Asset acquisition through finance lets you use equipment or vehicles now while spreading the cost over time. Instead of paying the full purchase price upfront, you preserve capital for other parts of your operation and often unlock immediate tax advantages.
Whether you're buying a truck for a delivery business in Malvern, medical equipment for a clinic in Caulfield, or an excavator for a construction company working across Victoria, the funding structure you choose affects your cashflow, your tax position, and how much flexibility you have down the track.
The Core Structures for Buying Business Assets
A chattel mortgage gives you ownership from day one while the lender holds security over the asset. You claim depreciation and GST input credits immediately, make fixed monthly repayments, and can include a balloon payment at the end to lower those repayments during the term.
A finance lease means the lender owns the asset during the lease term, and you make payments to use it. At the end, you typically have options to purchase the asset for a residual amount, refinance it, or return it. This structure can suit businesses that want to upgrade equipment regularly without dealing with resale.
Hire purchase sits between the two. The lender buys the asset and you pay it off over time with ownership transferring after the final payment. You can claim depreciation, but GST treatment differs from a chattel mortgage depending on whether you're registered for GST.
Why Tax Treatment Matters More Than the Interest Rate
The tax outcome often has a bigger impact on your net cost than a small difference in the interest rate. With a chattel mortgage, you own the asset and can claim depreciation each year based on the asset's effective life. If you're buying a $90,000 vehicle with an effective life of eight years, that depreciation adds up.
A finance lease structures payments as a lease expense rather than a loan repayment. Depending on your business structure and whether you're using simplified depreciation rules, one approach might give you better deductions in the early years. An accountant should review this before you commit, because switching structures after the paperwork is signed costs money and time.
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What a Balloon Payment Does to Your Cashflow
A balloon payment is a lump sum due at the end of the loan term, typically between 10% and 50% of the original loan amount. It lowers your monthly repayments during the term but creates a large payment at the end that you'll need to refinance, pay from cashflow, or cover by selling the asset.
Consider a business buying a $120,000 truck with a 30% balloon. Monthly repayments might drop by $400 to $500 compared to a fully amortising loan, which helps during the first few years when revenue from the asset is building. At the end of five years, though, you owe $36,000. If the truck's market value has held up and you're ready to upgrade, you sell it, clear the balloon, and move into newer equipment. If the market's soft or you want to keep the truck, you need to refinance that $36,000 or pay it outright.
Balloon payments work when you have a clear plan for that final amount. They don't work if you're assuming the asset will be worth more than the balloon and market conditions change.
Vendor Finance and Dealer Finance
Vendor finance is arranged directly through the seller or manufacturer, often promoted at trade shows or through dealerships. It can be faster to arrange because the vendor has a relationship with a specific lender, and approval criteria may be less rigid if the vendor is motivated to move stock.
The trade-off is that you're usually limited to one lender's terms, and the interest rate might be higher than what's available through a broker who can compare options across multiple lenders. Vendor finance also tends to lock you into buying from that supplier, which limits your ability to negotiate on price or explore alternatives.
Dealer finance works the same way but through a dealer rather than the manufacturer. It's common in vehicle and machinery sales, and the dealer often earns a commission from the finance company. That commission is built into the rate or the terms, so the advertised rate isn't always the best rate available for your situation.
Equipment You Can Finance and What Lenders Look For
Lenders will finance most business assets that hold value and can be used as collateral. That includes vehicle finance like trucks, utes, vans, and cars, plant and machinery finance such as excavators, loaders, tractors, forklifts, and cranes, office equipment like fit-outs, IT hardware, and furniture, medical equipment including diagnostic machines, dental chairs, and imaging equipment, and hospitality equipment like commercial kitchens, refrigeration, and point-of-sale systems.
Lenders want to see that the asset has a clear resale market and won't depreciate faster than you're paying it off. Specialised equipment with a narrow buyer base might require a larger deposit or a shorter loan term. An excavator attachment that only fits one model of machine is harder to finance than the excavator itself.
They'll also want to see that your business has the cashflow to meet repayments. That usually means providing recent tax returns, BAS statements, and bank statements showing consistent revenue. Newer businesses without two years of financials might need to offer a larger deposit or a director's guarantee.
When Leasing Makes More Sense Than Buying
Leasing suits businesses that need to stay current with technology or that operate in industries where equipment becomes obsolete quickly. A medical practice using diagnostic equipment that's updated every few years benefits from a lease that lets them upgrade at the end of the term without dealing with resale or disposal.
An operating lease keeps the asset off your balance sheet, which can improve financial ratios if you're applying for other finance or looking to attract investors. Payments are fully deductible as an operating expense, and you don't own the asset at the end unless you choose to purchase it for the residual value.
