Equipment finance enables businesses to acquire essential machinery, technology, and equipment without depleting working capital. This comprehensive guide covers everything you need to know about financing business equipment in Australia.
What is Equipment Finance?
Equipment finance is a specialized loan secured against the equipment being purchased. Whether you need manufacturing machinery, medical equipment, IT systems, or construction tools, equipment finance provides the funds while using the equipment itself as security.
How Equipment Finance Works
- Identify Equipment: Select the machinery or technology your business needs
- Choose Finance Structure: Decide between lease, chattel mortgage, or hire purchase
- Apply for Funding: Submit application with equipment quote
- Approval: Lender assesses business and equipment value
- Purchase: Supplier delivers equipment
- Repayment: Make scheduled payments over agreed term
Types of Equipment Finance
Chattel Mortgage
How it works:
- You own the equipment immediately
- Lender holds mortgage over equipment
- Pay GST upfront and claim input tax credit
- Make regular repayments over 2-7 years
Best for: Established businesses with strong cash flow
Tax benefits:
- Claim depreciation
- Deduct interest payments
- GST input tax credit
Finance Lease
How it works:
- Lender owns equipment
- You have exclusive use during lease term
- Fixed monthly payments
- Option to purchase at end of term
Best for: Businesses wanting off-balance sheet financing
Tax benefits:
- Deduct full lease payments
- No depreciation (lender owns asset)
- GST included in payments
Hire Purchase
How it works:
- Similar to chattel mortgage
- Ownership transfers at end of term
- Fixed repayments include principal and interest
- Equipment is security for loan
Best for: New businesses building credit
Tax benefits:
- Claim depreciation
- Deduct interest portion
- Own equipment at term end
Operating Lease
How it works:
- Essentially renting the equipment
- Return or upgrade at end of term
- Maintenance often included
- No ownership intention
Best for: Rapidly evolving technology
Tax benefits:
- Deduct full rental payments
- No depreciation
- No obsolescence risk
Equipment You Can Finance
Manufacturing & Industrial
- CNC machines
- Lathes and milling machines
- Presses and stamping equipment
- Welding equipment
- Packaging machinery
- Production line equipment
Medical & Dental
- Diagnostic imaging equipment
- Dental chairs and x-ray machines
- Surgical equipment
- Laboratory equipment
- Physiotherapy equipment
- Ultrasound machines
Construction & Earthmoving
- Excavators and bobcats
- Cranes and forklifts
- Concrete pumps
- Scaffolding systems
- Power tools and generators
- Safety equipment
IT & Technology
- Servers and networking equipment
- Computer systems
- POS systems
- Security systems
- Telecommunications equipment
- Software and licenses
Hospitality & Food Service
- Commercial kitchens
- Coffee machines
- Refrigeration units
- Point of sale systems
- Furniture and fit-outs
- Sound and lighting equipment
Agricultural
- Tractors and harvesters
- Irrigation systems
- Livestock handling equipment
- Grain storage and handling
- Dairy equipment
- Planting and seeding equipment
Transport & Logistics
- Trucks and trailers
- Forklifts and pallet jacks
- Warehouse equipment
- GPS and tracking systems
- Refrigerated units
- Loading docks
Eligibility Requirements
Business Criteria:
- Trading for 12+ months (6 months for some lenders)
- ABN registered
- Positive cash flow
- Acceptable credit history
- Sufficient income to service loan
Equipment Criteria:
- Used for business purposes (not personal)
- Appropriate age and condition
- Sufficient value (minimum $5,000-$10,000)
- Clear title available
- Suitable for resale if repossession needed
Interest Rates and Costs
Interest Rates:
- New equipment: 6% - 10% p.a.
- Used equipment: 8% - 14% p.a.
