Equipment Finance
What You Need to Know Before You Sign Anything.
Equipment finance is one of the most commonly used forms of business lending in Australia, and one of the least understood. Most business owners focus on the monthly repayment and the rate. The structure of the facility, the residual value, the contract terms, and the total cost over the life of the agreement often receive far less attention than they deserve.
This page is designed to change that. Before you finance any piece of equipment, whether it is a vehicle, a machine, a medical device, or a technology asset, there are things worth understanding that most lenders will not volunteer.
The Main Types of Equipment Finance
Equipment finance is not one product. The structure you choose affects ownership, tax treatment, and total cost over the life of the agreement:
- Chattel mortgage — the most common structure for business use. You own the asset from day one and the lender holds a mortgage as security, so you can claim depreciation and the GST on the purchase price upfront. The most tax-efficient structure for many businesses.
- Finance lease — the lender buys the asset and leases it to you for a term. You claim the lease payments as a deduction and typically have the option to purchase, extend, or return the asset at the end.
- Operating lease — structured like a rental. The lender keeps ownership and the residual risk, and you pay for use over a defined period. Suits assets that depreciate quickly or where you want to upgrade regularly.
- Hire purchase — you hire the asset and take ownership once all payments, including any residual, are made. Sits between a chattel mortgage and a finance lease, and remains relevant in some industries.
What a Balloon or Residual Value Actually Means
Most equipment finance products offer the option of a balloon payment, also called a residual value, at the end of the term. A balloon reduces the monthly repayments during the loan by deferring a portion of the principal to a lump sum at the end. On paper this looks attractive. In practice it requires careful consideration.
At the end of the term, the business must either pay the balloon in full, refinance it, or sell the asset to cover it. If the asset has depreciated faster than expected, or the market for it has softened, the business can find itself owing more than the asset is worth. This is particularly relevant for vehicles, technology assets, and specialised equipment with limited resale markets.
A balloon can be the right structure in the right circumstances. It is worth modelling the total cost of the facility with and without one before committing.
Private Sales and Why They Cost More to Fund
Purchasing equipment through a private sale rather than a dealer or manufacturer typically attracts a higher interest rate and more scrutiny from lenders. Lenders cannot verify the condition, provenance, or true market value of a privately sold asset as easily as a dealer sale, and the GST position is often different.
For high-value assets, some lenders will decline a private sale entirely. Others will fund it but at a higher rate or with a lower advance ratio, meaning a larger deposit is required from the buyer.
If you are considering a private purchase, factor the funding cost into your decision before you negotiate the price. The savings on the purchase price can be quickly absorbed by a higher cost of funds over the life of the facility.
Contract Terms Worth Reading Carefully
Early termination fees
Can be significant, particularly on finance and operating leases priced on the full term being completed. Breaking a lease early can trigger a payout well above what you expected.
Maintenance and condition
Common in operating leases. Returning an asset in a condition the lender deems below standard can trigger end-of-term charges that are not always clearly communicated at signing.
Automatic rollover clauses
Some leases lock you into a further term if written notice to return or purchase is not given within a set window, sometimes only 30 to 90 days before the end of term.
Substitution and upgrade
Vary widely between lenders. If upgrading equipment mid-term matters to your business, confirm what the contract allows before signing.
How We Help With Equipment Finance
1. Diagnose the need
We assess how an equipment facility fits alongside your existing debt structure, cash flow and tax position, rather than simply ticking a box.
2. Access the right market
The equipment lender market extends well beyond the major banks, including non-bank and specialist asset financiers and manufacturer-backed programs that general lenders cannot match.
3. Project-manage execution
We work with focused specialist partners and coordinate between you, the specialist and, where relevant, your accountant to deliver the most cost-effective solution.
Start the Conversation
If you have an equipment finance need, or if you are reviewing an existing facility and want to understand whether the structure still serves your business, we are happy to talk it through. Book a strategy call with Yasmine. Bring the details of what you need and any existing agreements you want reviewed, and you will leave with a clear picture of your options.
For more on how we approach every client engagement, visit our How We Work page.