Equipment financing allows Australian small businesses to purchase vehicles, machinery and other income-producing assets without paying the full purchase price upfront.
Instead of using a large amount of cash at once, the business can spread the cost over an agreed finance term while putting the equipment to work. This can help preserve working capital for wages, suppliers, fuel, stock, repairs and other day-to-day expenses.
The Asset Finance Shop (TAFS) is a specialised asset finance broker with access to more than 80 bank and non-bank lenders. TAFS primarily arranges chattel mortgage finance for Australian businesses purchasing trucks, commercial vehicles, machinery and other business equipment.
This guide explains how equipment financing works, what lenders assess, how repayments can be structured and when financing an asset may make more sense than paying cash upfront.
Equipment financing is commercial finance used to purchase an asset for business purposes.
Rather than paying the complete purchase price from available cash, the business borrows some or all of the cost and repays it over an agreed period.
The equipment generally provides security for the finance.
Equipment financing can be used for assets such as:
New and used assets can be financed, with selected lenders also considering private-sale and auction purchases.
The main benefit is simple.
The business can obtain the equipment it needs without using all of the purchase price from its available cash.
For example, a business buying a $100,000 machine could potentially finance the purchase rather than removing $100,000 from its bank account.
That leaves more business capital available for other costs.
Equipment finance can help a business:
The equipment can begin contributing to the business while the purchase is being repaid.
Paying cash can seem straightforward because there are no finance repayments.
The trade-off is that a large equipment purchase can significantly reduce the amount of cash the business has available.
A business might need that cash for:
Equipment financing allows the business to keep more of that capital available.
The question is not simply whether the business can afford to pay cash.
It is whether paying cash is the best use of the business's available capital.
Consider a civil construction business purchasing an $80,000 excavator attachment and machine package.
The business pays the complete $80,000 upfront.
Its equipment is fully paid for, but its available cash immediately falls by $80,000.
The business finances some or all of the $80,000.
It retains more cash in the business but takes on regular finance repayments and interest.
The right option depends on the business.
If retaining $80,000 allows the company to cover payroll, fuel several projects or maintain a cash buffer for unexpected repairs, financing may provide more operational flexibility.
If the business has significant surplus cash and no other use for it, paying a larger deposit or buying outright may reduce the total finance cost.
The main business asset financing structure TAFS arranges is a chattel mortgage.
Under a chattel mortgage:
Chattel mortgages are commonly used for commercial vehicles, machinery and other business equipment.
The business may be able to claim eligible GST, interest and depreciation amounts depending on its circumstances. Speak with your accountant about the tax treatment that applies to your business.
An equipment lease is a different type of arrangement where a finance or leasing provider generally owns the equipment and the business pays to use it.
Depending on the agreement, there may be options at the end of the term relating to returning, continuing to use or purchasing the equipment.
TAFS primarily arranges chattel mortgage finance rather than equipment leasing.
For many businesses purchasing long-term income-producing assets, ownership from settlement is an important reason to consider a chattel mortgage.
|
Feature |
Chattel Mortgage |
Equipment Lease |
|
Business owns the asset from settlement |
Yes |
Generally no |
|
Asset provides security |
Yes |
Provider generally owns asset |
|
Regular payments |
Loan repayments |
Lease payments |
|
Balloon may be available |
Yes |
Depends on agreement |
|
Business keeps asset after finance is repaid |
Yes |
Depends on agreement |
|
Primary structure arranged by TAFS |
Yes |
No |
The right structure depends on the business, asset and long-term plans.
Small business equipment loans can be structured around several variables.
These include:
Changing one part of the structure can affect the repayment.
For example, increasing the deposit reduces the amount financed.
Extending the term generally reduces the regular repayment but means the business carries the debt for longer.
Adding a balloon can also reduce the regular repayment but creates a larger amount at the end.
A balloon is an agreed amount of the finance that remains outstanding at the end of the loan term.
For example, rather than repaying the entire finance amount through regular instalments, part of the principal is left as the final payment.
A balloon can:
At the end of the term, the business may manage the balloon through:
A balloon should be considered alongside the expected future value of the equipment.
Available terms depend on the equipment and lender.
Equipment finance terms can commonly range from two to seven years.
The lender may consider:
A newer piece of long-life machinery may support a longer finance term than older equipment approaching replacement.
The finance term should generally make sense against how long the business expects to use the asset.
Lenders assess both the business and the equipment.
There is no single factor that determines approval.
The lender may consider:
An established business can provide more historical information.
A newer business can still be considered by selected lenders where the overall application is suitable.
The lender needs to understand whether the business can afford the proposed repayment.
Evidence may include:
The required information depends on the lender.
Industry experience can be particularly useful for newer businesses.
A business owner may have only recently registered an ABN but have years of experience as:
That experience can help provide context around how the equipment will be used.
The lender will consider existing financial commitments.
These might include:
The lender needs to see that the business can comfortably manage the new repayment alongside existing commitments.
Credit history can include:
A strong credit profile can help the application.
Selected lenders may also consider previous credit issues depending on the circumstances.
The asset itself also matters.
The lender may assess:
The equipment should make sense for the business and the work it performs.
The equipment should generally have a clear business purpose.
That may mean it directly generates income or supports the business's ability to operate.
For example:
The excavator can be used to complete paid earthmoving work.
The truck can move freight and generate transport income.
The forklift may not directly produce revenue, but it can be essential to warehouse operations.
The machine can increase manufacturing capacity and production output.
A ute or van may allow employees to travel to sites and carry tools or equipment.
The clearer the commercial purpose, the easier it is to explain why the business needs the asset.
Yes.
Business asset financing can be used to add capacity rather than simply replace existing equipment.