- Higher rates for older equipment
- Better rates for established businesses
Fees:
- Application fee: $0 - $500
- Establishment fee: 0.5% - 2% of loan amount
- Monthly account keeping: $10 - $30
- Early exit fees: May apply
- Documentation fees: $100 - $300
Loan Terms:
- Typically 2-7 years
- Technology equipment: 2-4 years (faster obsolescence)
- Heavy machinery: 5-7 years
- Shorter terms = higher payments but less interest
Tax Implications
Instant Asset Write-Off
For eligible businesses, equipment under $20,000 can be immediately deducted:
Eligibility:
- Business turnover under $10 million
- Asset costs less than threshold
- Purchased and installed in same financial year
- Used for business purposes
Depreciation Deductions
For equipment over instant write-off threshold:
- Diminishing value method: Higher deductions early
- Prime cost method: Even deductions over useful life
- Pooling: Combine multiple assets
GST Treatment
Chattel Mortgage:
- Pay GST upfront
- Claim full input tax credit immediately
- Finance payments GST-free
Finance Lease:
- GST spread over lease payments
- Claim input tax credits monthly
- Cannot claim upfront
Application Process
Step 1: Preparation
- Identify specific equipment needed
- Obtain quote from supplier
- Determine preferred finance structure
- Gather business documents
Step 2: Documentation
- ABN and business registration
- Financial statements (2 years)
- BAS statements (recent quarters)
- Bank statements (3-6 months)
- Equipment quote/invoice
- Business plan (if new)
Step 3: Application
- Submit application to lender(s)
- Provide supporting documents
- Answer any additional questions
Step 4: Assessment
- Lender reviews financials
- Equipment valuation
- Credit check
- Decision (usually 24-48 hours)
Step 5: Settlement
- Review and sign contracts
- Supplier delivers equipment
- Finance provider pays supplier
- Repayments commence
New Equipment vs Used Equipment Finance
New Equipment
Advantages:
- Lower interest rates
- Full manufacturer warranty
- Latest technology
- Longer useful life
- Better depreciation treatment
Disadvantages:
- Higher purchase price
- Faster initial depreciation
- Longer delivery times
Used Equipment
Advantages:
- Lower purchase price
- Immediate availability
- Already depreciated
- Proven reliability
Disadvantages:
- Higher interest rates (1-4% more)
- Shorter loan terms
- Limited or no warranty
- Potential maintenance costs
- Lower resale value
Equipment Finance vs Business Loan
Equipment Finance Advantages:
**Easier approval (secured) **Higher borrowing capacity **Better interest rates **Tax-efficient structures **Equipment is security **Preserves other borrowing capacity
Business Loan Advantages:
**Flexible use of funds **Can purchase from any supplier **No restriction on equipment type **Own asset outright sooner **No equipment valuation needed
Vendor Finance vs Direct Lender
Vendor Finance
Equipment suppliers offering their own financing:
Pros:
- One-stop shopping
- Quick approval
- Supplier relationship
- Sometimes promotional rates
Cons:
- Limited comparison
- May not be best rate
- Tied to one supplier
- Less negotiation power
Direct Lender Finance
Banks and finance companies:
Pros:
- Competitive rates
- Multiple options
- Flexible terms
- Established relationship
Cons:
- More documentation
- Separate application
- Longer process
Tips for Getting Approved
- Strong Application: Complete documentation, clear business purpose
- Good Credit: Maintain positive credit history
- Financial Health: Show consistent revenue and profit
- Realistic Borrowing: Don't over-commit on repayments
- Appropriate Equipment: Match equipment to business need
- Supplier Quote: Professional quote or invoice
- Deposit: Consider 10-20% deposit for better terms
- Financial Statements: Up-to-date and professionally prepared
Common Mistakes to Avoid
Wrong Structure: Not getting tax advice on lease vs mortgage Over-specification: Buying more equipment than needed Under-specification: Buying equipment you'll outgrow quickly Ignoring Total Cost: Focusing only on monthly payment Not Comparing: Taking first finance offer Poor Timing: Not aligning with tax year Inadequate Insurance: Not insuring financed equipment Mixing Equipment: Combining different equipment types in one agreement
Refinancing Equipment Finance
Consider refinancing if:
- Interest rates have decreased
- Business credit has improved
- Cash flow has strengthened
- Better terms available elsewhere
- Combining multiple agreements
Process:
- Review current agreement and exit costs
- Obtain current equipment valuation
- Compare new offers with total costs
- Calculate breakeven point
- Apply for refinance
- New lender pays out existing loan
Equipment Finance for Different Industries
Medical Practices
Common Equipment:
- Diagnostic machines: $50,000 - $500,000
- Dental equipment: $30,000 - $200,000
- Typical terms: 3-5 years
Specialist Lenders: Medical finance companies understand equipment value and practice income
Manufacturing
Common Equipment:
- Production machinery: $100,000 - $2,000,000+
- Typical terms: 5-7 years
Considerations: Longer terms for heavy equipment, strong residual values
IT Companies
Common Equipment:
- Servers and systems: $20,000 - $500,000
- Typical terms: 2-4 years
Considerations: Faster obsolescence, operating leases popular
Hospitality
Common Equipment:
- Kitchen and POS: $50,000 - $300,000
- Typical terms: 3-5 years
Considerations: Fit-outs may be included
Find the Right Equipment Finance with Introducr
Introducr connects businesses with specialist equipment finance providers across Australia. Our platform offers:
- Multiple Lender Comparison: Access various lenders in one application
- Competitive Rates: Find best rates for your equipment type
- Expert Guidance: Navigate finance structures and tax implications
- Fast Approval: Streamlined process for quick decisions
- Ongoing Support: Help throughout application and beyond
Next Steps
Ready to finance essential equipment for your business?
- Identify Equipment: Determine exactly what you need
- Get Quotes: Obtain pricing from suppliers
- Compare Finance: Use Introducr to compare options
- Consult Accountant: Understand tax implications
- Apply: Submit application through Introducr
Contact Introducr today to explore equipment finance solutions tailored to your business and industry.
Disclaimer: This information is general in nature. Equipment finance terms, rates, eligibility and tax treatment vary. Seek professional financial and tax advice for your specific situation.