Equipment Financing: directory of firms

The tax treatment follows the legal form of the deal. Where equipment is bought, it is depreciable property: the agency's guidance explains that property such as buildings, furniture or equipment wears out or becomes obsolete over time, and that its cost is deducted over a period of several years through the yearly deduction called capital cost allowance, with the applicable class determining how that deduction is calculated.

Where equipment is leased, the agency's position is that you deduct the lease payments incurred in the year for property used in your business. There is an election that blurs the line: the agency allows lease payments to be treated as combined payments of principal and interest, provided you and the person from whom you are leasing agree to treat them that way. Under that election the agency considers that you bought the property rather than leased it and borrowed an amount equal to the fair market value of the leased property, so the interest portion is deducted as an expense and capital cost allowance can be claimed on the asset. It is available only where the property qualifies and the total fair market value of all the property leased exceeds the threshold the agency sets, and it is made by filing Form T2145 or Form T2146 with the return for the year.

None of this is a reason to pick a structure on tax grounds alone. Ask your accountant to model both against the actual numbers of your business before the paperwork is signed, because the election and the class matter less than whether the payment schedule survives a slow quarter.

The federal program is often misunderstood as government lending. Innovation, Science and Economic Development Canada is explicit that financial institutions deliver the program and are solely responsible for approving the loan: a business discusses its needs with a financial officer at any bank, caisse populaire or credit union in Canada, the institution decides, disburses the funds and registers the loan with the department. The government's role is to share the risk with the lender, not to lend.

The program's guidelines set out what can be financed and on what terms. Term loans cover the purchase, capitalized installation costs or improvement of equipment, along with real property, leasehold improvements, intangible assets and working capital costs, while a separate line of credit introduced in 2022 is aimed at day-to-day operating expenses. Since July 2022 the maximum term for a Canada Small Business Financing term loan is fifteen years for all loan classes, and a line of credit runs for a maximum term of five years. A registration fee calculated as a share of the term loan applies, and there is a cap on the annual revenue a borrower may have in the fiscal year the loan is approved.

Security is prescribed rather than negotiated. Where a term loan finances the purchase of real property or equipment, the guidelines require the security to be a valid and enforceable first charge on the assets financed. Some borrowers are outside the program altogether, including farming businesses, holding corporations, trusts, and entities acquiring real property for the sole purpose of renting it out.

A security registration does not disappear when the last payment clears. In Ontario a financing statement for a business loan can be registered for a period of one to twenty-five years or for a perpetual period, and where a consumer loan is repaid the lender is required to register a discharge within thirty days. Businesses should check the registry after a loan is paid out and ask the lender in writing to discharge anything that remains, because a stale registration surfaces at the worst moment, usually while arranging the next facility or selling the business.

Keep the file together as well: the agreement, the schedule, the invoice, the serial numbers and the insurance certificate. When equipment is sold, traded or written off, the accountant needs the same documents to deal with the capital cost allowance class it sat in, and the next lender will ask for them long before it asks anything else.

Equipment financing appears on LokalMatch as a directory. Firms write their own descriptions and you approach them directly. Nothing on the page is an assessment of a lender, a lessor or a broker, and no listing is a statement that one is more suitable than another.

We also take no part in the transaction. We do not arrange financing, compare offers, or receive anything tied to a deal being written. Compare commitment letters side by side yourself, ask your accountant about the treatment and your lawyer about the security and guarantees, and confirm with the financial institution what a government-supported loan would actually require of you.