For Australian businesses, the ability to acquire revenue-generating equipment without depleting working capital is one of the most powerful levers available for growth. Equipment finance, structured correctly, lets you put assets to work immediately while preserving the cash you need to run the business.

But "equipment finance" isn't a single product — it's a category that includes several different structures, each with distinct cash flow, tax, and ownership implications. Here's how to think about it.

Why Equipment Finance Matters for Cash Flow

Imagine a construction company that needs a $180,000 excavator. Paying cash means $180,000 immediately leaves the business — a massive hit to working capital. But the excavator will generate revenue over 5–7 years, not just today.

Equipment finance aligns the cost of the asset with its productive life. Instead of one large outflow, you have manageable monthly (or fortnightly) repayments that come out of the revenue the asset is generating. This is the fundamental logic behind equipment finance — and it's why smart businesses rarely pay cash for major assets.

📊 Cash flow example: A $120,000 truck financed over 5 years at 7.5% p.a. has repayments of approximately $2,400/month. If that truck generates $8,000/month in revenue, the repayments represent 30% of gross revenue — while you keep the remaining 70% as working capital.

The Main Equipment Finance Products

1. Chattel Mortgage (Most Popular for ABN Holders)

You own the asset immediately. The lender takes a security interest over it. You can claim GST upfront, and both interest and depreciation are tax-deductible. A balloon payment (residual) can reduce monthly repayments significantly — useful for cash flow management, though it means a larger payout at the end.

2. Finance Lease

The lender owns the asset and leases it to you for the term. You make regular payments that are fully tax-deductible. At the end of the lease, you can buy the asset at the residual value, re-lease it, or return it. No upfront GST claim but simpler accounting for some businesses.

3. Hire Purchase

Similar to chattel mortgage but with a different legal structure — the lender owns the asset during the term and you pay to "hire" it, with ownership transferring at the final payment. Tax treatment is similar to chattel mortgage. Less commonly used today but still available.

4. Operating Lease

A "true" lease where the lender retains ownership and takes the asset back at the end of the term. Repayments are lower because you're only paying for the asset's depreciation during the lease period. Good for businesses that want to continuously upgrade equipment (e.g., IT, technology assets).

Balloon Payments — Cash Flow Friend or Long-Term Trap?

A balloon payment (also called a residual) is a lump sum at the end of the loan term. Setting a balloon — say 20–30% of the purchase price — dramatically reduces your monthly repayments, which is great for cash flow. But at the end of the term, you either pay the balloon, refinance it, or return the asset.

When a balloon works well:

  • The asset retains strong resale value (trucks, quality plant equipment)
  • You plan to trade in or sell the asset before the balloon falls due
  • Short-term cash flow is constrained but will improve over the loan period
  • Business revenues are growing and you expect to comfortably handle the balloon

When to be cautious:

  • Assets that depreciate quickly (older technology, specialised machinery)
  • Businesses with volatile revenue who can't predict future cash position
  • Situations where refinancing the balloon may not be possible

💡 Structure Tip: Match Repayments to Revenue Cycles

If your business has seasonal revenue — a landscaping company with a strong spring/summer, or a retailer with a Christmas peak — ask about seasonal repayment structures. Some lenders allow higher repayments during peak periods and reduced repayments in quieter months, aligning payments with when cash actually flows in.

Common Equipment Finance Mistakes to Avoid

  • Over-borrowing: Just because you can borrow $200,000 doesn't mean you should. Only finance what generates measurable return.
  • Wrong loan term: A 7-year loan on a 5-year asset means you're still paying for something that's being replaced. Match term to asset life.
  • Ignoring total cost of ownership: Finance cost, maintenance, insurance and operating costs all need to factor into your ROI calculation.
  • Using the wrong structure: Chattel mortgage vs. finance lease has real tax implications — get advice before you commit.
  • Going to one lender only: Equipment finance rates vary significantly between lenders. Always compare.

Who Can Access Equipment Finance?

Equipment finance is available to businesses across a wide range of profiles:

  • Established businesses with 2+ years of trading history (easiest approval)
  • New ABN holders (start-up) — some lenders require a deposit or security
  • Sole traders and partnerships, not just companies
  • Businesses with some credit history issues — specialist lenders available
🚜 Assets we commonly finance: Trucks, tipper trailers, semi-trailers, excavators, loaders, forklifts, cranes, concrete pumps, farming equipment, medical equipment, commercial kitchen equipment, IT infrastructure, and more.