What is Equipment Finance and Does My Business Need It?
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What is Equipment Finance and Does My Business Need It?

Katie Douglass

Katie Douglass

24/09/2020 • 7 minute read

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What is business equipment finance?

Whether it’s a coffee machine, computers, or heavy machinery, almost every business relies on having equipment to operate and grow. Yet, purchasing equipment can be one of the most expensive costs in running a business. This is where equipment finance could come in handy.

Simply put, equipment finance allows you to borrow the funds needed to purchase equipment for your business. Often, you can get equipment finance to not only purchase new equipment, but also upgrade existing equipment. Whether it’s heavy machinery, vehicles, medical equipment, or office supplies, equipment finance can be used to purchase a wide range of equipment across multiple industries.

The benefits of equipment finance

One of the most common ways for a business to successfully operate and grow is to invest in equipment. Equipment finance can help manage cash flow and keep your business competitive by giving you access to the equipment you need without having to pay upfront. Equipment finance lenders offer a range of funding options to suit different business needs and budgets. Equipment financing may also allow a business to structure a repayment schedule that suits their financial circumstances and cash flow. Another advantage of equipment finance is the tax benefits. Depending on the type of equipment finance, some businesses might be able to claim back tax for GST and make tax deductions on depreciation and interest charges.

What can I purchase with equipment finance?

From electronics to medical equipment, there are many assets you can purchase with equipment finance, if approved by a lender. Here we list some of the common assets that businesses purchase with equipment finance:

Vehicles Cars, trucks, buses, vans, and motorcycles
Machinery Forklifts, cranes, lifts, and access equipment
Electronics Computers, servers, POS systems, and GPS equipment
Equipment Printing, medical, dental, gym, and manufacturing equipment
Earthmoving Trenchers, excavators, and other earthmoving equipment

What are the different types of equipment finance?

If you’ve decided to take out equipment finance, you’ll need to consider which type of equipment finance is best suited to your business’ needs and financial circumstances. There are several types of equipment finance and each comes with its own advantages and disadvantages.

We break down each category of equipment finance:

Chattel Mortgage

A chattel mortgage, also known as a secured loan agreement, is where the lender gives a business the funds to purchase an asset i.e. chattel. Similar to a home loan, the business has ownership of the asset but is used to secure the loan. The lender takes a ‘mortgage’ over the chattel and the business makes regular repayments until it is paid off in full. There are a few benefits that come with choosing a chattel mortgage to purchase equipment. Depending on the lender, a business might be able to structure their repayments to be more flexible and align with their cash flow. It could also come with tax benefits; depending on how often you use the asset, you might be able to claim interest and depreciation costs.

Commercial Hire Purchase

A commercial hire purchase is a contract where the lender purchases an asset on behalf of the business. The business then repays the lender in instalments over an agreed fixed term. Under this contract, the lender owns the asset until it has been paid in full by the business. The ownership of the asset is then transferred to the business. A commercial hire purchase may be a more suitable option for businesses who want to eventually own the asset.

Finance Lease

A finance lease, also known as a capital lease, is where the lender purchases the equipment and then rents it out to the business for an agreed period of time. Under a finance lease, the business pays the lender regular lease payments and is responsible for the costs of running and maintaining the equipment without actually owning it. A finance lease is usually best suited to businesses that need equipment with a medium or long lifespan. Generally, at the end of the lease period the business will either return the equipment, make an offer to the lender to buy the equipment, or lease it for another period at a low rental cost.

Operating Lease

An operating lease, also known as a rental agreement, is where the lender purchases the equipment and rents it back to a business for a fixed period of time in exchange for regular lease payments. At the end of the lease, the equipment is returned to the lender without the option to buy and own the equipment. This type of equipment financing is generally more suitable for businesses that use equipment and technology with a shorter life span or need constant upgrading.

What is the best type of equipment finance?

There is no clear answer to the best type of equipment finance as each business will have different needs and financial circumstances. To help guide you, we’ve created a table below that lists the pro’s and con’s of each type of equipment finance as well as which equipment it is more suitable for:

Type of Equipment Finance Pro’s Con’s Suitable for:
Chattel Mortgage ✓ Interest rate is usually lower

✓ Flexible loan repayment structure to suit cash flow

✓ Business legally owns the equipment

✓ Interest payments are usually tax deductible

✗ Cannot upgrade or dispose equipment — you may have to pay an early termination fee ✓ Equipment with a medium or long lifespan e.g. heavy machinery
Commercial Hire Purchase ✓ Business will own the equipment after the loan period is finished

✓ You may be able to claim a tax benefit for depreciation

✗ An upfront deposit is sometimes required

✗ Responsible for maintenance during loan period

✗ Responsible for disposal if business no longer requires equipment after loan period

✓ Equipment with a medium lifespan e.g. power tools, kitchen equipment, vehicles
Finance Lease ✓ Cost of the equipment is spread out as it’s a medium or long term agreement

✓ Lease payments may be tax deductible

✗ Business does not own equipment outright

✗Responsible for maintenance and running costs of equipment

✗ Cannot upgrade equipment until end of lease agreement

✓ Equipment with a medium or long lifespan e.g. medical equipment
Operating Lease ✓ Cost-effective for equipment with a short lifespan

✓ Lease payments may be tax deductible

✓ Business can upgrade equipment

✗ Business does not own equipment after lease period ends

✗ Depreciation of equipment is not tax deductible

✓ Equipment with a short lifespan e.g. IT equipment

How to compare equipment loans?

To compare the equipment finance loans on offer in Australia, there are some key factors you can look at. We’ve detailed each key factor in the table below to help guide you:

Interest rate
  • Is the interest rate low?
  • Are there any high fees included?
  • Will you be able to meet the requirements of the loan?
  • Are there application fees, ongoing fees, late fees, or settlement fees included?
Tax benefits
  • Does your type of equipment finance offer any tax benefits?
  • Can you claim tax on GST?
Loan period
  • Is a short or long-term loan period suitable for your business’ financial situation?
  • What happens to the equipment after the loan period ends? Some loans may require you to return or dispose the equipment at the end of the loan period, while others let you own it
Loan speed
  • Do you need your equipment as soon as possible?
  • How long will it take to apply for equipment finance?
  • How long will it take to access the funds to purchase your equipment?
  • How flexible are the repayments?
  • Can you structure your repayments to match your business’ cash flow?

How do I apply for equipment finance?

While the majority of traditional bank and online lenders offer equipment finance, one of the most common ways a business obtains equipment finance is through a broker. An equipment finance broker can help you compare and choose from a variety of lenders and equipment loans. They help manage the process of applying and managing an equipment finance loan, in return for a brokers fee. Often, the wide range of equipment finance options on offer can be tricky to sort through and this where a broker can help. They can help find an equipment financing option that best suits your business’ needs and financial circumstances.

Want to find out more about business loans? Make sure you check out our guide on business loans at Oiyo.

Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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Katie Douglass

Written by Katie Douglass

Katie Douglass is the Communications Manager at Oiyo and a writer. In recent years, Katie's work has appeared in publications such as Marie Claire, InStyle, and THE ICONIC. She has a Bachelor of Creative Industries in Fashion Communication & Journalism from the Queensland University of Technology. At Oiyo, Katie is responsible for overseeing editorial strategy.

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