Having the right equipment to grow your business is essential, but it’s expensive and the outlay can impact your cashflow. Businesses typically have to take out an equipment loan or lease to purchase equipment or other tangible assets. This guide covers everything you need to know about equipment finance, which option is best for your business, interest rates, tax benefits and more.
Key points about equipment finance
- Equipment loans are typically secured against the assets, but can also be unsecured
- Equipment finance interest rates range from 5-20% p.a.
- Repayments on equipment finance and asset depreciation can be tax deductible
- According to Lend proprietary data, 15% of small businesses opt for a chattel mortgage to buy vehicles
What is equipment finance?
Equipment finance (also known as asset finance) is a loan to buy equipment, plant or machinery for your business. The loan is typically secured against the equipment (used as collateral for the loan), meaning interest rates are lower than an unsecured business loan. The term of your equipment finance will usually be tied to the asset's expected (remaining) life — commonly between 1-5 years. You can finance either new or secondhand equipment.
Who’s eligible for equipment finance?
Most Australian businesses can qualify for equipment finance if they meet the following criteria:
- Have an active ABN or ACN (including sole traders and sole owners of a company)
- Have been trading for at least six to 12 months
- Can provide financial records
- Have a good credit score — the minimum credit score for business lending is around 400.
How much can you borrow with equipment finance?
You can borrow between $5,000 and $1million with equipment finance. Your borrowing limit will depend on the type of equipment loan you choose — whether secured or unsecured — your credit rating and business revenue. See how much you could borrow with our equipment finance calculator.
Compare equipment finance rates
|Equipment finance||Interest rate range|
|Hire purchase||7-15% p.a.
|Finance lease||6-15% p.a.
|Operating lease||5-15% p.a.
|Unsecured business loan||15-20% p.a.
Remember that asset finance interest rates will depend on:
- The type of equipment finance you choose (e.g. chattel mortgage, hire purchase, lease)
- The type of asset you want to buy
- Whether the asset is new or secondhand
- The cost of the asset
- The term of the loan
- The frequency of repayments
- Whether you pay equal instalments or have a residual lump sum (balloon) payment
For this reason, most lenders don’t actually advertise the interest rates for their equipment finance. A reputable broker can save you time and help you understand the terms and conditions of each product so you can choose the right equipment finance for your business.
Let's get started! Get a business loan quoteSee if you qualify
How does equipment finance work?
Equipment financing works like any other type of business finance, but
ownership of the asset(s) is optional during and after the loan or lease term.
In some cases, you'll pay off the total loan amount and interest in equal
instalments or pay a larger residual or balloon payment at the end of the loan
term to cover the remaining value of the asset. Opting for a balloon will
lower your monthly repayments but increase the interest you pay in total. Use
business loan calculator
to see your options.
Best equipment finance options for Australian businesses
A chattel mortgage works like a secured car loan for vehicles or assets
purchased primarily for business use (at least 50% of the time). You own the
asset through the entire loan term, but it's collateralised, which means you
can only sell it or upgrade it with approval from the lender. You may be
required to pay the remaining loan balance first, although this may incur an
early termination fee.
Most lenders will allow you to structure your chattel mortgage repayments to suit your business cashflow, with monthly or quarterly repayment options available. You may opt to repay the entire loan and interest over a series of equal instalments — or pay lower instalments and clear the balance with a balloon payment at the end of your finance term. At that point, you’ll be free to sell the asset to cover the residual cost.
Chattel mortgage pros & cons
When to use a chattel mortgage
A chattel mortgage is suitable for high-value equipment unlikely to become obsolete during the term of the loan and vehicles. This may include industrial plant and machinery, agricultural vehicles, or retail/restaurant fit-outs. According to Lend proprietary data, 15% of small businesses opt for a chattel mortgage to buy vehicles, and the median loan amount is $50,000.
A hire purchase or commercial hire purchase (CHP), is a ‘rent to own' finance
agreement. It allows you to buy a vehicle or equipment over an agreed period
of time. The lender (lessor) purchases the asset at your request, and your
business hires it in return for regular repayments. Ownership of the asset is
transferred to you after the residual or balloon payment is made.
Some hire purchase agreements may require an initial deposit, but you will often be able to negotiate the terms of the contract and arrange a repayment schedule that works with your cashflow. There’s usually a balloon payment at the end of the term.
Hire purchase pros & cons
When to use a hire purchase agreement
A hire purchase agreement is more suitable to buy assets of medium value and lifespan. This can include power tools, commercial kitchen equipment and vehicles. Hire purchase agreements are popular in hospitality, retail and white-collar industries (e.g. administration, medical, law, finance).
