Smart Ways to Approach No Deposit Equipment Finance

No deposit equipment finance lets you get the machine you need without paying a lump sum upfront. The equipment itself usually acts as the security for the loan, so you can start earning from it straight away.

That sounds good, and it can be. But skipping the deposit changes your repayments, your interest bill and how a lender looks at your application. Here is how to weigh it up.

What Is No Deposit Equipment Finance?

No deposit equipment finance is a loan or lease that covers the full purchase price of business equipment, so you do not pay a cash deposit at the start. The lender holds the equipment as security while you repay it over an agreed term.

This works for a wide range of gear, from excavators, cranes and tractors to forklifts, commercial kitchen equipment and medical equipment. If you are buying heavy gear, our plant and machinery finance page covers how that works. For warehouse and factory fleets, have a look at forklift loans. Our overview of equipment finance sits above both.

What Is the Trade-Off of Borrowing 100% of the Price?

Borrowing the full price means higher repayments and more total interest than if you put money down. You are also more exposed if the equipment loses value faster than you pay the loan down.

Lenders also tend to look harder at applications with no deposit. Depending on the lender, they may want to see steady trading history, clean credit and a clear picture of how the equipment will earn money. Newer businesses or those with patchy credit may face a higher rate or be asked for a deposit anyway.

How Much Do Repayments Change Without a Deposit?

A larger loan means larger repayments, because interest is charged on more money. As an illustration only, using an example rate of 6.75% p.a., a $100,000 loan over five years comes to about $1,968 a month. A $80,000 loan at the same rate and term comes to about $1,574 a month.

That is roughly $394 a month difference for a $20,000 deposit. These figures are illustrative, and your actual rate will depend on your lender, your business profile and the equipment. Use a repayment calculator to test your own numbers.

Example: A Café Owner Upgrading a Commercial Kitchen

Consider a café owner in Melbourne's Eastern Suburbs whose oven and dishwasher both fail within a month. Cash is tight, and a deposit would drain the money needed for wages and stock.

The owner applies for no deposit finance on about $60,000 of commercial kitchen equipment over five years. At the illustrative 6.75% p.a., repayments come to about $1,181 a month. That is roughly $70,900 repaid in total, so about $10,900 of it is interest.

The café keeps its cash buffer and is trading again within days. The cost is that the owner pays more interest than someone who put down a deposit, and the business must cover that repayment every month, quiet or busy. In a case like this, the owner decides that protecting cash flow is worth the extra interest.

When Does Skipping the Deposit Make Sense?

Skipping the deposit makes sense when the equipment will earn more than the extra interest costs, or when your cash is better used elsewhere. It makes less sense if you have spare cash that is sitting idle.

Some useful questions to ask first:

• Will the machine bring in income soon after delivery?
• Could you cover repayments in your slowest month?
• Would a small deposit lower your rate or repayments enough to matter?

A split approach is also common. Some buyers put in a smaller amount and finance the rest, which trims the repayment without draining their working capital.

Can You Claim Equipment Finance on Your Tax?

The tax treatment depends on the structure. Under a chattel mortgage or hire purchase, a business generally claims the interest and depreciation, not the principal. Under a lease, the lease payments are generally deductible as an expense. What applies to you also depends on how the equipment is used in your business.

Tax rules change and differ between businesses, so speak to your accountant before you commit. Do not buy equipment just for a tax outcome. The purchase has to make sense for the business first.

Example: A Farmer Financing a Tractor Before Harvest

Consider a farmer who needs a second tractor before harvest but has funds tied up in seed and fuel. A lender may accept the tractor as security for the full amount, which keeps cash free for the season.

As an example, a $150,000 tractor over seven years at the illustrative 6.75% p.a. comes to about $2,246 a month. The farmer picks a structure that lines repayments up with income after harvest, if the lender allows it. The tractor is in the paddock on time, and the trade-off is a higher total interest cost than a deposit would have given.

How Do You Get Approved for Equipment Finance Without a Deposit?

You improve your chances by showing the lender that the business can comfortably afford the repayments. Strong records and a clear plan for the equipment help most.

A broker can compare lenders for you and match your situation to one that suits it. At Capacity Asset Lending, we work across asset finance for businesses in the Eastern Suburbs and right across Australia, so we can point you to the right option for the gear you are buying.

If you have already spoken to your bank and been knocked back, that does not rule out other lenders. Policies differ a lot between them.

Call one of our team or book an appointment at a time that works for you. We will go through your numbers, explain the trade-offs plainly and work out whether no deposit finance suits your business.

Frequently Asked Questions