is where working with an experienced advisor matters – the security registrations and payouts have to be sequenced properly.
4. Your story and direction
Lenders know the last few years have been brutal. They want to understand:
- What went wrong (rates, pandemic, a bad contract)
- What’s changed (new clients, cost controls, better pricing)
- How the new structure sets you up for stability and growth
A clear narrative plus a realistic forecast beats vague optimism every time.
5. Personal and business credit behaviour
Past blips don’t automatically kill a refinance, but they do shape:
- Whether a secured loan makes sense
- How much personal guarantee is required
- How conservative the new structure needs to be
If your credit has taken some hits, a Mehmi advisor can often still build a story that lenders will consider, especially when there’s strong equipment backing and improving performance.
A step-by-step plan to refinance bad equipment debt
Key point: The process is less about “shopping for a rate” and more about designing a structure that fixes your cash flow.
Here’s a practical roadmap:
Step 1: List everything you owe
Create a simple table with:
- Lender name
- Type (loan, lease, MCA, card)
- Original amount
- Current balance
- Payment amount and frequency
- Remaining term
- Payout penalty (ask for a written payout quote)
Step 2: Inventory your equipment
For each major piece, note:
- Year, make, model, serial/VIN
- Hours or kilometres
- What you think it’s worth
- Whether it’s currently free and clear or still financed
You’ll quickly see which assets have equity and which are underwater.
Check your list against Mehmi’s eligible equipment to confirm what can realistically support refinancing.
Step 3: Decide your priorities
Be honest: what matters most right now?
- Lower monthly payments?
- Eliminating daily or weekly MCA withdrawals?
- Freeing up room on your bank line?
Knowing your top 1–2 outcomes lets your advisor design a structure that actually solves the right problem.
Step 4: Explore structures, not just products
With a Mehmi advisor, you can map several scenarios, such as:
Use the Mehmi calculator to test different terms and amounts before you commit.
Step 5: Clean up your file
Before applications go out:
- Bring taxes and filings as up to date as possible
- Prepare basic financials (even management-prepared)
- Avoid new borrowing or bounced payments while the refinance is in underwriting
If there’s a strong reason your recent numbers look rough (e.g., a one-time hit), document it. You’re telling a story, not hiding the past.
Step 6: Execute the payouts carefully
Once approvals are in, your advisor coordinates:
- Payout letters from existing lenders
- Release of security registrations
- Disbursement of funds to clean up the targeted debts
This is where using a single advisor like Mehmi – across equipment financing and business loans – reduces the risk of duplication, missed liens, or last-minute surprises.
When you’re ready to map out your own plan, you can connect directly via Contact Us and walk through your numbers with a Canadian credit specialist.
Anonymous case study: from stacked MCAs to one clean equipment structure
Profile (details changed, story real-world style)
- Ontario-based transport and logistics company
- 18 trucks, 24 trailers; mix of highway and regional routes
- Revenue around $6.5M, but cash flow under pressure
The problem
During 2022–23, the owner:
- Took three merchant cash advances to cover fuel spikes and repairs
- Financed two newer tractors on short-term, high-payment loans
- Maxed a personal line of credit for a trailer purchase
By early 2024:
- Debt payments were chewing through cash every week
- Total effective interest cost was well into the high double digits
- The owner was working 70+ hours just to keep up with payments
The refinancing strategy
Working with a Mehmi advisor, they built a three-part plan:
- Fleet sale–leaseback
- Identified nine trucks and twelve trailers that were either free and clear or had small remaining balances.
- Structured a refinancing or sales leaseback, raising enough cash to:
- Pay out all three MCAs
- Pay off the personal line of credit
- Equipment refinance & consolidation
- Replaced the two high-payment truck loans with a new truck and trailer financing schedule at a longer term.
- Consolidated a couple of small equipment balances into the same facility.
- Working capital buffer
- Added a modest line of credit secured by receivables, to handle seasonal swings without going back to MCAs.
