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Equipment Finance
Your essential business vehicles and equipment can be financed in a number of ways, and could even come with tax breaks.
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If you're looking to get essential business equipment, vehicles or fixtures, you could opt for equipment finance. There are a range of equipment finance options including commercial hire purchase, chattel mortgage, finance lease, operating lease and standard business loans. You can use the equipment as security for the loan.
What is equipment finance?
Equipment finance is a business loan you can use to fund the purchase of business equipment, fixtures or tools. With most finance options, you can use the equipment purchased as security for the loan.
Equipment finance is useful if you want business equipment but don't want a hole in your business cashflow. It works like an ordinary business loan, with the difference being ownership of the asset. Depending on the type of equipment you choose, you may be able to take ownership of the asset at the end of the loan term.
Instead of paying upfront for the equipment, you can take out an equipment loan and pay it off incrementally. You'll have to make regular repayments inclusive of interest and fees over a set period of time. With some forms of equipment finance, you'll have to pay the remaining value of the asset at the end of the term. The best type of finance for you will depend on your business finances, whether you want to own the asset and the tax benefits you want.
What are the types of equipment finance?
There are several types of equipment finance. These include:
The lender will purchase the equipment on your behalf and you will buy it off them in installments. You won't own the equipment until you have repaid the loan. At the end of the term, you can pay off the entire loan and take ownership of the equipment. A balloon payment may be involved.
With this loan, you can purchase the equipment using funds you receive from the lender. You take ownership of the equipment, but it's used as security for the loan. At the end of the contract, the mortgage over the equipment is removed.
With a finance lease, the lender will purchase the equipment from the supplier and lease it to you for an agreed period. You won't own the asset, but you'll have to make repayments until the end of the loan term. When the lease runs out, you could continue leasing the equipment, offer to purchase it or return it.
This is similar to a finance lease, except once the lease agreement ends, the equipment is returned to the lender. There is usually no option to buy the equipment when the lease ends. This is useful if the equipment doesn't have high value and comes with a short lifespan.
You could also take out a standard business loan for the purchase of equipment. This can be either secured or unsecured. With a secured loan, you'll be using the equipment as security for the loan. This comes with the advantage of lower interest rates. If you don't want to risk your asset by securing it, an unsecured loan could be an option. Interest rates for unsecured loans are higher than for secured loans.
What is a balloon payment?
A balloon payment is a lump sum you pay the lender at the end of your loan term. This money will cover the remaining cost of your loan. With balloon payments, your monthly repayments are small. In return, you make a balloon payment at the end, which may be a percentage of your total loan amount. If you're opting for a balloon payment, make sure you check if it will end up costing you more in the long run. It may be cheaper to pay higher monthly payments than a lump sum at the end. It's a big payment, so you need to make sure you have the finances for it. You can read more about it here.
Is financing better than leasing?
Pros
Cons
Financing
You get ownership of the equipment at the end of the term
You can use the equipment however you want
You don't have to pay for the equipment upfront
Your business cashflow won't take a hit and you get to own the equipment.
You're entering into a debt agreement.
In most instances, the equipment will be used as loan security. This comes with the risk of losing your asset if you default on payments.
You may have to make a balloon payment at the end of the term.
You're paying for more than the value of the equipment as you're also making interest payments
You're essentially paying to own a depreciating asset. Your equipment depreciates in value over time.
You're stuck with the equipment for good, without the option to upgrade to a newer or better model.
You'll have to continue making repayments even if you no longer need the equipment.
Leasing
You're not tied down to the equipment. You can choose to upgrade whenever you want
While you won't own the equipment, you're also not paying to own something that is steadily depreciating in value
You're entering into a debt agreement.
It may work out to be just as expensive as buying the equipment, without the benefit of ownership. You'll still be making monthly repayments, inclusive of fees and charges.
As you don't own the equipment, you can't use it as security for another loan or for other financial purposes.
There may be usage restrictions as the lender owns the equipment.
When it comes to choosing between financing and leasing, the value of the equipment should be taken into account. Financing is suitable for high value equipment that has a long lifespan. If the equipment is going to continue to be used and be useful at the end of the term, financing may be a better option.
Leasing is useful if the equipment has a low value and a short lifespan, or if you want to be able to upgrade the equipment regularly. Some lease agreements require the lease provider to update products regularly within the lease period.
You should also consider the tax benefits you'll receive.
What are the tax implications of my equipment finance options?
Different forms of finance come with varied tax implications. For instance, some businesses may be keen for a large lump sum GST credit. Others may benefit from making smaller GST payments over a longer period of time.
We've summarised the tax and financial implications of your finance options below. Speak to your accountant to understand which finance option would best suit your business.
Equipment finance
Operating lease
Commercial hire purchase
Tax deductible ongoing repayments
No
Yes
No
Tax deductible asset depreciation
Yes
No
Yes
Tax deductible interest payments
Yes
No
Yes
GST credit for full cost of purchase
Yes
No
Yes
GST credit for ongoing repayments
No
Yes
No
Following the 2021 Federal Budget, there is no cap for the asset write-off scheme. This is called temporary full expensing (TFE) and allows you to claim a write-off for your asset, no matter the cost. Businesses with a turnover of less than $5 billion are eligible for this scheme. It is valid for assets purchased for business purposes on or after 6 October 2020. You can read more about it here and speak to your accountant about how you can make the most of it.
