Top Tips to Finance Plant & Equipment for Your Business

Chattel Mortgage Lets You Claim Both Interest and Depreciation

A chattel mortgage gives you immediate ownership of the equipment while the lender holds security over it until the loan is paid off. You claim the full GST upfront if registered, deduct interest as an operating expense, and depreciate the asset each year according to ATO guidelines.

Consider a landscape contractor acquiring an excavator valued at $85,000. Under a chattel mortgage, the business pays the GST component and claims it back in the next BAS, reducing the immediate cash required. The monthly repayments cover principal and interest, and the business claims depreciation on the full asset value. Over a five-year term with fixed monthly repayments, the contractor knows exactly what the commitment is each month, which makes budgeting predictable. At the end of the term, the equipment is owned outright with no residual payment.

This structure works well when you plan to keep the equipment for its useful life and want to maximise tax deductions. The combination of depreciation and interest deductibility reduces taxable income more aggressively than an operating lease, though it does mean the asset sits on your balance sheet.

Finance Lease Keeps Equipment Off Your Balance Sheet

A finance lease means the lender owns the equipment and you pay regular lease payments to use it. You cannot claim depreciation because you do not own the asset, but you can deduct the full lease payment as an operating expense. At the end of the lease term, you typically have the option to refinance the residual, return the equipment, or upgrade.

This structure suits businesses that want to preserve capital and avoid holding depreciating assets. In our experience, medical professionals upgrading diagnostic equipment every few years prefer finance leases because they can return outdated technology and access the latest models without the burden of reselling old gear. The GST treatment differs too - you claim GST on each lease payment rather than upfront, which spreads the benefit over the life of the lease.

The balloon payment at the end gives you flexibility. You can refinance it over a new term if you want to keep using the equipment, or walk away if your needs have changed. That option is worth considering if your business operates in a sector where technology moves quickly.

Hire Purchase Transfers Ownership Without Upfront GST Claims

Hire purchase agreements sit between a chattel mortgage and a lease. The lender buys the equipment and you make regular payments, but ownership only transfers once the final payment is made. You can claim GST on each payment rather than upfront, which helps if your business is managing cashflow tightly in the early stages.

A hospitality equipment upgrade provides a useful comparison. A cafe owner purchasing a $40,000 commercial coffee machine and refrigeration unit might use hire purchase to spread both the cost and the GST claim across the term. Each monthly payment includes a GST component that gets claimed in the BAS. The business also claims depreciation during the agreement even though legal ownership has not yet passed. Once the term ends and the final payment clears, the equipment transfers into the business name with no residual or balloon payment required.

This approach works when you want eventual ownership but need to manage your GST position carefully in the first year. It also avoids a large upfront GST claim that might trigger scrutiny if your business is relatively new.

Balloon Payments Reduce Monthly Costs but Require Planning

A balloon payment is a lump sum due at the end of the loan term, typically between 20% and 40% of the original loan amount. It reduces your fixed monthly repayments during the term, which improves cashflow in the short run. You will need a plan to either pay the balloon, refinance it, or sell the equipment to cover it.

We regularly see trades businesses use balloon structures on commercial vehicle finance for utes and vans. Lower monthly payments free up capital for wages and materials, and the balloon gets refinanced when the vehicle still holds reasonable resale value. The risk is that if the equipment depreciates faster than expected, you might owe more than it is worth when the balloon comes due. That is a particular concern with technology equipment or vehicles that rack up high kilometres.

The ATO sets limits on balloon payments based on the type of asset and the term length, so not every piece of equipment qualifies for a large residual. Your broker can confirm what is allowable before you commit to a structure.

Vendor Finance Speeds Up Approval but Costs More

Vendor finance is arranged directly through the equipment supplier rather than a bank or independent lender. The vendor either funds the purchase themselves or has a partnership with a finance provider. Approval is often quicker because the vendor has a commercial interest in closing the sale, and the equipment itself is well understood as collateral.

The trade-off is that interest rates on vendor finance tend to sit higher than what you would access through a broker comparing multiple lenders. The convenience comes at a cost. If you are in a situation where you need the equipment immediately - such as replacing a failed piece of machinery that is holding up a contract - vendor finance can keep the business moving while you arrange longer-term funding.

For ongoing purchases or planned upgrades, comparing asset finance options from banks and lenders across Australia will usually deliver a lower rate and more flexibility on term and structure. Vendor finance works for speed, not for cost.

