Banks vs. Private Lenders: Which Is Right for Equipment Financing?

You need a machine. Maybe it is a Cat 320 excavator for a subdivision project kicking off in six weeks. Maybe it is a Bobcat S650 skid steer because your current one is costing more in repairs than it is earning on jobs. Either way, you have arrived at the financing question every contractor eventually faces: do you go to your bank, or do you work with a private lender?

The answer is not as simple as "banks are cheaper" or "private lenders are easier." Both have real advantages and real drawbacks, and the right choice depends on your credit, your timeline, and what kind of machine you are buying. This guide walks through the full comparison so you can make the call that actually fits your situation.

How Bank Equipment Financing Works

When you finance equipment through a bank in Canada, you are dealing with a chartered institution — think RBC, TD, BMO, Scotiabank, or one of the credit unions. The bank lends you money to buy the machine, takes a lien on it as collateral, and you make monthly payments over a set term.

Banks have structured lending departments. Your application goes through an underwriter, possibly a credit committee, and the decision is based on your financial statements, credit history, and the bank's internal risk models. The rates tend to be lower because banks have access to cheap capital and they are selective about who they lend to.

Here is the typical bank experience for equipment financing:

• Application: You fill out a detailed application, provide two years of financial statements (often CPA-reviewed or audited), recent tax returns, a business plan or revenue projections, and personal guarantees.
• Timeline: 3-6 weeks from application to funded deal. Some banks take longer, especially for larger amounts or if additional information is requested.
• Approval criteria: Credit score of 680+, at least two years in business, positive net income, reasonable debt-to-income ratio, and clean personal credit.
• Collateral: The equipment itself, and often the bank wants additional security — a blanket lien on business assets, personal guarantees, or even real estate as collateral.

The bank process works well when you have time, strong financials, and a clean credit history. It falls apart when any of those three things are missing.

How Private Lender Equipment Financing Works

Private lenders are non-bank financial companies that specialize in equipment financing. In Canada, this includes companies that focus specifically on construction equipment, trucking, forestry, and other asset-heavy industries. They are regulated, legitimate operations — not some guy with a chequebook.

Private lenders make their decisions differently than banks. They weigh the equipment itself more heavily. A Cat D6 dozer with 3,000 hours holds its value and is easy to resell, so a private lender sees that machine as solid collateral regardless of whether your credit score is 720 or 580. Banks do not think this way — they want the borrower to be the primary source of repayment, with the equipment as a backup.

Here is the typical private lender experience:

• Application: Shorter application, usually one to two pages. You will need recent bank statements, a driver's licence, the details on the equipment, and basic business information. Financial statements help but are not always required.
• Timeline: 3-7 business days from application to funding. Some deals close in 48 hours.
• Approval criteria: Wider range accepted. Credit scores from 500 and up, startups with less than two years, seasonal businesses, contractors coming out of a rough year. The equipment quality and the down payment can compensate for weaker credit.
• Collateral: Typically just the equipment itself. No blanket liens on your other assets. No pledging your house.

The Side-by-Side Comparison

Here is where the two options stack up against each other on the factors that matter most to contractors.

Factor	Bank	Private Lender
Interest rates	6-10% for strong applicants	8-16% depending on risk
Approval speed	3-6 weeks	3-7 business days
Minimum credit score	680+ typically	500+ possible
Time in business	2+ years preferred	Startups considered
Down payment	0-10% for prime deals	10-25% typical
Documentation	Extensive (financials, tax returns, projections)	Lighter (bank statements, ID, equipment details)
Collateral	Equipment + often additional security	Equipment only, usually
Loan amounts	$50K-$5M+	$15K-$2M typical
Flexibility on equipment age	Prefer newer (under 5-7 years)	More flexible (up to 12-15 years)
Prepayment penalties	Common	Sometimes, but often negotiable
Seasonal payment options	Rare	Available from many lenders
Personal guarantee	Almost always	Usually, but terms vary

Key takeaway: Banks win on rate. Private lenders win on speed, flexibility, and accessibility. The best choice depends on which of those factors matters most for your specific situation.

When a Bank Makes Sense

Banks are the right call in specific situations. If you check most of these boxes, start with your bank:

When a Private Lender Makes Sense

Private lenders exist because banks cannot (or will not) serve every contractor. Here are the situations where going private is the smarter move.

