🔑 Key Takeaways
Equipment finance is a broad category of business lending that allows you to acquire assets needed to run or grow your business (from vehicles and machinery to technology, medical equipment, and office fit-outs) by spreading the cost over time rather than paying cash upfront. The asset itself typically serves as security for the loan, which means you do not need to provide additional collateral like property.
For many Australian businesses, equipment finance is the most practical way to access the tools they need while preserving working capital for day-to-day operations. Paying $80,000 cash for a new ute depletes your cash reserves and limits your ability to respond to other opportunities or unexpected expenses. Financing the same vehicle over four years at around 7% costs approximately $1,915 per month while keeping your capital available for revenue-generating activities.
Equipment finance is available for both new and used assets, with some lenders financing equipment up to 10 or even 15 years old depending on the asset type and remaining useful life. The range of assets that can be financed is extensive: cars, utes, trucks, trailers, earthmoving equipment, manufacturing machinery, medical and dental equipment, IT hardware and software, restaurant and hospitality equipment, agricultural machinery, and commercial fit-outs are all commonly financed.
For details on how we arrange this type of funding for businesses, see our equipment finance service page.
There are four main structures for equipment finance in Australia. Each has different implications for ownership, tax treatment, GST, and your balance sheet. The right choice depends on your business structure, cash flow, and tax position.
A chattel mortgage is the most popular form of equipment finance for businesses registered for GST. You take ownership of the asset from day one, with the lender holding a mortgage over it as security until the loan is repaid. Because you own the asset, you can claim depreciation, claim the GST on the purchase price in your next BAS, and deduct interest payments as a business expense. You can also structure a balloon or residual payment at the end of the term to reduce your monthly repayments.
Under a finance lease, the lender (lessor) owns the asset and leases it to your business (lessee) for an agreed period. At the end of the lease, you typically have the option to purchase the asset for the residual value, extend the lease, or return the asset. Lease payments are generally tax-deductible as an operating expense, and GST is included in each payment rather than claimed upfront. Finance leases suit businesses that prefer to keep assets off their balance sheet or that want lower monthly payments through a higher residual value.
An operating lease is similar to a long-term rental agreement. The lender owns the asset, and you make regular payments for its use. At the end of the term, you return the asset. There is no option to purchase. Operating leases offer the lowest monthly payments because you are only paying for the use of the asset during the lease period, not its full value. They suit businesses that need to upgrade equipment regularly, such as technology companies or medical practices where equipment becomes outdated quickly.
Under a commercial hire purchase, the lender purchases the asset on your behalf and hires it to you. You make regular payments over the agreed term, and ownership transfers to you once the final payment (including any residual) is made. The tax treatment is similar to a chattel mortgage: you can claim depreciation and interest deductions. Hire purchase is commonly used for vehicles and is particularly popular with sole traders and partnerships.
📊 Comparing Equipment Finance Structures
| Feature | Chattel Mortgage | Finance Lease | Operating Lease | Hire Purchase |
|---|---|---|---|---|
| Ownership | You from day 1 | Lender | Lender | You at end |
| GST Claim | Upfront (full) | Each payment | Each payment | Upfront (full) |
| Depreciation | Yes | No | No | Yes |
| On Balance Sheet | Yes | Depends | No | Yes |
| Balloon/Residual | Optional | Required | N/A | Optional |
| Best For | GST-reg businesses | Off-balance sheet | Regular upgrades | Sole traders |
Equipment finance offers several significant tax advantages that can substantially reduce the effective cost of acquiring business assets. The specific benefits depend on the finance structure you choose and your business circumstances.
Instant asset write-off: Under current provisions, eligible businesses can immediately deduct the full cost of eligible depreciating assets in the year of purchase. The thresholds and eligibility criteria have changed multiple times in recent years, so always check the current rules with your accountant before relying on this benefit for your purchase decision. When available, the instant write-off can provide a massive one-year tax deduction that significantly reduces your net cost of acquisition.
Interest deductions: Interest payments on chattel mortgages and hire purchase agreements are tax-deductible as a business expense. For finance and operating leases, the entire lease payment (which includes the interest component) is deductible. These ongoing deductions reduce your taxable income throughout the life of the facility.
Depreciation: For chattel mortgages and hire purchase agreements where you own the asset, you can claim depreciation deductions based on the asset’s effective life. This is separate from the interest deduction and represents the declining value of the asset over time. Combined with interest deductions, depreciation can make the tax benefits of equipment finance quite substantial.
GST recovery: GST-registered businesses using a chattel mortgage or hire purchase can claim the full GST on the purchase price in their next BAS, typically within one to two months of settlement. On a $100,000 asset, this is a $9,091 GST credit returned to your business, providing an immediate cash flow benefit.
Equipment finance applications are generally simpler and faster than property-based business loans. For assets under $150,000, many lenders offer low-doc or no-doc approvals for established businesses, requiring little more than an ABN, proof of trading history, and basic identification. Approvals can come through within 24 to 48 hours, allowing you to move quickly on purchases.