A business might finance another asset because:
The lender will still want to understand how the additional repayment fits within the business.
For expansion purchases, existing repayment history and current business performance can help support the application.
Yes.
Replacing equipment is one of the most common reasons businesses use commercial financing.
An older machine can create costs through:
The business can compare those ongoing costs against the repayment on replacement equipment.
The cheapest option is not always keeping the existing asset.
An ageing machine that is frequently unavailable can cost the business more than its repair invoice alone.
Yes.
Selected lenders finance used equipment.
The lender may assess:
Used equipment can provide businesses with a lower entry price than purchasing new.
The business should also consider expected maintenance and downtime when comparing the total cost.
Yes.
Selected lenders provide equipment purchase funding for private-sale transactions.
Additional checks may be required, including:
TAFS can coordinate the required information between the buyer, seller and lender.
Yes.
Selected lenders can finance auction purchases.
Pre-approval may also be available before bidding.
This can help a business understand:
Final approval will depend on the asset actually purchased.
Businesses should also allow for auction costs such as buyer's premiums, transport, servicing and repairs when setting their maximum purchase price.
Not every equipment finance application requires a deposit.
A lender may consider:
A deposit can reduce the amount financed and lower the regular repayment.
A trade-in may also be used as a contribution.
The business should also consider how much cash it wants to retain after settlement.
Putting every available dollar into a deposit can leave limited working capital for actually operating the equipment.
Potentially.
Selected applicants may qualify for finance covering the full purchase price.
The lender can consider:
Full purchase price finance is subject to lender criteria and is not available in every scenario.
Low doc equipment financing allows eligible businesses to apply without always providing complete financial statements or several years of tax returns.
Selected lenders may instead use:
Low doc does not mean no assessment.
The lender still needs to understand whether the business can manage the proposed repayment.
Yes.
Sole traders can apply for small business equipment loans.
The lender may assess:
Selected lenders may also offer low doc pathways where complete financial statements are unavailable.
Yes. Selected lenders consider applications from newer businesses.
The lender may place additional weight on:
A newer ABN does not automatically prevent a business from obtaining equipment finance.
The application needs to explain how the equipment will support the business and how the repayments will be made.
Yes. This is one of the main reasons businesses finance assets.
Consider a business with $150,000 available in cash that needs to purchase a $120,000 machine.
Paying cash would leave $30,000 available.
Financing the machine could allow the business to keep significantly more of that $150,000 available for operations.
That capital might be needed for:
The business takes on interest by financing the asset, so the decision involves comparing the finance cost with the value of keeping capital available.
Paying cash can make sense where the business:
Financing isn't automatically better than paying cash.
The right decision depends on the business's cash position and future requirements.
Financing can be useful when:
The decision should be based on the business's overall financial position rather than simply whether finance is available.
The monthly repayment is not the only number to compare.
Look at:
A low monthly repayment could result from:
That does not necessarily mean the finance costs less overall.
Compare the complete structure.
Repayments should be considered alongside all of the costs involved in using the equipment.
For machinery, this can include:
For a truck, this can include:
A business should assess whether it can comfortably manage the equipment repayment after these costs are included.
The exact requirements depend on the lender and application.
For an initial assessment, you may need:
Some applications may also require:
Information about the equipment is generally required once the asset has been selected.
Straightforward equipment finance applications can be approved in as little as 24 hours once the required information has been supplied.
Applications may take longer where they involve:
Having your business information ready can make the approval process more efficient.
TAFS reviews the business, proposed purchase and available documentation.
TAFS begins with a soft credit check that leaves no mark on the applicant's credit file.
The internal credit team assesses the application before making a formal lender submission.
TAFS has access to more than 80 bank and non-bank lenders.
The application can be matched with suitable lenders based on:
The proposed:
are considered based on the business and equipment.
Once the business selects an option, the formal application is submitted to the chosen lender.
TAFS coordinates lender requirements, finance documents and payment to the equipment seller.
Before proceeding, ask:
Equipment financing allows a business to purchase a commercial asset and repay the cost over an agreed period.
The equipment generally provides security for the finance.
Under a chattel mortgage, the business owns the asset from settlement while the lender registers security over it until the finance is repaid.
It allows a business to obtain the vehicles, machinery or equipment it needs without paying the full purchase price upfront.
This can help preserve working capital while the equipment begins supporting the business.
It depends on the business.
Paying cash can reduce finance costs, while financing can preserve capital for other business expenses.
The business should compare the interest cost against the value of keeping cash available.
TAFS primarily arranges chattel mortgages for vehicles, machinery and other commercial assets.
The business owns the asset from settlement and repays the finance over an agreed term.
An equipment lease generally allows the business to use an asset owned by a leasing provider in return for regular payments.
TAFS primarily arranges chattel mortgage finance rather than equipment leasing.
Yes.
Selected lenders provide equipment finance for Australian sole traders.
Yes.
Selected lenders will consider newer businesses based on factors including industry experience, expected work, bank statements, credit history and the asset being purchased.
Not always.
Selected lenders provide low doc equipment finance using bank statements and other supporting business information.
Not every application requires a deposit.
The requirement depends on the business, asset, lender and overall application.
Yes.
Used equipment can be financed through selected lenders, subject to age, condition and value requirements.
Yes.
Selected lenders allow private-sale equipment purchases, although additional asset and seller checks can be required.
TAFS can arrange approvals in as little as 24 hours for straightforward applications once the required information has been supplied.
Equipment financing can help your business acquire the vehicles, machinery or equipment it needs while keeping more capital available for day-to-day operations.
TAFS can assess your business, proposed asset purchase and available documentation before comparing suitable finance options through access to more than 80 lenders.
Contact The Asset Finance Shop or apply online at www.tafs.com.au.
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.