How do I know which type of equipment finance is right for me?
When choosing between finance options, there are a number of questions you should ask yourself. These include:
Do you want to retain ownership of the vehicle? You may not want to be tied down to a depreciating asset, or you may have long term plans for the equipment. If you would prefer an upgrade, leasing may be a better option. Depending on whether you want to own it, you can narrow down your choices.
Can your business afford the repayments? Some options may require you to make a balloon payment to take ownership of the vehicle. Ask yourself if your business can afford the amount required. You need to work out what your business can reasonably afford and whether you'll have the cashflow to meet the repayments.
Will there be a use for the equipment beyond the loan term? You may need the equipment for a short duration only, and it may not see much use in the long term. In such an instance, leasing a vehicle may be a better option.
How can I compare my equipment finance options?
Interest rate. How much you pay in interest will affect your monthly repayments and the total cost of the loan. Look for a loan that offers a low rate of interest. Comparing interest rates is a good way to check if the loan is competitive. You will also have to choose between a fixed or variable rate of interest. With a fixed rate, you get the security of predictable repayments. With a variable rate, you can benefit from a lower rate if interest rates fall.
Fees. As important as interest rates are, you should also keep an eye on fees. This includes application fees and account-keeping fees. These will vary between lenders, so make sure you account for them. They will add to the cost of your loan. Some loans may offer low rates and high fees. This may work out to be more expensive, so keeping an eye out for fees is a good idea.
Tax benefits. Depending on your business and the finance option, there may be tax benefits for your business. Ask your accountant for advice on which finance solution is the most tax effective for your business.
Loan term. How long will you have to keep making repayments? With short loan terms, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees.
Repayment flexibility. Look into whether the repayment schedule can be tailored to suit your business cashflow. Also consider whether you'll be allowed to make additional payments or exit the loan contract early without penalty.
Eligibility. You may not be eligible for all the loans. Look into whether you meet the lender's minimum criteria. This may include income requirements. Only apply for the loan if you tick all the boxes.
Is my business eligible to apply for equipment finance?
Each lender will have their own criteria, so it's best to check their eligibility requirements before you apply. In general, the lender will want to know:
Which industry you operate in.
Your ABN or ACN
Your business and personal credit history
Existing business or equipment loans
Your business finances
Whether the equipment will be purchased through a dealer, auction or privately
The amount, description and purpose of the equipment
How can I apply for equipment finance?
🤔 Work out what type of finance you require, how much you need to borrow and what you can afford. 🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page. ✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender. 🖨️ Organise and prepare the required documentation. This will make the application process easier. 📱 Apply. Most lenders have their applications online.
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Elizabeth Barry was the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review. See full bio
Elizabeth's expertise
Elizabeth has written 239 Finder guides across topics including:
I need to get a loan or finance for some product. I’ve got really bad credit and everywhere declines me, even though my business which is doing well and has good credit. Where can I get a loan that doesn’t look at the director or just approves me. I will pay high interest, I don’t care.
I am interested in your services. I want to buy a commercial industrial flake ice making machines in Australia for my ice plant project buy. My factory is outside Australia, can you help me with loan to buy my plant equipments? I already have quotation from the manufacturers in Australia and I want five years duration period to clear my plant equipments loan.
Thank you.
JonathanJune 17, 2017
Hi Kakeeto!
Thanks for the comment.
Actually, you’re on the right. :)
You can compare the list of lenders we have on the comparison table based on your personal preferences such as term, fees and loan amount.
Please make sure that you have read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
Also if you can, contact first the lender and discuss your options and chances of approval before you send anything final for your application.
Hope this helps.
Cheers,
Jonathan
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You pay nothing. Finder is free to use. And you pay the same as going direct. No markups, no hidden fees. Guaranteed.
You save time. We spend 100s of hours researching business loans so you can sort the gold from the junk faster.
You compare more. Our comparison tools bring you more business loans from across the market.
Hi
I need to get a loan or finance for some product. I’ve got really bad credit and everywhere declines me, even though my business which is doing well and has good credit. Where can I get a loan that doesn’t look at the director or just approves me. I will pay high interest, I don’t care.
Hello Andre,
Thank you for the inquiry. :)
You can visit this page for bad credit business loans. Please review the eligibility requirements to make sure you have higher chances of getting approved. We have also listed unsecured personal loans for business purposes and for business financing.
Hope this helps.
Cheers,
Jonathan
Dear Sir/Madam,
How are you there?
I am interested in your services. I want to buy a commercial industrial flake ice making machines in Australia for my ice plant project buy. My factory is outside Australia, can you help me with loan to buy my plant equipments? I already have quotation from the manufacturers in Australia and I want five years duration period to clear my plant equipments loan.
Thank you.
Hi Kakeeto!
Thanks for the comment.
Actually, you’re on the right. :)
You can compare the list of lenders we have on the comparison table based on your personal preferences such as term, fees and loan amount.
Please make sure that you have read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
Also if you can, contact first the lender and discuss your options and chances of approval before you send anything final for your application.
Hope this helps.
Cheers,
Jonathan