Equipment Finance Explained: Funding Assets Without Draining Cash

Key takeaways

• The asset secures the loan, so rates sit well below unsecured business lending.
• Terms usually match the asset's useful life - three to seven years for most equipment.
• A chattel mortgage returns the GST credit immediately; leases spread it.
• Instant asset write-off thresholds change frequently and can transform the after-tax cost.

What can be financed?

• Transport - trucks, trailers, utes, forklifts
• Construction and earthmoving - excavators, loaders, scaffolding
• Manufacturing - CNC machines, presses, packaging lines
• Medical and dental - imaging, chairs, sterilisation
• Hospitality - commercial kitchens, refrigeration, coffee machines, fit-outs
• Technology - servers, point of sale, specialised software in some cases

The test is broadly whether the asset is identifiable, moveable and has a resale market. Bespoke installations with no second-hand value are harder and often need property security instead.

How lenders price it

Three factors set the rate:

• Asset class and age. A two-year-old excavator from a major brand prices better than a specialised ten-year-old machine.
• Term versus useful life. Lenders resist terms that outlast the asset. Financing a five-year asset over seven years is usually declined or repriced.
• Business profile. Trading history, ABN/GST registration period and whether the directors offer a guarantee.

Low doc equipment finance is widely available up to a threshold - commonly $150,000 to $250,000 per asset - without full financials, provided the ABN and GST history are established.

The tax timing that decides the structure

The repayment difference between structures is usually small. The cash-flow difference is not.

On a $120,000 asset (excluding GST), the GST is $12,000. A chattel mortgage lets you claim that $12,000 in the next BAS. A lease returns it across sixty monthly payments - roughly $200 a month. For a business funding several assets a year, the working capital difference compounds quickly.

Depreciation and any instant asset write-off apply only where you own the asset, which again points to a chattel mortgage for equipment you intend to keep.

Frequently asked questions

Is equipment finance cheaper than a business loan?

Usually, because the lender holds security it can recover and resell. An unsecured business loan on the same amount commonly prices several percentage points higher.

Can I finance equipment for a new business?

Yes, though the pool of lenders narrows under twelve months of ABN registration. A deposit, a director guarantee or property security widens the options considerably.

What happens at the end of the term?

With a chattel mortgage you pay any balloon and own the asset outright. With a lease you pay the residual, refinance it, or return the asset depending on the contract.

Related reading

• Truck Finance in Australia: A Complete Guide for Owner-Drivers
• Negative Equity: What It Means and What to Do
• Guarantor Home Loans: How Family Security Works

Sources

• Depreciation and capital allowances — Australian Taxation Office
• Business finance options — business.gov.au