How equipment finance works
Equipment finance pays for a business asset and uses that asset as the lender's main security. Because the lender can rely on the equipment, approvals are usually simpler than for unsecured lending, rates are lower, and established businesses can often finance the full price without a deposit.
The main structures
| Structure | Who owns the asset | Things to know |
|---|---|---|
| Chattel mortgage | You, from day one. The lender holds a security interest. | The most common choice for GST-registered businesses. GST on the purchase can usually be claimed in your next BAS. |
| Finance lease | The lender, until you pay the residual at the end | Lease payments are generally deductible. GST applies to each payment. |
| Hire purchase | The lender, until the final payment | Ownership passes once all payments are made. |
| Rental or operating lease | The lender, throughout | Suits technology and assets you plan to upgrade regularly. |
Tax and GST treatment depends on your business. Ask your accountant which structure suits you.
What you can finance
- Excavators, loaders, cranes and other earthmoving and construction equipment.
- Prime movers, trucks, trailers, vans and utes used mainly for business.
- Commercial kitchen, hospitality and retail fit-outs.
- Medical, dental, veterinary and allied health equipment.
- Manufacturing machinery, forklifts and warehouse equipment.
- Technology, solar and energy-efficiency equipment.
Balloon payments
A balloon, or residual, is a lump sum left owing at the end of the term. It lowers the regular repayments but means a final payment, refinance or trade-in when the term ends. A balloon suits assets that hold their value, such as well-maintained trucks, and suits fast-depreciating technology less well.
New, used and private sale
Most lenders finance used equipment, and many will finance private sales after an inspection or valuation and a check that there's no money owing on the asset. Lenders often set limits on the asset's age at the end of the term, which can shorten the term for older machinery.
What lenders look at
- ABN age and trading history. Two years or more opens the most options. Newer businesses may need a deposit or extra security.
- The asset. Type, age, condition and resale value.
- Credit history of the business and its directors.
- Existing commitments and whether the business can carry the new repayment.
Example scenario
A civil contractor finds a used 20-tonne excavator for $180,000 through a private seller. The broker arranges an inspection, confirms the seller owes nothing on the machine and places a five-year chattel mortgage with a small balloon. Settlement is paid to the seller directly, and the contractor claims the GST through the next BAS.
Example only. It isn't a real client.