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:
|Commercial hire purchase||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.|
|Chattel mortgage||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.|
|Finance lease||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.|
|Operating lease||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.|
|Business loan||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?
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|
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.
Why you can trust Finder's business loan experts
Our business loan engine is completely free to use. There are no costs at all for you to use our database to find a better deal. Better still, we regularly run exclusive deals that you won't find on any other site.
We've researched and reviewed hundreds of loans, down to the fine print. Our database and tables are always up-to-date and our in-house experts regularly appear on Sunrise, 7News and SBS News.
We are independently owned and have a mission to help Australians make better financial decisions. That means our opinions are our own and you can compare nearly every business loan in Australia on the site (and find a better deal).
Since 2015, we've helped 50,000+ people find a business loan by explaining the options simply. You don't need to give us any details to use our tables. We're here to help you make a decision.
We're here to help
More guides on Finder
Good for B Business Loan
Read our review of the Good for B business loan. Find out if this green business loan is suitable for you.
Bank of Melbourne Business Loans
Whether you're looking to grow your business, support company cash flow or purchase new equipment, Bank of Melbourne could have a loan option for you.
BankSA Small Business Loans
Whether you're looking to support cash flow, grow your business or purchase new equipment, BankSA may have a business loan option for you.
Heritage Bank Fully Drawn Business Loan
Heritage Bank's Fully Drawn Business Loan is a flexible business finance offering with both fixed and variable rate options, a high maximum loan term and no limit on borrowing power.
Sole trader loans
What you need to know if you’re applying for a business loan as a sole trader.
BOQ Business Term Loan
BOQ Business Term Loan lets you borrow from $10,000 and benefit from flexible repayment terms and access to a redraw facility.
Non-bank lender business loans
You may be able to get better rates and loan conditions with increased flexibility, quicker decisions and better customer service through non-bank lenders.
NAB QuickBiz Loan
Apply for a loan of up to $250,000 and have the approved money in your account within three days with NAB's QuickBiz Loan.
OnDeck Business Loans
This small business loan offering from OnDeck could provide you with up to $250,000 financing in 24 hours.
Moula Business Loan
Do you need finance to help your small business grow? Moula offers loans of between $5,000 and $250,000 with flexible eligibility criteria – apply online by providing your business data and find out if you've been approved in 24 hours.
Ask an Expert