business equipment finance typically involve a 10 to 30 per cent deposit, with terms ranging from one to seven years. While interest rates and fees vary by structure, such as chattel mortgages, finance leases, or operating leases, established businesses may secure 100 per cent funding. Tax deductions for GST, depreciation, and interest payments can offset these costs, making it a viable alternative to cash purchases.
For local buyers, business equipment finance costs This guide breaks down the key factors influencing your total expense.
Business Equipment Finance Costs Explained
The choice of finance structure fundamentally shapes your costs. A chattel mortgage allows you to own the equipment from day one, which is beneficial if you plan to sell the asset later. You make regular repayments and may have a balloon payment at the end to lower monthly costs. A finance lease keeps ownership with the financier, meaning you make payments but do not own the asset until the end of the term. This structure often results in lower monthly repayments. An operating lease is best for equipment that becomes outdated quickly, as you return the asset at the end of the term. A commercial hire purchase allows you to pay in instalments and take ownership once the final payment is made. Business equipment finance offers these varied pathways to suit different business needs.
Upfront deposits and funding limits
Deposits are a major component of the upfront cost. Most lenders require a deposit between 10 and 30 per cent of the equipment value. However, established businesses with a strong trading history can sometimes secure up to 100 per cent financing, which means little or no deposit is needed. This is a significant advantage for preserving working capital. Beyond the deposit, you must consider the interest rate and the loan term. Terms usually run from one to seven years, set against the expected useful life of the asset. Balloon payments may also apply in chattel mortgages to reduce the monthly repayment amount. Additionally, lenders typically require comprehensive insurance on the funded asset, which adds to the running costs.
Tax benefits and deductions
Tax efficiency is a key advantage of equipment finance. With a chattel mortgage, you can claim the GST on the purchase upfront, which is then credited against your tax liability. You can also claim depreciation on the asset and deduct the interest portion of your repayments. The instant asset write-off may also apply, allowing you to deduct the full cost of eligible assets in the year of purchase. These deductions can significantly reduce your taxable income, offsetting the cost of borrowing. It is important to note that these tax benefits depend on your specific circumstances, so you should confirm the details with an accountant.
Lender requirements and approval factors
Equipment loans cover a broad range of business assets. Lenders regularly fund manufacturing and industrial machinery such as CNC machines, presses and welding gear. They also fund construction and earthmoving plant including excavators, loaders and cranes, as well as agricultural machinery, medical and dental equipment, commercial kitchen and refrigeration gear, and technology such as servers and point-of-sale systems. Quality used equipment can usually be funded as well, with age limits that vary by asset type but commonly extend to around ten years old. When assessing an application, lenders weigh the trading history of the business, the type and resale value of the asset, and the proposed deposit. A finance broker who understands asset values and lender appetites can match your request to the lenders most likely to approve it.
- Assess your needs. Determine the type of equipment you require, its approximate cost, and whether it is new or used.
- Engage a broker. A finance broker who understands asset values and lender appetites connects you with suitable finance providers.
- Compare structures. Review chattel mortgage, finance lease, operating lease and commercial hire purchase, weighing ownership, tax and cost.
- Finalise and insure. Once approved, the broker coordinates with the supplier so delivery and settlement of the equipment run smoothly. Most lenders require comprehensive insurance on the funded asset.
| Structure | Ownership | Best suited to |
|---|---|---|
| Chattel mortgage | Your business, from day one | Owning the asset and claiming GST upfront |
| Finance lease | The financier, during the term | Lower upfront cost with an end-of-term choice |
| Operating lease | The financier | Equipment that needs regular upgrades |
| Commercial hire purchase | You, after the final payment | Full financing with eventual ownership |
Common questions
What is the typical deposit for business equipment finance? Deposits typically range from 10 to 30 per cent, but some lenders offer up to 100 per cent financing for established businesses with a strong trading history.
Can I claim GST on equipment finance? Yes, with a chattel mortgage you can claim the GST on the purchase upfront, which is then credited against your tax liability.
How long does approval take? Many equipment applications are approved within 24 to 48 hours, provided all documentation is complete.
This guide provides an overview of business equipment finance for Australian businesses.