For larger amounts or newer businesses, lenders will typically request financial statements, BAS returns, bank statements, and details about the asset being financed. The asset itself is a significant factor in the approval: lenders prefer assets that hold value well and are easy to resell if needed. New equipment from reputable manufacturers generally receives better terms than old or specialised equipment with limited resale markets.
📋 Client Example: Fast Equipment Finance for a Tradie
A plumber on the Surf Coast needed a new $75,000 service vehicle quickly after his existing van broke down. We submitted a chattel mortgage application to a specialist equipment lender on Monday morning with just his driver’s licence, ABN, and two recent bank statements. Approval came through by Tuesday afternoon, and he took delivery of his new vehicle on Thursday. The 5-year chattel mortgage at 6.9% with a 30% balloon meant monthly repayments of just $1,180 (affordable within his business cash flow), and he claimed the full GST credit of $6,818 in his next BAS.
Step 1: Identify what you need. Before approaching a lender or broker, have a clear idea of the equipment you need and approximately what it costs. Get written quotes from suppliers: most lenders require a formal quote or tax invoice as part of the application. If you are buying from a private seller, a clear description of the asset with photos and an agreed purchase price is essential. Also decide whether the equipment needs to be new or whether quality second-hand equipment would serve your needs, as this affects your finance options, interest rates and loan terms.
Step 2: Choose your finance structure. This is the most important decision and one where professional advice is worth having. The right structure (chattel mortgage, finance lease, operating lease or hire purchase, explained above) depends on your business’s tax position, cash flow needs and accounting preferences.
Step 3: Gather your documents. The documentation required depends on the loan amount and your business profile:
| Application Type | Documents Required | Typical Loan Limit | Turnaround |
|---|---|---|---|
| No Doc | Driver’s licence, ABN (24+ months), equipment quote | Up to $150,000 | Same day to 24 hours |
| Low Doc | Above + 6-12 months bank statements | Up to $500,000 | 24-48 hours |
| Full Doc | Above + tax returns, financials, ATO portal access | $500,000+ | 2-5 business days |
Step 4: Application and credit assessment. Once the application is submitted to the most suitable lender, the credit team assesses your business’s ability to service the repayments. They look at your trading history and revenue, credit score and payment history, existing debt commitments, the type and value of the equipment being financed, and whether the asset holds its value well. For no-doc and low-doc applications, much of this assessment is automated, which is why approvals can be so fast. For larger full-doc applications, a credit analyst reviews your financials in detail.
Step 5: Approval and contract. When approved, the lender issues a finance contract outlining the loan amount, interest rate and comparison rate, repayment amount and frequency, loan term, any balloon or residual amount, fees and charges, and your obligations regarding insurance, maintenance and use of the equipment. We review this contract with you before you sign to make sure everything aligns with what was discussed and that there are no unexpected terms or fees.
Step 6: Settlement and delivery. After signing, the lender pays the equipment supplier directly. You do not handle the funds: they go straight from the lender to the vendor. The supplier releases the equipment to you, and you can begin using it in your business immediately. The lender registers their security interest on the PPSR (Personal Property Securities Register) and, for vehicles, on the relevant state register.
Step 7: Ongoing repayments. Your regular repayments (usually monthly) are debited from your nominated business account on an agreed date. Repayments are fixed for the life of the agreement, so you always know exactly what your obligation is: there are no surprise rate changes or payment increases.
A balloon (for chattel mortgages) or residual (for leases) is a lump sum payable at the end of the finance term. Setting a balloon reduces your monthly repayments because you are financing a smaller portion of the asset over the term, with the balance deferred to the end. However, you need a plan for how to manage the balloon when it falls due.
Common options when the balloon is due include paying it out from business funds, refinancing the balloon amount into a new short-term facility, trading in the asset and using the trade-in value to cover the balloon (common with vehicles), or selling the asset privately and using the proceeds. A well-set balloon should be lower than the asset’s expected market value at the end of the term, giving you equity in the asset even before the balloon is paid.
For vehicles, a typical balloon ranges from 20% to 40% of the purchase price over a four to five year term. For machinery and equipment with longer useful lives, balloons of 10% to 30% are common. Your broker can model different balloon scenarios to show you the impact on monthly cash flow versus total cost of finance.
What happens when your equipment finance reaches its end depends on the structure you chose.
Chattel mortgage with no balloon: once you make your final repayment, the lender releases their security interest. The equipment is fully yours, free and clear, and no further action is needed.
Chattel mortgage with a balloon: you need to either pay the balloon amount in full, refinance the balloon with a new short-term loan, or sell or trade the equipment and use the proceeds to pay the balloon, keeping any surplus.
Finance lease: at the end of the lease, you pay the pre-agreed residual to purchase the asset, negotiate a new lease on the same or replacement equipment, or return the equipment to the lender.
