Interest rates were expected to fall in 2025—but uncertainty is creeping back in. Global tensions, inflationary pressures from tariffs, and infrastructure spending plans all pull Canadian monetary policy in different directions. For businesses eyeing their next big equipment purchase, equipment lease, or financing decision, understanding how interest rates work—and where they might be headed—has never been more important.
Where Do Interest Rates Stand in 2025?
The Bank of Canada held rates steady in its last announcement, signaling caution amid mixed signals. While inflation has eased from its pandemic-era highs, short-term price pressures (like tariffs) and international instability have added new complexities. Economists are split: some expect gradual rate cuts, others anticipate prolonged holds—or even hikes—depending on what happens next.
What Drives Rate Decisions in Canada?
The Bank of Canada adjusts its policy rate to meet its inflation target (2%). But that decision is influenced by:
- Domestic economic growth (which may improve if Carney’s infrastructure plans move forward)
- Inflation data (including external factors like U.S. tariffs)
- Currency strength and global capital flows
- Resource exports and commodity markets
How Do Interest Rates Affect Business Financing?
Lower rates typically make borrowing more attractive, especially for:
- Equipment Financing options: Often, fixed rates are tied to lender risk models and cost of capital.
- Asset-Based Lending (ABL): Tied more closely to floating rates and economic sentiment; lower rates can open up more affordable working capital options.
Even small fluctuations can impact total borrowing costs significantly, particularly for larger equipment purchases or business loans exceeding $500K.
Fixed vs Variable: What’s Better Right Now?
- Fixed Rates: Offer stability in uncertain times. Ideal if you expect rates to rise or need predictable budgeting.
- Variable Rates: Can save money in a falling-rate environment, but expose you to short-term rate shocks.
Businesses should weigh:
- Current cash flow and operating margins
- Risk tolerance
- Timeline of the investment
What Factors Influence Your Loan Rates?
Your interest rate will depend on:
- Credit Score and financials
- Collateral (type, new or used equipment, and value of equipment)
- Loan terms and conditions
- Industry volatility
- Relationship with your lender
ABL and equipment financing rates may diverge depending on asset type, business size, and capital structure.
Timing Your Next Big Investment
Should you buy now or wait? It depends:
- If your business growth depends on new capacity or replacing old machinery, holding off could cost you more in lost opportunity.
- If interest rates are expected to drop, those expectations are usually already reflected in current fixed-rate financing. So if you need to move now, the key is working with the right financing partner—one who understands your needs and can structure a solution that makes sense today and in the long run.
Should You Refinance if Rates Drop?
Pros:
- Lower monthly payments
- Improved cash flow
- Potential to reinvest savings
Cons:
- Penalties or fees for early payout
- Possible re-qualification process
- Risk of shorter amortization depending on structure
Strategic Advice: How to Make the Most of Today’s Market
- Work with lenders who understand your industry and offer flexible terms.
- Compare quotes not just on rate, but total cost, term length, and conditions.
- Build relationships with lenders that offer refinancing, pre-approvals, or rental-purchase options (RPOs).
- Stay informed: rates can shift quickly depending on global developments—especially south of the border.
Closing Thought:
Uncertainty doesn’t have to stall your next big business move. With the right information and a strategic financing partner, you can invest with confidence—whether interest rates go up, down, or stay put.
Try our equipment loan calculator and see how different interest rates impact your financing decision.