A finance lease is more like ownership. You claim depreciation, the asset appears on your balance sheet, and you typically have a purchase option at the end. This structure suits businesses that want to own the asset eventually but need to spread the cost over time.
Leasing costs more over the life of the agreement compared to an outright purchase, so it only makes sense if the flexibility or the tax treatment justifies the extra cost.
How to Structure Finance When Buying Multiple Assets
Buying multiple assets at once, such as a truck and trailer combination or a fleet of vehicles, can be structured as a single facility or separate agreements. A single facility simplifies administration because you're making one repayment and dealing with one lender, but it also means all the assets are tied together. If you want to sell one asset early or refinance it, you'll need to restructure the entire loan.
Separate agreements give you more control. You can choose different terms for each asset based on how long you plan to keep it, structure different balloon payments, or use different lenders if one offers better terms for a specific asset type.
In our experience, businesses that plan to turn over some assets faster than others are better off with separate agreements. A construction company might keep a truck for seven years but upgrade an excavator every four years. Separate agreements let them match the loan term to the asset's useful life without paying out a loan early or refinancing a truck they're not ready to replace.
What Happens When You Want to Upgrade Early
Selling or trading an asset before the loan term ends means paying out the remaining balance. If the asset's market value is higher than the payout figure, you use the sale proceeds to clear the loan and keep the difference. If the market value is lower, you'll need to cover the shortfall from cashflow or roll it into new finance.
Payout figures include any early exit fees, which vary by lender. Some lenders charge a flat fee, others calculate it as a percentage of the remaining balance, and some charge nothing if you're refinancing with them. That fee should be in the loan contract, and it's worth checking before you sign, especially if you expect to upgrade or expand within a few years.
If you're locked into a fixed interest rate and rates have dropped since you signed, the lender might also charge break costs to cover their loss. Those costs can be significant on larger loans with several years remaining, so factor that in if you're considering an early upgrade.
Structuring Finance Across State Lines
Businesses operating across Australia, including the Eastern Suburbs of Melbourne and interstate, can access asset finance options from banks and lenders across Australia regardless of where the asset will be used. The lender's security is registered on the Personal Property Securities Register (PPSR), which covers assets nationally, so there's no restriction on where you operate the equipment.
Some lenders have stronger networks in specific states or industries, which can affect turnaround time and how well they understand your business. A lender that finances construction equipment in Queensland every week will process your application faster than one that rarely sees that asset type. A broker can match you with lenders that actively write business in your industry rather than those that technically offer the product but rarely approve it.
Your business structure matters more than your location. A company with a strong balance sheet and consistent revenue will have more finance options than a sole trader with irregular income, regardless of whether they're based in Toorak or Townsville.
How Much Deposit You'll Actually Need
Most lenders will finance between 70% and 100% of the asset's value depending on the asset type, your business financials, and how much security you're offering. Trucks, earthmoving equipment, and vehicles with strong resale markets can often be financed at 100% with no deposit if your business has solid cashflow and a clean credit history.
Specialised equipment, older assets, or purchases by newer businesses typically require a deposit of 20% to 30%. That deposit can come from cash, trade-in equity, or other assets you're offering as additional security. Lenders want to see that you have some capital at risk, which reduces their exposure if the asset needs to be repossessed and sold.
If you don't have cash for a deposit, some lenders will accept a director's guarantee or a charge over other business assets. That increases your personal risk, but it lets you preserve working capital for other parts of the operation.
Call one of our team or book an appointment at a time that works for you if you're ready to explore your options for acquiring business assets without draining your working capital.
Frequently Asked Questions
What's the difference between a chattel mortgage and a finance lease?
A chattel mortgage gives you ownership from day one with the lender holding security, allowing you to claim depreciation and GST immediately. A finance lease means the lender owns the asset during the term, and you make payments to use it with options to purchase, refinance, or return it at the end.
How does a balloon payment affect my monthly repayments?
A balloon payment lowers your monthly repayments during the loan term by deferring part of the loan amount to a lump sum at the end. You'll need to refinance, pay from cashflow, or sell the asset to cover that final amount when the term ends.
Can I finance business equipment if my business is less than two years old?
Yes, but you'll likely need a larger deposit or a director's guarantee since you don't have two years of financials. Lenders want to see that your business has cashflow to meet repayments, so recent bank statements and BAS statements become more important.
What happens if I want to sell or upgrade the asset before the loan term ends?
You'll need to pay out the remaining loan balance, including any early exit fees. If the asset's market value is higher than the payout figure, you keep the difference. If it's lower, you'll need to cover the shortfall.
How much deposit do I need to finance business equipment?
Most lenders finance 70% to 100% of the asset's value depending on the asset type and your business financials. Trucks and vehicles with strong resale value can often be financed at 100%, while specialised equipment may require 20% to 30% deposit.