Results 12 months later
- Weekly cash outflow on debt dropped by roughly 35%.
- The company’s on-time delivery and driver retention improved once constant cash crunches eased.
- The owner had one clear view of debt: a structured equipment stack and a manageable working capital line.
Most importantly, the refinance traded chaos for predictability. Nothing magical – just the right mix of equipment leases, sale–leaseback, and working capital instead of piecemeal high-cost debt.
FAQ: Refinancing high-cost equipment loans in Canada
1. When does refinancing equipment debt actually save money?
Refinancing tends to help when at least one of these is true:
- Your current effective rate is way out of line (e.g., MCA-level costs of 35–45% (EBF)).
- Your payments are so high that you’re constantly short on payroll or fuel.
- You can extend the term to match the remaining useful life of the equipment.
A Mehmi advisor can help you compare the total remaining cost of your current loans versus new structures using their calculator.
2. Can I refinance if my credit is weaker now than when I started?
Possibly. Lenders look at the whole picture:
- Equipment value and condition
- Current cash flow and contracts
- How the new structure fixes existing problems
You may not get “best market” pricing, but with strong equipment collateral, asset based lending or sale–leaseback can still work even if your score took a hit. Mehmi also has access to secured and unsecured loan options when they make sense.
3. Can I roll merchant cash advances into an equipment refinance?
Yes – but usually as part of a bigger plan:
- Use equipment-based facilities (lease, ABL, sale–leaseback) to free up cash.
- Add a working capital loan or consolidation facility.
- Pay out MCAs in full and close them so they don’t creep back.
Given how expensive MCAs are relative to other tools (EBF), it’s often one of the first targets in a refinance strategy.
4. Can I refinance a lease, or only loans?
You can typically refinance both:
- Loans can be replaced by new loans or leases.
- Leases can sometimes be bought out and replaced, or you can use refinancing or sales leaseback to restructure the asset under a new agreement.
The key is to get payout figures and check whether penalties outweigh the benefits. A Mehmi advisor will model this before recommending a switch.
5. How often can I refinance my equipment?
There’s no hard rule, but you don’t want to refinance so often that you never actually pay down principal. Most businesses look at refinancing when:
- Rates or their risk profile have improved significantly
- Their structure (term, covenants, payment shape) no longer fits their business
- They’re reacting to a major opportunity or stress event
As a rule of thumb, aim to let a structure run a few years unless there’s a clear, material benefit to changing it sooner.
6. How does Mehmi approach refinancing compared to just selling me a new product?
Mehmi works across both equipment financing and business loans, so the focus is on the overall structure, not a single product. That might mean:
- Saying no to unnecessary new debt
- Using equipment leases and asset-based solutions where they make sense
- Leaving your bank line alone for everyday operations
If you’d like a second opinion on whether refinancing your equipment debt makes sense right now, you can start a conversation through Contact Us and work through your numbers with a Canadian credit advisor.
Internal links used
External citations used
- Bank of Canada, Key Interest Rate (policy rate history, including 2.25% as of October 29, 2025). (Bank of Canada)
- Innovation, Science and Economic Development Canada, Small Business Credit Condition Trends, 2014–2024 (average interest rate on SME debt financing at 7.3% in 2024). (ISED Canada)
- Statistics Canada, Inflation, input costs, debts: A snapshot of small business conditions (34.1% of businesses citing rising interest and debt costs as a key obstacle). (Statistics Canada)
- BizFund, A snapshot of Canadian small businesses, their challenges and trends in 2024 (65% of businesses still carrying pandemic debt, average $108,000). (Bizfund)
- Equitable Bank / EBF, The risks of merchant cash advances (typical effective MCA rates between 35% and 45%). (EBF)
- Advance Funds Network & related MCA sources (higher total cost, effective APRs exceeding 40%, factor-rate structure). (Advance Funds Network)
- Government of Canada, Canada Small Business Financing Program – Helping small businesses get loans (program overview and limits). (ISED Canada)
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