A finance lease or capital lease is a commercial rental agreement whereby the
lender (lessor) will purchase the equipment on your behalf and then rent it to
you for an agreed period. In return, you'll pay regular lease payments, with
or without a balloon payment at the end. You won't own the asset during the
agreement term, but will be responsible for maintenance, running costs, and
repairing any damage.
At the end of the contract term, you will have three options.
1. Return the asset to the lender
2. Make an offer to buy the equipment from the lender
3. Lease the asset for another period, usually at a lower cost (‘peppercorn rent’).
A finance lease usually runs for most or all of the asset's expected lifespan. Over the lease term, the lender will generally recoup the total purchase price of the asset, plus interest.
Finance lease pros & cons
When to use a finance lease
Finance leases are generally used for long-term assets or equipment that can hold value beyond the lease term. This can include medical equipment (e.g. X-ray machines, laboratory equipment), high-value construction vehicles, and yellow goods like excavators, bulldozers, and machinery like cutting and drilling equipment, etc.
An operating lease also works like a rental agreement. The lender (lessor) will purchase the asset on your behalf and then rent it back to you for regular lease payments. Under an operating lease, you will not own the asset and you won't have the option to buy the equipment at the end of the lease. You'll return the asset to the lender at the end of the contract, who will then sell it or lease it to another client.
An operating lease usually only covers part of an asset's useful life. Once the contract ends, you can easily upgrade your equipment. In fact, many operating leases allow you to upgrade during the lease term, with a simple amendment to the contract and lease payments. Under some leases, the lender will upgrade your equipment automatically on agreed terms.
Operating lease pros & cons
| || |
When to use an operating lease
An operating lease is ideal if you upgrade your equipment when a better alternative becomes available. This is often the case for assets with a short lifespan, like IT equipment, payment or telecommunications systems, etc.
Unsecured business loan
An unsecured business loan is a short-term finance option with no collateral. It can be used for any genuine business purpose, including buying equipment. However, it comes with higher interests to reflect the additional risk to the lender.
Unsecured business loan pros & cons
| || |
When to use an unsecured business loan
Consider an unsecured business loan if you want to buy a small piece of equipment with some money but want more flexibility in using the remaining funds. You can use an unsecured loan for any genuine business activity.
When should your business use equipment finance?
The main reason small businesses use equipment finance is to preserve cashflow. It might be a viable option for your business if you:
- Need to fit out your premises or buy major equipment you could not afford to purchase outright
- Wish to spread the cost of your equipment purchases to avoid depleting your precious working capital
- Want to know exactly how much you’ll pay, so you can budget accurately. With leases and hire purchase contracts, you’ll generally make regular payments based on a fixed rate. A chattel mortgage can be based on a fixed or variable interest rate
- Want to keep the asset purchase off your balance sheet to improve your performance ratios (you’ll need to opt for an operating lease)
- Want the benefit of using equipment with the flexibility to upgrade regularly (again, you’ll need an operating lease)
How to apply for equipment finance
Here’s what you’ll need to apply for equipment finance:
1. Supporting documents
Lenders will ask for financial documents to support your application and substantiate your business revenue, including:
- Bank statements from the last six to 12 months
- Business registration and tax information (e.g. BAS statements, tax returns)
- Identification documents
2. Your business information
Lenders will also look at your business trading history and experience to understand its growth potential and future outlook. They’ll want to see:
- Proof that you’ve been operating for the minimum required period
- Your business structure (e.g. company, partnership, joint venture, sole trader)
- The location of your business
- The industry your business operates in
Most lenders have an entirely online application process for equipment finance products and offer conditional approval on the spot. Some may ask you to complete a quote online and will contact you by phone to progress your application.
Best equipment financing companies in Australia
Here is a list of reputable equipment financing companies in Australia:
- Angle Finance
- Branded Financial Services
- Capital Finance
- Drive Finance
- Finance One
- Flexi Commercial
- Group & General
- Grow Finance
- Iron Capital
- Macquarie Capital
- Metro Finance
- Morris Finance
- Pepper Money
- Selfco Leasing
- Vestone Capital
Equipment finance considerations for your industry
Equipment finance for manufacturing businesses
Setting up a manufacturing business requires a major outlay on specialist equipment before you can begin production. As your business expands, you may need to purchase more plant and machinery to increase your capacity, or to keep up with your competitors as technology advances and best practices evolve.
A chattel mortgage or finance lease may be the most suitable option for high-value manufacturing equipment with a medium or long lifespan. Both options allow you to take possession of your equipment without a significant upfront investment, so you'll have cash available for ongoing costs like raw materials and labour. In both cases, you'll need to record the asset and the finance liability on your balance sheet.
Equipment finance for restaurants
As a restaurant owner, you'll have a wide range of equipment and fit-out costs to cover. Setting up your commercial kitchen and dining area will be a substantial investment, and equipment finance can help you spread the cost, freeing up your working capital for variable costs such as ingredients, breakables and wages.
