Small business equipment financing allows Australian businesses to replace ageing vehicles, machinery and equipment without paying the full purchase price from cash upfront.
Instead, the cost of the replacement asset can be spread over an agreed finance term while the business puts the new equipment to work. This can help preserve working capital for wages, suppliers, fuel, maintenance, tax obligations and other operating expenses.
The Asset Finance Shop (TAFS) is a specialised asset finance broker with access to more than 80 bank and non-bank lenders. TAFS arranges equipment finance for Australian businesses replacing trucks, commercial vehicles, earthmoving machinery, agricultural equipment, manufacturing machinery and other income-producing business assets.
This guide explains how equipment finance works when replacing ageing equipment, what lenders assess, how trade-ins can be used and what businesses should compare before deciding between financing the replacement or paying cash.
Equipment finance allows a business to purchase an asset and repay the cost over an agreed period rather than paying the complete purchase price upfront.
The process generally works like this:
The equipment generally provides security for the finance.
The business can then use the new asset while making regular repayments over the finance term.
For a business replacing equipment, this means the old asset can be traded or sold while the replacement begins contributing to the business.
Equipment does not need to completely stop working before replacement becomes worth considering.
An older machine may still operate but become increasingly expensive or unreliable.
Common reasons businesses replace equipment include:
The decision should consider the total cost of keeping the old equipment rather than simply whether it has been paid off.
A business may look at an older machine and think:
There is no repayment, so keeping it must be cheaper.
That is not always the complete picture.
An older asset can still cost the business through:
Replacing that equipment introduces a finance repayment, but it may also improve reliability and productivity.
The comparison should therefore be:
What does the existing equipment cost the business to keep operating?
versus:
What would the replacement equipment cost to own, finance and operate?
Small business equipment financing can be used across a broad range of business assets.
This can include:
A civil contractor may replace a machine because maintenance and downtime are affecting jobs or because a newer machine is required for larger projects.
Equipment purchase funding can be used for:
A transport business may replace an ageing truck to improve reliability or reduce the risk of missing contracted work.
Businesses can finance replacement:
The replacement decision may be driven by age, reliability, capacity or changing operational requirements.
Businesses can replace equipment such as:
A newer machine may increase output, reduce labour requirements or allow the business to produce work that was previously outsourced.
Depending on the asset and lender, finance can also be used for:
Both new and used assets can be considered.
Selected lenders can also finance equipment purchased through dealers, private sellers and auctions.
There is no single age at which equipment should be replaced.
The right time depends on what the asset is costing the business and what the replacement would change.
Consider the following questions.
Look at repair spending over the last 12 to 24 months.
Include:
One expensive repair may not justify replacement.
Repeated repairs can change the calculation.
Downtime can be more expensive than the repair itself.
For example, if an excavator breaks down during a project, the business may lose:
The actual cost of downtime needs to be considered when comparing old and replacement equipment.
Older or smaller equipment may prevent a business from quoting certain jobs.
A replacement could potentially:
The value of the replacement is therefore not limited to maintenance savings.
It may also create additional earning capacity.
Parts availability and specialist repair requirements can become more difficult as machinery ages.
A relatively small breakdown can create extended downtime if the required parts cannot be sourced quickly.
Sometimes the existing equipment still works perfectly well but is no longer the right size for the business.
Examples include:
This is still replacement finance even though the existing equipment has not failed.
The main reason is working capital.
Paying cash removes the complete purchase price from the business immediately.
Financing spreads that cost over time.
Consider a business replacing an ageing machine with equipment costing $120,000.
The business pays $120,000 from its bank account.
There are no finance repayments, but available cash immediately falls by $120,000.
The business finances some or all of the purchase.
It keeps more cash available but takes on regular repayments and finance costs.
Neither option is automatically better.
The business needs to decide whether retaining that cash is more valuable than avoiding the cost of finance.
Working capital may be required for:
A business can be profitable and still experience cash flow pressure.
Replacing equipment using structured repayments can help avoid creating a large one-off reduction in available cash.
Consider an earthmoving business operating an older excavator.
The excavator is fully paid off.
Over the past year, however, the business has experienced:
The business is considering a newer excavator.
Paying cash would avoid finance costs but would also remove a large amount of capital from the business.
Financing the replacement introduces a regular repayment while allowing more cash to remain available for:
The decision should compare the complete financial and operational position rather than focusing only on whether the old excavator has a repayment.
A transport operator owns an ageing rigid truck.
The truck still runs, but:
The operator finds a suitable replacement.
The old truck may be:
The value of the old truck and any existing finance payout can then form part of the replacement finance structure.
Yes.
Trade-in equity can potentially contribute toward the replacement purchase.
