Simple hacks to finance plant equipment for your business

Buying plant equipment outright ties up capital that most businesses would rather keep available for other opportunities.

Equipment finance lets you spread the cost of machinery, tools, or vehicles over time while preserving working capital. Whether you're acquiring an excavator, a commercial oven, or a fleet of earthmoving equipment, the structure you choose affects your cash flow, tax position, and ability to upgrade as technology changes.

Chattel Mortgage vs Commercial Hire Purchase

A chattel mortgage gives you ownership from day one. You borrow the purchase price, use the equipment immediately, and the lender holds a mortgage over the asset until the loan is repaid. Monthly repayments include principal and interest, and you can typically claim GST on the purchase upfront if you're registered. Depreciation and interest are both tax-deductible.

Commercial hire purchase works differently. The lender owns the equipment during the loan term, and ownership transfers to you after the final payment. You can't claim the GST upfront, but it's built into the repayments. Monthly costs are often slightly higher than a chattel mortgage, but the structure suits businesses that want to defer ownership until the asset is fully paid off.

Consider a business in the Sutherland Shire purchasing a $120,000 excavator. With a chattel mortgage, they claim the GST input credit immediately and start depreciating the asset from day one. Monthly repayments over five years might sit around $2,400, with both the interest and depreciation deductible. Under a hire purchase, the repayments would be marginally higher, no upfront GST claim is available, and ownership only transfers after the final instalment. The chattel mortgage delivers lower overall costs and better cash flow in most scenarios.

How Balloon Payments Affect Your Monthly Costs

A balloon payment is a lump sum due at the end of the loan term. It reduces your monthly repayments but leaves a larger amount owing when the term finishes. Balloons are typically set between 10% and 40% of the asset value, depending on the lender and the equipment type.

Lower monthly repayments mean more available cash flow during the loan term, which can be useful if you're managing seasonal income or reinvesting in other parts of the business. The downside is that you either need to refinance the balloon, sell the equipment, or pay it out in cash when the term ends.

For equipment that holds its value well, such as certain heavy vehicles or earthmoving machinery, a balloon can align the loan structure with the asset's resale value. For equipment that depreciates quickly, a balloon can leave you owing more than the asset is worth at the end of the term.

Leasing vs Buying: When Each Structure Works

A finance lease means the lender owns the equipment, and you make regular payments to use it. At the end of the lease, you can usually purchase the asset for a residual value, extend the lease, or return it. Operating leases, which are less common for plant equipment, don't offer a purchase option and are typically used for items you plan to upgrade regularly.

Buying through a chattel mortgage or hire purchase gives you ownership and the ability to claim depreciation. Leasing often results in lower monthly payments and can suit businesses that want to upgrade equipment frequently without dealing with resale. However, you don't own the asset during the lease term, and you can't claim depreciation.

For long-term assets like tractors, forklifts, or manufacturing equipment, ownership structures like chattel mortgages tend to deliver lower total costs. For assets that need regular replacement, such as certain IT equipment or vehicles subject to heavy wear, leasing can make sense.

Structuring Finance for Multiple Assets

If you're acquiring several pieces of equipment at once, you can structure them under a single facility or separate agreements. A single facility simplifies administration and can sometimes deliver better rates due to the larger total amount. Separate agreements give you flexibility to pay off individual items early or tailor repayment terms to each asset's useful life.

In our experience, businesses acquiring a mix of equipment with different lifespans often benefit from separate agreements. A truck with a ten-year working life and a computer system that will need replacing in three years shouldn't be financed on the same term.

Lenders will also look at how much equipment finance you're carrying relative to your turnover and profitability. If you're already servicing multiple facilities, adding another can affect serviceability, even if each individual loan is manageable. Consolidating existing equipment debt through business refinancing before taking on new assets can sometimes open up more capacity.

What Lenders Look for When Assessing Equipment Finance

Lenders assess equipment finance differently to residential mortgages. They want to see that the equipment generates income or supports income-generating activity, that your business has adequate cash flow to service the repayments, and that the asset holds enough value to act as security.

You'll typically need recent financials, including profit and loss statements and balance sheets. If you're a newer business, the lender may place more weight on your deposit, personal financial position, or the asset's resale value. Some lenders will also consider the equipment's condition, age, and how quickly it depreciates.

For specialised equipment with a narrow resale market, such as certain food trucks or industry-specific machinery, lenders may require a larger deposit or shorter loan term to manage their risk. For high-demand equipment like excavators, trucks, or tractors, approval is often more straightforward and terms more flexible.

How Deposits and Loan-to-Value Ratios Work

Most lenders will finance between 70% and 100% of an asset's value, depending on the equipment type and your financial position. A deposit of 20% to 30% will typically deliver better interest rates and more flexible terms, particularly for used equipment or assets with higher depreciation.

If you're buying used equipment, expect lenders to be more conservative with the loan-to-value ratio. A five-year-old excavator might only attract 70% to 80% funding, while a brand-new unit could be financed at 90% or more. The lender will often arrange their own valuation to confirm the asset's worth, particularly for high-value items.

For businesses with strong financials and an established relationship with a lender, 100% finance can sometimes be arranged, though the interest rate will usually be higher than if you contribute a deposit.

Tax Treatment and Instant Asset Write-Off

Under a chattel mortgage or hire purchase, you can claim depreciation on the equipment each year. Interest on the loan is also deductible. If the instant asset write-off threshold applies, you may be able to deduct the full cost of the asset in the year it's purchased, rather than depreciating it over several years.

The instant asset write-off threshold changes periodically, so check the current limit with your accountant before structuring finance. If you're eligible, the write-off can deliver a significant tax benefit in the first year, even though you're financing the purchase.

Under a lease, you can't claim depreciation because you don't own the asset, but the lease payments are typically fully deductible as an operating expense. Your accountant will help you determine which structure delivers the most value based on your tax position and cash flow.

If you're considering equipment finance alongside other funding such as business loans or commercial loans, the combined tax treatment and serviceability should be reviewed together to ensure the structure works across your entire business.

Equipment finance works when it's structured around how your business operates, not around a standard loan product. Call one of our team or book an appointment at a time that works for you.

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