Understanding the Basics of New Equipment Finance

When you're launching or growing a business together, funding new equipment without depleting your working capital becomes a practical decision that affects both your business operations and household finances.

What Is Equipment Finance and How Does It Work

Equipment finance lets you acquire business assets by spreading the cost over time through fixed monthly repayments, rather than paying the full amount upfront. The equipment itself typically serves as collateral, which means you can access funding without needing to offer your home or other personal assets as security.

Consider a couple opening a cafe in regional Victoria who need a commercial coffee machine, refrigeration units, and a point-of-sale system totalling $45,000. Rather than withdrawing that amount from their savings, they arrange equipment finance with repayments of around $900 per month over five years. The equipment generates revenue from day one, while their cash reserves remain available for stock, staffing, and unexpected costs during the first year of trading.

The loan amount you can access depends on the equipment's value, your business structure, and your capacity to service repayments. Most lenders will finance up to 100% of the equipment cost for established businesses, while newer ventures might need to contribute a deposit of 10-20%.

Chattel Mortgage Versus Hire Purchase

A chattel mortgage means you own the equipment from day one and claim tax deductions on both depreciation and interest, with a balloon payment option at the end to reduce monthly costs. Under a hire purchase arrangement, the lender owns the equipment until you make the final payment, but you still claim tax deductions on the full repayment amount including interest.

For couples operating through a company or trust structure, a chattel mortgage often delivers better tax treatment because you can claim GST credits upfront on the equipment purchase and depreciation throughout the loan term. Sole traders and partnerships might find hire purchase more straightforward since ownership transfers automatically at the end without needing to refinance a balloon payment.

The choice affects your monthly cashflow too. If you're financing $80,000 worth of manufacturing equipment over five years, a chattel mortgage with a 30% balloon payment might cost $1,150 per month compared to $1,450 under hire purchase with no balloon. You'll need $24,000 at the end of the term to pay out the balloon or refinance it, but that lower monthly cost can matter when you're managing cashflow in the growth phase.

Which Types of Equipment Qualify

Most income-producing business assets qualify for equipment finance, including office equipment like computers and printing systems, plant and equipment such as machinery and automation technology, work vehicles from utes to light trucks, and specialised tools specific to your industry.

Lenders typically finance new and near-new equipment more readily than older assets. Industrial equipment like forklifts, excavators, and tractors qualify regardless of whether you're using them in construction, agriculture, or warehousing. IT equipment finance covers everything from server infrastructure to point-of-sale systems. Solar equipment finance has become particularly relevant for businesses looking to reduce ongoing energy costs while accessing the tax benefits of a depreciating asset.

The equipment needs to have a clear resale value since it secures the loan. Custom-built or highly specialised machinery might require additional documentation around valuation, but most standard commercial equipment presents no issues.

Tax Benefits for Business Owners

Equipment finance is tax effective because repayments are generally tax deductible as a business expense, reducing your taxable income each year. Under temporary full expensiation measures that have applied in recent years, businesses could immediately deduct the full cost of eligible assets, though these provisions change with government policy and should be confirmed with your accountant.

A couple running a food processing business who finance $120,000 in new machinery might reduce their annual taxable income by around $26,000 (combining depreciation and interest) depending on the loan structure and current tax rules. Over a five-year term, that translates to significant tax savings that effectively reduce the real cost of the equipment.

The tax treatment differs between chattel mortgage and hire purchase, and between entity structures, which is why equipment finance decisions should involve your accountant before you commit. The finance structure you choose can affect your tax position more than the interest rate itself.

How to Structure Finance Across Multiple Assets

When you're buying new equipment across different categories - office equipment, work vehicles, and plant and equipment - you can either bundle everything into a single facility or separate them based on the equipment's useful life. Financing a $15,000 computer system over the same seven-year term as a $90,000 excavator rarely makes sense since the computer will need replacing long before the machinery.

Lenders offering equipment finance can structure separate agreements with terms matched to each asset's working life. Your office technology might sit on a three-year term, vehicles on five years, and heavy machinery on seven years. This approach means you're not still paying for outdated equipment years after it's been replaced, and your monthly repayments align more closely with the revenue each asset generates.

The Application Process for New Businesses

New businesses typically need to provide more detail than established operations when applying for commercial equipment finance. Lenders want to see your business plan, evidence of contracts or forward orders, and proof that both partners have relevant industry experience or qualifications.

If you're within the first two years of trading, expect to provide BAS statements if you've lodged any, bank statements showing business account activity, and potentially a director's guarantee. The equipment itself provides security, but lenders still assess whether your business can sustain the repayments based on projected revenue.

Couples transitioning from employment into business together often have strong personal credit histories and savings, which helps offset the lack of business trading history. A deposit of 20% can move an application from conditional to approved when you're in the startup phase, particularly for equipment over $50,000.

When Equipment Leasing Makes Sense

Equipment leasing differs from equipment finance because you never own the asset - you're essentially renting it for a fixed term with the option to upgrade, return, or purchase at the end. This structure suits technology that becomes obsolete quickly or situations where you need the latest equipment to remain competitive but don't want to own depreciating assets.

Leasing works particularly well for IT equipment, medical technology, and some agricultural equipment where manufacturers release updated models frequently. The downside is you're not building equity in the asset, and over a long enough period, leasing costs more than purchasing. For most couples starting out, ownership through a chattel mortgage or hire purchase delivers better long-term value unless your industry specifically benefits from constant equipment upgrades.

Managing Cashflow During Business Growth

Fixed monthly repayments let you forecast costs accurately, which matters when you're juggling household expenses alongside business commitments. Equipment finance keeps your working capital available for inventory, wages, and marketing rather than locking it up in depreciating assets.

If you're comparing a $60,000 cash purchase against financed repayments of approximately $1,200 per month, the finance option leaves $60,000 in your business account to manage cashflow through seasonal variations or unexpected opportunities. For many couples running a business together, that liquidity is worth more than the interest cost, particularly in the first few years when income can be unpredictable.

Some lenders offer seasonal payment structures for agricultural equipment or industries with irregular income, where repayments adjust throughout the year to match your revenue cycle. This flexibility is worth discussing during the application if your business has clear peak and off-peak periods.

Accessing Equipment Finance Options Across Australia

DriveHome Finance works with banks and specialist lenders across Australia to access equipment finance options suited to different industries and business structures. Whether you're financing a single work vehicle or a full fitout of manufacturing equipment, comparing multiple lenders helps you find terms that match your business needs without paying more than necessary.

Call one of our team or book an appointment at a time that works for you. We'll talk through what you're looking to finance, how the business is structured, and which approach makes sense for your situation - then handle the application process with lenders who specialise in your industry.

Frequently Asked Questions