Operating lease: you return the equipment. If you want to continue using it, you negotiate a new lease. Many businesses use this as an opportunity to upgrade to newer models.
Both new and used equipment can be financed, but the terms differ. New equipment typically attracts lower interest rates (often 0.5% to 1.5% less than equivalent used equipment), longer available finance terms, higher LVR (up to 100% of the purchase price), and full access to any applicable instant asset write-off provisions.
Used equipment can represent excellent value, but financing terms are more conservative. Lenders will limit the age of the asset at the end of the finance term (for example, many lenders will not finance a vehicle that will be more than 12 to 15 years old at the end of the loan). Interest rates are slightly higher to reflect the increased risk of mechanical issues and lower resale value, and deposit requirements may be larger.
💡 Pro Tip
When buying used equipment, always get an independent valuation or market appraisal before committing. Lenders will assess the asset’s value independently, and if they value it lower than the purchase price, you will need to fund the gap from your own resources. A pre-purchase valuation avoids unpleasant surprises during the finance approval process.
Construction and trades: Excavators, bobcats, cranes, scaffolding, and specialist tools are commonly financed. Lenders familiar with the construction industry understand seasonal cash flow patterns and can structure repayments accordingly. Finance terms of three to seven years are typical, with balloon payments helping to match the useful life of the equipment to the repayment schedule.
Transport and logistics: Trucks, trailers, and fleet vehicles represent significant capital investment. Fleet finance arrangements allow businesses to acquire multiple vehicles under a single facility, often with volume discounts on interest rates. Lenders specialising in transport finance understand the importance of keeping vehicles on the road and offer fast turnaround on approvals and settlements.
Healthcare and medical: Dental chairs, imaging equipment, surgical tools, and practice fit-outs can all be financed. Medical equipment tends to hold its value well and is viewed favourably by lenders, often attracting competitive rates. Finance terms can extend to seven or even ten years for high-value medical equipment, keeping monthly costs manageable for practitioners.
Hospitality and food service: Commercial kitchen equipment, cool rooms, point-of-sale systems, and restaurant fit-outs can be financed as a package. Some lenders offer specific hospitality finance products that bundle equipment and fit-out costs into a single facility. Given the higher failure rate in hospitality, lenders may require larger deposits or personal guarantees for newer businesses in this sector.
Agriculture: Tractors, harvesters, irrigation systems, and livestock handling equipment are major investments for farming businesses. Agricultural equipment finance often features seasonal repayment structures that align with harvest or income cycles. For example, larger repayments after harvest and reduced or deferred repayments during planting and growing seasons. This flexibility is critical for managing the inherently cyclical cash flows of farming operations.
Equipment finance is offered by dozens of lenders: major banks, specialist finance companies, manufacturer-backed lenders, and fintech platforms. Each has different credit appetites, rate structures, approval processes, and areas of specialisation. Going directly to your bank means you see only one option and have no way of knowing whether a better deal exists elsewhere.
A finance broker compares options across the full market and matches your application to the lender most likely to offer the best combination of rate, terms, and approval speed for your specific situation. The broker’s service typically costs you nothing. Brokers are paid a commission by the lender, and the rate you receive through a broker is the same as (and often better than) what you would receive going directly to the lender.
Beyond rate comparisons, a broker adds value by structuring the finance to optimise your tax position, managing the application and settlement process so you can focus on running your business, and maintaining relationships across the market so that when you need equipment finance again in the future, the process is even faster.
Yes, though the options are more limited than for established businesses. Many lenders require a minimum of 12 to 24 months trading history for low-doc approvals. Newer businesses may need to provide more documentation, offer a larger deposit (typically 20-30%), or have a guarantor. Some specialist lenders focus on newer businesses and can offer approvals based on the strength of the asset and your industry experience rather than trading history alone.
Many established businesses can access equipment finance with no deposit at all: 100% financing is common for new assets through chattel mortgages and hire purchase. For used equipment, a 10% to 20% deposit is more typical. Newer businesses or those with weaker financials may need to contribute 20% to 30%. Providing a larger deposit generally improves your interest rate and reduces the total cost of the facility.
This depends on your cash position and the opportunity cost of capital. If paying cash means depleting your working capital buffer, finance is almost always the better option. The interest cost is a small price to pay for maintaining financial flexibility. However, if you have excess cash that is not needed for operations and cannot be deployed more profitably elsewhere, buying outright saves interest. Your accountant can help model the after-tax cost of each option based on your specific circumstances.
Yes. Business vehicle finance is one of the most common forms of equipment finance. Chattel mortgage is the most popular structure for GST-registered businesses buying vehicles. Be aware of the luxury car tax threshold and the car limit for depreciation purposes. These caps affect the amount you can claim as a deduction regardless of the vehicle’s actual price. Your broker and accountant can advise on the most tax-effective approach for your vehicle purchase.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