A chattel loan may be the most suitable option for your dining area fit-out. Generally, you'll be able to agree to a loan period of up to five years and a flexible repayment schedule tied to your anticipated income (especially if your cashflow is highly seasonal because of your location or type of cuisine). Most commercial cooking and restaurant equipment will have a medium-term lifespan and may be ideal for a hire purchase arrangement.
Equipment finance for medical practices
You need quality equipment in peak condition as a medical, dental or veterinary practice. Equipment finance allows you to set up your practice and keep up to date with changes in your industry without taking a massive hit to your working capital.
There are specialist providers of medical equipment finance who will help you finance everything from your practice fit-out, telecoms and IT equipment to the delicate specialised machinery you use to treat your patients. You can arrange finance for a specific piece of equipment or an ongoing facility that lets you purchase and upgrade equipment over time as you need to.
Equipment finance for retail businesses
As a retail business owner, your main upfront cost will likely be your store fit-out. This could include custom shelving, new floors, premium fittings and interior decoration. A chattel loan may be the most suitable option for your initial fit-out and later upgrades. An operating lease may be the best solution for your IT, telecoms equipment and payment systems, allowing you to upgrade as newer technology becomes available.
Equipment finance for construction/mining businesses
Mining and construction equipment can cost hundreds of thousands of dollars for each heavy vehicle or specialised equipment.
While these sums may exceed the loan limit for some equipment finance providers, some lenders specialise in providing finance to businesses in the mining, construction and earthmoving sectors.
The most common financing choice for high-value, heavy equipment is a chattel mortgage, where the asset is used as security for the loan. You can usually also choose whether to pay a deposit (in cash, or by trading in another vehicle or piece of equipment) or to borrow the full cost of the asset.
Equipment finance for tradespeople
Some hardware chains offer trade accounts with short-term credit options for lower-value, everyday tools that may need to be replaced regularly.
For high-value power tools and other expensive pieces of equipment, you may opt for an asset loan or lease arrangement, depending on whether you wish to own the equipment from the outset, or have the option to return it and upgrade at the end of the period.
Assets eligible for finance
|Yellow Goods||Green Goods||Manufacturing Plants & Workshops||Medical||Telecommunications|
|Excavators||Tractors||Material handling equipment||X-ray machines||Phone systems|
|Bulldozers||Mowers||CNC machines||Dentist chairs||Bundling|
|Motor graders||Harvesters||Container lifts, boom lifts and scissor lifts||ECG machines|
|Bobcats||Stump grinders||Industrial machinery||Hospital beds, chairs, etc|
|Skid steer loaders||Wood chippers||Generators & compressors||Scientific and laboratory equipment|
|Wheel loaders||Specialised agricultural equipment||Woodworking machines||Fit-out (by exception)|
|Other earthmoving equipment|
IT/COMPUTER (MAX 50% SOFTWARE)
Acceptable assetsCATERING & HOSPITALITY
OTHER ACCEPTABLE EQUIPMENT
|Computers & laptops||Ovens and cooktops ||Office equipment (e.g. printers, monitors)||Recruitment|
|Servers||Commercial dishwashers||POS systems||Health & beauty|
|Computer storage devices||Cool rooms and refrigerators||TV/AV equipment||Gym & fitness|
|CAD & CAM equipment||Meat slicers||Solar, LED & energy-efficient equipment||General fit-out|
|Monitors and keyboards||Pizza ovens||Commercial cleaning equipment|
|Storage and shelving||Compressors|
FAQs about equipment finance
What’s the typical interest rate for equipment finance?
Typical interest rates on equipment finance can range between 5-20% p.a. It may be more for fit-outs or purchases from overseas. Equipment finance can be more expensive than small business loans, especially secured bank loans.
Is equipment financing secured or unsecured?
Most equipment loans are secured against the machinery or equipment purchased. However, there are unsecured business loans you can take out to buy equipment or other assets that won’t be used as collateral for the finance. This is usually in the form of a term loan with regular payments over a fixed term.
Do I need a deposit for equipment finance?
You don’t normally need a deposit for most types of equipment finance as the equipment or machinery purchased is used as security. However, some hire purchase agreements may require to pay a deposit and then the rest of the loan balance as normal.
Is equipment finance tax deductible?
Yes, the interest portion of your equipment loan repayments (for a chattel mortgage) and asset(s) depreciation are generally tax deductible. For equipment rental and lease agreements, contractual payments are tax deductible as an operating expense but not depreciation since you don't own the asset(s). Tax benefits vary for a chattel mortgage, lease and hire purchase agreement. Speak to a broker or accountant about the best option for business.