Fixed Interest Rates Lock in Repayments Across Volatile Cycles

Most commercial equipment finance is written on a fixed interest rate for the full term. That means your repayments do not change regardless of what the Reserve Bank does with the cash rate. For young professionals building a business, that certainty is often more valuable than chasing a slightly lower variable rate that might move against you.

A fixed rate also makes it easier to model the total cost of the equipment over its life. You know what you will pay each month, you know the total interest cost, and you can calculate the after-tax position with confidence. The downside is that if rates fall significantly during the term, you are locked in and cannot take advantage without refinancing, which may involve break costs.

Variable rate equipment finance exists, but it is less common and usually only offered on larger transactions or fleet arrangements where the lender wants to manage their own interest rate risk. For single-asset purchases under $500,000, fixed is the standard.

Preserving Working Capital Matters More Than Minimising Total Interest

Buying new equipment outright might save you interest, but it also removes cash that could be used for stock, wages, marketing, or covering gaps in receivables. Using finance preserves working capital and keeps liquidity available for the parts of the business that cannot be funded with debt.

As an example, a physiotherapy practice acquiring $120,000 in treatment tables, ultrasound units, and patient management software could pay cash and avoid interest entirely. But that same $120,000 might be needed to cover six months of rent and salaries while the practice builds its patient base. Financing the equipment over five years with a chattel mortgage keeps the cash in the business and allows the depreciation and interest deductions to offset revenue as it grows. The total cost is higher, but the business survives the startup phase with runway intact.

This is the core logic behind business loans and asset finance generally. The cost of capital is weighed against the opportunity cost of tying up cash in a depreciating asset.

Loan Amount Limits Depend on Equipment Type and Business Financials

Lenders assess your capacity to service the loan based on turnover, profit, existing debts, and the nature of the equipment being financed. High-value construction equipment like cranes, graders, or dozers will require financials that demonstrate consistent revenue, while smaller office equipment or medical tools might be approved on a simpler assessment.

Most lenders will finance up to 100% of the equipment cost, though some require a deposit of 10% to 20% depending on your trading history. If your business is less than two years old, expect to provide a deposit and possibly a director's guarantee. Established businesses with strong financials can often access full funding with no personal security required beyond the equipment itself as collateral.

The type of equipment also matters. A truck or trailer holds resale value well and is easier to repossess and sell if needed, so lenders are more comfortable with higher loan-to-value ratios. Specialised machinery that only suits a narrow industry might require a larger deposit because the lender's risk is higher if they need to recover the asset.

GST Treatment Varies by Structure and Affects Cashflow Immediately

Under a chattel mortgage, you claim the full GST component in your next Business Activity Statement, which can deliver a significant refund if the equipment value is high. Under a finance lease or hire purchase, you claim GST on each payment as it is made, spreading the benefit across the term.

If your business is not registered for GST, you cannot claim any of it back, and the finance will need to cover the full GST-inclusive amount. That makes the loan amount roughly 10% higher and increases both the repayments and the total interest paid. For that reason, most businesses acquiring equipment over $50,000 ensure they are GST-registered before proceeding.

The structure you choose should align with how your business manages its BAS cycle and whether a large upfront GST refund helps or creates complexity. Your accountant will usually have a view on which approach suits your reporting.

Upgrade Cycles and Residuals Suit Businesses That Rotate Equipment Frequently

Some industries replace equipment every two to four years to stay current with technology or maintain a professional image. In those cases, a finance lease with a residual or an operating lease allows you to rotate assets without the burden of selling used equipment yourself.

A dental practice upgrading imaging equipment every three years might structure a lease with a 30% residual. At the end of the term, the lender arranges the sale or trade-in, the residual is settled, and the practice moves into a new lease on updated equipment. The cycle repeats without the business needing to hold or dispose of outdated assets.

This works less well for equipment that holds value and continues to perform reliably past the finance term. A tractor or a forklift might run for 10 years with basic maintenance, and financing it over five years with a chattel mortgage means you own it outright and keep using it with no ongoing cost. Match the structure to the asset's expected useful life and your business's appetite for holding or rotating equipment.

Call one of our team or book an appointment at a time that works for you. We compare lenders across the market to structure equipment finance that fits your cashflow, your tax position, and your plans for growth.

Frequently Asked Questions