Used equipment is eligible under the Canada Small Business Financing Program. ISED's program rules do not restrict financing to new equipment. The eligible cost categories cover "equipment" broadly, and used equipment that meets the eligibility criteria qualifies for CSBFP financing.
This is a significant practical point: for many businesses, the right capital expenditure is a quality used piece of equipment at 40 to 70% of new-equipment cost, not a new unit. CSBFP accommodates this, with conditions.
The core requirement: arm's-length purchase or an appraisal
Used equipment can be bought from an arm's-length seller or from a related (non-arm's-length) party. The difference is how the eligible cost is set:
- Arm's-length seller: an independent third party with no relationship to the borrower, the borrower's directors, or the borrower's shareholders. The eligible cost is the price paid, and the price should reflect fair market value, what an independent buyer would pay in an open market.
- Related seller: a related party, family member, controlling shareholder, or affiliated entity. The purchase is allowed, but the lender must obtain an appraisal of the equipment's market value, and the eligible cost is the lower of the purchase price and the appraised value.
- Exception: if the related seller bought the equipment at arm's length within the previous 365 days and resells it at no more than what it paid, the appraisal step does not apply.
This rule exists to prevent the program from financing inflated transactions between related parties. A business owner who transfers equipment from one company they own to another at an inflated price can only have the appraised market value treated as eligible cost, not the inflated price.
How lenders verify used equipment value
For new equipment, the invoice is the price. There is no valuation question. For used equipment, the lender needs to be satisfied that the purchase price reflects fair market value. How they do this depends on the price and equipment type:
Lower-value used equipment (under $50,000): For used equipment at lower price points, many lenders accept a documented comparison of market prices, auction results, dealer asking prices for comparable units, or a comparable-sales print-out from an equipment marketplace (Machinery Trader, IronPlanet, Kijiji commercial, or similar). The borrower provides this documentation as part of the file.
Mid-range used equipment ($50,000 to $150,000): Lenders typically require either an independent dealer appraisal (a signed appraisal from a qualified equipment dealer in the relevant category, confirming the fair market value of the specific unit) or evidence of comparable market transactions for similar equipment in similar condition.
Higher-value used equipment ($150,000+): A formal written appraisal from a qualified, independent equipment appraiser is standard practice at most lenders above this threshold. The appraisal is at fair market value. Many lenders also ask the appraiser for a forced-liquidation or orderly-liquidation value, which informs the lender's collateral assessment.
The condition question
CSBFP does not specify a minimum condition standard for used equipment. However, lenders consider equipment condition when:
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Assessing collateral value. The lender's security interest is in the financed equipment. Equipment that is near end-of-life or in poor mechanical condition has limited collateral value. A lender who knows the equipment is worth $30,000 at forced liquidation will be less comfortable financing $80,000 against it.
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Assessing the business plan. A business plan that projects strong revenue from a piece of equipment that is already at its operational limits raises questions about the revenue assumptions. Will this equipment reliably run for the 7 years the loan is amortized?
Documenting equipment condition is the borrower's responsibility. For significant used equipment purchases, a third-party inspection report (from a qualified mechanic, engineer, or equipment specialist) is valuable. It demonstrates due diligence and gives the lender confidence that the equipment is mechanically sound for the intended use.
Industries where used equipment dominates CSBFP files
Several sectors routinely finance used equipment under CSBFP:
Restaurants and commercial kitchens: The secondary market for commercial kitchen equipment (ranges, ovens, refrigeration, dishwashers) is deep. A used commercial deck oven at $8,000 vs. new at $25,000 is a common decision. Lenders in the restaurant sector regularly process used equipment files.
Manufacturing and CNC machining: Industrial CNC machines, lathes, milling centres, and press equipment have a robust secondary market through machinery dealers and auctions. A used 3-axis CNC machining centre from a reputable dealer at verified market price is a routine CSBFP equipment file.
Construction and trades: Used equipment (excavators, skid steers, boom lifts, telehandlers) is the norm in the trades sector. Most construction and trade businesses buy used equipment from equipment dealers or auctions at 50 to 70% of new cost. CSBFP is widely used for these purchases.
Automotive and body shops: Used frame machines, lifts, and compressors are common. The secondary market for automotive shop equipment is active and well-priced.
Craft breweries and distilleries: Used brewing equipment (fermentation vessels, brewing systems) is regularly purchased through equipment brokers and from closing or consolidating breweries. This is a well-accepted file type.
When used equipment creates a loan sizing problem
Used equipment purchased at fair market value is the eligible cost. But fair market value for used equipment is almost always below what the business would pay for the equivalent new unit. This affects loan sizing:
- If a new restaurant oven costs $25,000 and the used oven is $8,000, the CSBFP loan covers $8,000 (less the equity injection). The absolute loan size is smaller, but the LTV and DSCR dynamics are better.
- The lender cannot lend more than the purchase price of the used equipment. If the business wants to borrow $15,000 against an $8,000 used oven, that is not possible. The eligible cost is $8,000.
The corollary: buying used equipment at below-market prices is not a problem. If a business acquires a piece of equipment from an arm's-length seller at a price that happens to be below market (a motivated seller, a liquidation sale), the eligible cost is the actual purchase price, not the market value.
The "already-owned equipment" trap
A common misunderstanding is about timing. Registration is not the cut-off: the lender registers the loan after the first disbursement. Costs the borrowing business paid or committed within 365 days before the loan approval date (or conditional approval date) are eligible, so equipment the business bought in that window can be covered by the loan. Equipment the business paid for earlier than that falls outside the look-back.
Equipment the owner holds personally is a different case, because the borrower is the business, not the owner. If the business needs to finance equipment already in the owner's possession, the structure is a sale from the owner to the business entity, financed by the CSBFP loan. Because the owner is a related party, the lender must obtain an appraisal of market value, and the eligible cost is the lower of the sale price and the appraised value (unless the owner bought it at arm's length within the previous 365 days and sells it at no more than cost). The transaction must be documented as a real sale, and lenders will look carefully at the pricing and structure.
Summary: used equipment checklist
Before submitting a CSBFP file with used equipment:
- Confirm whether the seller is arm's-length; if it is a related party, plan for the lender's market-value appraisal (eligible cost is the lower of price and appraised value)
- Document fair market value with comparables or an appraisal (higher-value equipment)
- Obtain a condition report or inspection for significant mechanical equipment
- Confirm the equipment condition is adequate for the projected useful life
- Ensure the purchase agreement or invoice clearly identifies the seller, buyer, equipment, and price
- Confirm the purchase falls inside the eligible window (paid or committed no more than 365 days before the loan approval date)
The CSBFP eligible costs page covers the full scope of what is eligible under each cost category. The document checklist covers what supporting documentation the lender will require with the equipment purchase.
Written by Capital Toolkit