For example:
Existing equipment trade-in value: $70,000
Existing finance payout: $30,000
Potential equity: $40,000
That $40,000 may contribute toward the replacement asset.
This could reduce:
The actual available equity depends on the final trade-in value and finance payout.
The existing finance can generally be dealt with as part of the replacement transaction.
Start by obtaining the current payout figure.
For example:
Old machine value: $80,000
Finance payout: $45,000
Remaining equity: $35,000
The $45,000 is used to clear the existing finance.
The remaining $35,000 may then contribute toward the replacement purchase.
If the payout is higher than the equipment's value, the structure becomes different and should be reviewed before committing to the replacement.
The main equipment finance structure TAFS arranges is a chattel mortgage.
Under a chattel mortgage:
A chattel mortgage can be used for eligible commercial vehicles, machinery and other business assets.
The business may also be able to claim eligible GST, interest and depreciation amounts depending on its circumstances.
Speak with your accountant about the tax treatment that applies.
Equipment leasing is a different finance structure where the business generally pays to use equipment owned by another party.
TAFS primarily arranges chattel mortgage finance for business equipment purchases.
For businesses replacing long-term income-producing assets, a chattel mortgage allows the business to own the equipment from settlement while repaying the finance over time.
If you are comparing equipment leasing with purchasing equipment, consider:
Your accountant can advise on the tax implications of the structure.
The available finance term depends on the business, lender and equipment.
A lender may consider:
A newer machine may support a longer finance term than significantly older equipment.
The term should also make sense for how long the business expects to keep the asset.
The aim is to avoid creating a situation where the business is still repaying equipment that already needs replacing again.
Potentially.
A balloon leaves an agreed amount outstanding at the end of the finance term.
This reduces the amount of principal being repaid during the term and can therefore reduce regular repayments.
For replacement equipment, the balloon should be considered against:
A balloon can improve monthly cash flow, but it also creates a larger final amount to manage.
The lowest monthly repayment is not automatically the best finance structure.
Not every equipment finance application requires the same deposit.
The lender may consider:
Some businesses may have options without a cash deposit.
Others may be required to contribute.
Before putting a large amount of cash into the purchase, consider how much working capital the business should retain.
Potentially.
Selected applicants may qualify for finance covering the full purchase price of eligible equipment.
The lender may assess:
The complete purchase price is not available in every application.
A broker can assess the position before the business commits to the equipment.
Yes.
Used machinery and business equipment can be financed through selected lenders.
For used equipment, lenders may consider:
Older equipment may have:
A used replacement can be a strong option where it delivers the capability the business requires at a lower purchase price than new equipment.
Yes, through selected lenders.
Private-sale equipment finance may require additional checks.
These can include:
Private sales can therefore involve additional settlement steps compared with buying from a dealership or equipment supplier.
Yes.
Selected lenders can finance eligible auction purchases.
It can be useful to discuss finance before bidding.
An initial assessment can help establish:
Final approval will depend on the actual equipment purchased.
Remember to consider additional auction costs such as:
Replacing an existing asset gives the lender several pieces of information to consider.
The lender may look at:
Income can potentially be supported through:
The lender needs to understand current commitments.
This may include:
If the equipment being replaced is currently financed, its payout will also need to be considered.
A business with a strong repayment history on existing equipment finance may be able to demonstrate that it has already managed similar commitments successfully.
Experience can help explain why the new equipment makes commercial sense.
The lender may assess:
A clear reason for the purchase can help explain the transaction.
This might include:
Not always.
Selected lenders offer low doc equipment finance.
Eligible applications may use information such as:
rather than requiring complete financial statements in every case.
Low doc does not mean the lender skips the financial assessment.
It simply changes the information used to complete that assessment.
Yes.
Sole traders can apply for small business equipment financing.
The lender may consider:
Low doc options may also be available through selected lenders where complete financial statements are not available.
Potentially.
Selected lenders can consider newer businesses.
The lender may place more weight on:
There is no single minimum ABN age across every equipment lender.
The available pathway depends on the complete application.
Yes.
A business may need to replace or upgrade equipment before beginning additional work.
For example:
The lender may consider:
Where relevant, contracts or work source information can help explain why the replacement is required.
The purchase price should suit the business rather than simply reflect the maximum amount a lender is prepared to finance.
Before buying, consider:
A more expensive machine may make sense if it materially improves output.
A cheaper machine may be better if it provides everything the business needs without unnecessary capacity.
Start with the cash impact.
Consider:
Consider:
Then ask what the retained cash can do for the business.
If financing allows the business to:
then paying some finance cost may provide useful flexibility.
