Equipment Finance
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What is equipment finance?
Equipment finance in Australia refers to business loans or commercial leases used to acquire new business equipment or replace and upgrade existing equipment. Equipment finance can be used for more or less any business-related equipment, including company vehicles, machinery, electronics, business fit-outs and more.
Around one in four small businesses loans in Australia are used to finance equipment, Money.com.au research shows.
Equipment finance in summary
- Borrow up to $500,000
- Does not require a deposit in most cases
- Equipment loan and lease options available
- Equipment finance is usually secured against the equipment but it can be unsecured too
- Finance terms from one month to five years
- Flexible repayment to suit business cash flow
- Equipment finance is available from banks, non-bank lenders, and specialist finance providers
- Bad credit equipment finance available
Who is eligible for business equipment finance?
Qualifying for equipment finance for your business can be relatively simple. Most equipment finance lenders will have options available if you:
- Have an ABN and are registered for GST (including self-employed individuals and sole traders)
- Have been trading for at least 6-12 months
- Have sufficient business revenue to repay the loan
- Have no major issues in your credit history (i.e. a good credit score)
- Can provide business bank statements and other requested documents
How equipment finance works
There are two main types of equipment finance (also known as machine finance) in Australia which work in different ways.
We'll take a closer look at each below. If the equipment purchase if part of your day-to-day business operations, you could also consider a business line of credit or business overdraft for ongoing access to funds.
Equipment loans
With a business equipment loan, you can finance the purchase of equipment and pay it off in regular instalments over a term of 1-5 years.
You get the benefits of owning the asset from the start of the finance term. This kind of finance is commonly referred to as a chattel mortgage. Equipment loans are usually secured by the equipment being purchased but there are also unsecured business loans available. Business car loans and truck loans are other types of equipment loans.
Equipment lease
Financing equipment through a lease gives you use of equipment for a set period of time in return for lease payments. But your business does not own the equipment during the lease term. There are two kinds of business lease:
Finance lease: This enables a business to lease equipment it needs, with the option to purchase the equipment at the end of the lease by making a final payment.
Operating lease: Usually taken out for shorter terms for equipment that needs to be upgraded frequently. Generally, there is not an option to own the equipment at the end of an operating lease.
Equipment finance comparison guide
| Type of finance | Rates | Term | Pros | Cons |
|---|---|---|---|---|
Chattel mortgage | From 4% | Up to 5 years | Full ownership of the asset from the start of the term | Any residual balance (balloon) is not tax-deductible |
Finance lease | From 4.50% | Relative to lifespan of equipment | Option of full ownership at the end of the finance term | Difficult for new businesses without much documentation |
Operating lease | From 5% | Up to 5 years | Can be more cost-effective than paying cash for equipment with a short lifespan | Your business won’t own the asset through an operating lease |
Unsecured business loan | From 9% | Up to 3 years | Quick approval timeframe | Higher interest rates than secured finance |
What kinds of businesses use equipment finance?
A business owner may consider applying for equipment financing when they don’t have the cash flow or security to purchase expensive equipment outright. But they may also choose to apply for equipment finance if they:
- Need to replace equipment frequently because it has a short lifespan
- Work in an industry that requires constantly up-to-date technology
- Want to purchase equipment for everyday business use and reclaim the GST on their next BAS
- Require cash reserves for future business security, and would prefer to pay for equipment by instalments over a set period.
What can equipment finance be used for?
If you qualify for equipment finance with a lender, you can finance almost any asset related to your business. This can include:
- Vehicles — e.g. company cars (through an ABN car loan), trucks, trailers, delivery vans, motorcycles
- Electronics — e.g. computers, servers, GPS equipment
- Machinery — e.g. excavators, lifts and access equipment, forklifts
- Equipment — e.g. printing, medical, dental, engineering
- Construction — e.g. tools, tool-of-trade vehicles, scaffolding
- Earthmoving — e.g. yellow goods, machinery, diggers, front loaders
Best equipment finance rates
Equipment finance interest rates vary depending on the type of finance you choose, the lender you apply with and how risky your application is in the lender’s eyes. The lower the risk, the lower your equipment finance interest rate will be.
If you have been in business for a long time and have high, regular revenue, you’ll present less risk to a lender than someone applying for equipment finance who has just starting a business without stable, annual revenue. Other factors lender consider when assessing risk include:
- The amount you wish to borrow (higher amounts are riskier for lenders)
- The type of equipment you wish to purchase
- The equipment finance term you are applying for (longer terms are riskier for lenders)
- Your business credit history
- Your personal credit history
- Whether you own a property
The age of the equipment you wish to finance, will also determine how a lender applies an interest rate to your equipment finance.
Below, you can see an indication of how the age of the equipment you wish to acquire through equipment finance may affect the interest rate applied to your loan.