Understanding the Rate Difference

The rate gap between banks and private lenders deserves a closer look because it is not always what it seems.

Say a bank offers you 7.5% on a new John Deere 135G, and a private lender offers 11%. Over a $150,000 loan on a 5-year term, the bank deal costs about $29,700 in total interest while the private lender deal costs about $44,100. That is a $14,400 difference — significant.

But now consider the hidden costs on the bank side:

• Appraisal fee: $500-1,500
• Legal/documentation fees: $500-2,000
• Application or commitment fees: $250-750
• Time cost: If the bank takes 5 weeks and you lose a $30,000 contract because you did not have the machine, the "savings" evaporate instantly
• Opportunity cost: That same 5 weeks of downtime while waiting for approval could have been generating revenue

The private lender might charge a documentation fee of $250-500 and that is it. No appraisal fee on many deals, no legal fees passed to you.

Key takeaway: Always compare the total cost of financing, not just the interest rate. A lower rate from a bank that takes six weeks to close can cost you more than a higher rate from a private lender that funds in five days.

What Happens When the Bank Says No

This is the most common path contractors take to private lenders. You start at your bank because it seems like the obvious choice. Two weeks later, the bank comes back with a decline — or worse, they ask for more documents and another two weeks pass before the decline.

If a bank declines you, here is what to do:

1. Ask why. The bank should tell you the reason. Common reasons include: credit score too low, insufficient time in business, debt ratios too high, equipment too old, or insufficient cash flow documentation.
2. Get your documents together. Whatever you gave the bank, organize it. A private lender will ask for less, but having everything ready speeds up the process.
3. Contact a broker or private lender directly. A broker like IronFinance works with multiple private lenders and can match your deal to the right one based on the specific reason the bank said no.
4. Be upfront about the bank decline. Private lenders work with bank declines every day. It is not a red flag to them — it is literally their business model. Trying to hide it just slows things down.

Most contractors who get declined at a bank are approved by a private lender within a week. The terms are different, but the machine gets bought and the revenue starts flowing.

Real Scenarios: Bank vs. Private

Can You Use Both?

Yes, and smart contractors often do. Here is how:

• Bank for your core fleet. The machines you know you need long-term — your primary excavator, your main dozer — finance these through the bank where the lower rate saves you money over 5-7 years.
• Private lender for opportunistic purchases. A deal pops up on a used Cat 330 that you cannot pass up, or you win a contract that requires a machine you do not have. Use a private lender for speed, then refinance through the bank later if it makes sense.
• Private lender to build credit. If you are currently a bank decline, finance a machine through a private lender, make 12-18 months of on-time payments, and then approach the bank again for your next purchase. Your track record will be stronger.

How to Choose

Ask yourself these five questions:

1. What is my credit score? Above 680, try the bank first. Below 650, go straight to a private lender. Between 650-680, it depends on your other factors.
2. How soon do I need the machine? Under 3 weeks, private lender. Over 6 weeks, bank is fine.
3. How old is the equipment? Under 5 years, either works. Over 7 years, private lender is more likely to say yes.
4. How long have I been in business? Under 2 years, private lender. Over 3 years with good financials, bank.
5. How much documentation can I provide? If you have audited financials and detailed tax returns ready, the bank process will be smoother. If your bookkeeping is "a shoebox of receipts and a QuickBooks file your cousin set up," a private lender's lighter documentation requirements are your friend.

Key takeaway: There is no universally "better" option. The right lender is the one that matches your credit profile, your timeline, and the specific equipment you are buying. The worst thing you can do is waste four weeks at a bank only to find out you should have gone to a private lender from the start.

Next Steps

If you are not sure which path is right for your deal, the fastest way to find out is to talk to someone who works with both banks and private lenders. At IronFinance, we match contractors with the right lender based on the full picture — your credit, your business, the equipment, and your timeline. One application, multiple options, and an honest recommendation on which one fits.

Sources: Mehmi Group, BDC. Information current as of March 2026.

You can also read our guide on equipment financing down payments to understand what different lenders expect you to bring to the table, or check out our guide on comparing equipment loan rates to make sure you are evaluating offers apples-to-apples.