If the business has significant surplus cash with no planned use, paying a larger deposit may reduce the finance cost.
Before replacing equipment, compare both paths.
|
Question |
Keep and Repair |
Replace and Finance |
|
Upfront cash required |
Repairs as needed |
Deposit, if required |
|
Regular finance repayment |
Possibly none |
Yes |
|
Repair uncertainty |
Usually higher on ageing equipment |
Generally lower initially |
|
Downtime risk |
Can increase with age |
Potentially lower |
|
Productivity |
Existing level |
May improve |
|
Working capital impact |
Irregular repair costs |
Structured repayments |
|
Asset life |
Shorter remaining life |
Longer expected life |
|
Capacity |
Existing capacity |
Opportunity to upgrade |
The right choice depends on the actual equipment and business.
Businesses often focus on the cost of replacing equipment.
There can also be a cost to delaying replacement.
That may include:
Planning replacement before the equipment fails completely gives the business more time to:
An emergency purchase generally gives the business fewer options.
Potentially.
An initial equipment finance assessment can be completed before the exact asset is selected.
This can help establish:
The final approval will still depend on the actual equipment meeting lender requirements.
Pre-approval can be useful when:
Straightforward equipment finance applications can be approved in as little as 24 hours once the required information is available.
Approval can take longer where the application involves:
Approval and settlement are separate stages.
The lender may approve the application before the final seller and asset requirements are complete.
TAFS looks at:
The assessment can include:
TAFS begins with a soft credit check that leaves no mark on the applicant's credit file.
The TAFS internal credit team assesses the application before the formal lender submission.
TAFS has access to more than 80 bank and non-bank lenders.
Different lenders can have different requirements around:
The application can be matched with lenders whose criteria suit the business and proposed replacement.
TAFS can review:
Once the business selects an option, the formal application is submitted to the chosen lender.
TAFS coordinates the remaining lender, seller and settlement requirements.
Before replacing ageing business equipment, work through the following questions:
Equipment finance allows a business to purchase vehicles, machinery or other income-producing assets and repay the cost over an agreed term rather than paying the full purchase price upfront.
The equipment generally provides security for the finance.
Yes.
Small business equipment financing can be used to replace ageing or unreliable machinery with new or used equipment, subject to lender criteria.
It depends on the business.
Paying cash avoids finance costs but reduces available capital immediately.
Financing introduces repayments and interest but allows the business to retain more working capital.
Compare the complete business position before deciding.
Yes.
Any equity remaining after existing finance is paid out may potentially contribute toward the replacement purchase.
The existing finance payout can generally be incorporated into the replacement process.
The trade-in or sale proceeds can first be used to clear the existing loan.
Any remaining equity may contribute toward the new equipment.
Yes.
Selected lenders finance used machinery and other business equipment.
Age, condition, operating hours and value can affect the available options.
Yes, through selected lenders.
Additional seller, ownership and equipment checks may be required.
Yes.
Selected lenders finance auction purchases.
An initial finance assessment before bidding can help establish the likely finance position.
Not always.
Selected lenders offer low doc equipment finance using information such as recent business bank statements and other supporting business information.
Yes.
Sole traders can finance eligible business equipment, subject to lender requirements.
Potentially.
Selected lenders consider newer businesses based on factors including industry experience, business activity, credit position and the proposed asset.
Not in every application.
Deposit requirements depend on the business, equipment, finance amount and lender.
Potentially.
Selected applicants may qualify for finance covering the full purchase price, subject to lender criteria.
TAFS primarily arranges chattel mortgage finance for eligible commercial vehicles, machinery and business equipment.
TAFS primarily arranges chattel mortgage finance rather than equipment leasing.
A chattel mortgage allows the business to own the equipment from settlement while repaying the finance over the agreed term.
Potentially.
A balloon can reduce regular repayments but creates a larger amount due at the end of the finance term.
The balloon should suit the asset's expected future value and the business's replacement plans.
Straightforward applications can be approved in as little as 24 hours once the required information has been supplied.
More complex transactions may take longer.
No.
TAFS starts with a soft credit check and internal assessment, compares suitable lender criteria and then submits the formal application to the selected lender.
Replacing equipment before it becomes a constant source of repairs and downtime can give a business more control over the timing, cost and finance structure of the purchase.
TAFS can review the existing equipment, trade-in or payout position, business cash flow and proposed replacement before comparing suitable small business equipment financing options through access to more than 80 bank and non-bank lenders.
The Asset Finance Shop (TAFS) is a commercial asset finance brokerage based in Sydney.
Information on this page is general in nature and doesn't take your personal circumstances into account. Speak to a TAFS broker for options tailored to your business, and to your accountant regarding tax treatment.