How the age of the asset can affect equipment finance rates
| Brand-new | 1-2 years old | 2-5 years old | 5+ years old |
|---|---|---|---|
From 4.00% | From 5.00% | From 6.00% | From 8.00% |
In the table below, you can see how the type of equipment may change the interest rate applied to your equipment finance.
A vehicle, for example, is a relatively secure and durable piece of equipment. If you were unable to meet your repayments, a lender could reclaim the vehicle and recoup a significant portion of the amount borrowed
Electronics, on the other hand, are less reliable, have a shorter operating lifespan and their value can drop significantly in only a few years.
Equipment that can't be used as security, e.g. those acquired through business fit-out finance presents the highest amount of risk.
How the type of equipment will affect your offered interest rate
| Vehicles | Machinery | Electronics | Fit-outs |
|---|---|---|---|
From 4.00% | From 5.00% | From 6.50% | From 8.00% |
Cheapest equipment finance options
The primary reason people look to compare equipment finance options is usually to get the lowest interest rate.
While the interest rate has a major influence on your regular repayments and total costs, there are other factors to consider as well, such as any initial or ongoing fees that may significantly increase your total loan cost.
This is why it’s crucial to compare lenders using more than just the advertised interest rate.
Use our equipment finance calculator to see the impact of rates and fees on your repayments and total costs.
Low interest rates don't always mean the lowest repayment amount
| Interest rate | Fees (monthly) | Monthly repayment | Total repaid over 5 years | |
|---|---|---|---|---|
Loan A ($50,000) | 4.50% | $0 | $955 | $57,303 |
Loan AB($50,000) | 5.00% | $30 | $974 | $58,414 |
How to apply for equipment finance
There are two main types of equipment finance applications. Which one you will use will depend on the amount you wish to borrow.
In short, the higher the loan amount the more information you'll need to provide to the lender.
If you are borrowing less than $100,000
For lower finance amounts, the approval process will be fairly simple. You’ll generally need to provide:
- Proof of identity
- An ABN and GST registration
- An acceptable credit rating — the lender will ask to conduct a credit check
- Business bank statements
- Trust deed if the business is held in a trust
- Australian Taxation Office (ATO) portal access.
If you are borrowing more than $100,000
If you wish to borrow more than $100,000, your lender will likely require extra documentation to assess your application. In addition to the documents listed above, you may need to provide:
- Financial records (provided by your accountant)
- Profit and loss statements
- Business balance sheet
For more complicated applications, you could engage the help of a specialist equipment finance broker.
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Other equipment finance questions people often ask
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Will I need to put down a deposit for equipment finance?
It’s generally not a requirement to pay a deposit when taking out equipment finance, particularly if the finance is secured. However, for unsecured finance, or if you have issues in your credit history, paying a deposit could reduce risk for the lender and may help you get your application approved.
Can I use equipment finance to replace existing business assets?
Yes — equipment finance can be used for any assets that a business may need, whether you are buying new assets (a new company car), or upgrading existing assets (computer hardware and servers).
Can I get equipment finance with bad credit?
Yes, you can often find lenders who will approve equipment finance applications even if you have imperfect credit. You may need to apply under the same process as a bad credit business loan, or apply for a self-declaration or low-doc business loan if you meet general criteria but you cannot provide supporting documents.
Is there a full list of available assets for business equipment finance?
Below is a full list of assets that you can purchase or lease through equipment finance. Each lender may have a different list of approved assets, so speak to your bank, lender, or broker about what you can finance for your business.
Vehicles and machinery
- Cars / Light Commercial vehicles
- Caravans
- Motorcycles
- Small and medium trucks
- Trailers
- Prime movers — i.e. cement mixers, tippers, local transport vehicles
- Buses
- Earthmoving equipment — i.e. excavators, bulldozers, graders, crushing equipment
- Material handling equipment — i.e. forklifts, cranes, container lifts.
- Access equipment — i.e. boom and scissor lifts.
- Mulchers, wood chippers, and stump grinders
- Mowers, tractors and trailer attachments
- Agriculture machinery, such as harvesters and headers
- Forestry equipment
Equipment and tools
- Camper trailers
- Generators, welders, and pumps
- Printing equipment
- Medical and dental equipment
- Engineering equipment
- Workshop equipment
- Long-haul freight equipment
- Mining equipment
- Agriculture equipment and tools
- Food processing or food manufacturing equipment
- Woodwork equipment — i.e. panel saws, banding machines, routers, and lathes.
- Dynamometers
Storage, setup and security
- Information technology and data storage equipment
- Building management systems
- Office fit-outs
- Manufacturing line equipment
- Sheds and silos
- Moulding equipment for plastics
- Concrete batching plants
- Cabins for caravan parks
- Coolrooms
- Spray booths
- GPS equipment
- Commercial HVAC (heating, ventilation, air-conditioning) systems
- AV (audio visual) equipment
Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
