Top tips to finance kitchen equipment for your business

Funding commercial kitchen equipment without emptying your bank account

Commercial kitchen equipment is expensive, and paying cash upfront ties up capital you probably need for stock, wages, or marketing. Asset finance lets you spread the cost over time while keeping the gear working in your business from day one. You pay fixed monthly amounts, the equipment becomes collateral, and you preserve cash for everything else that comes up when running a hospitality business.

A chattel mortgage is the most common structure for owner-operated cafes and restaurants. You own the equipment from the start, claim depreciation and interest as tax deductions, and the loan amount usually covers up to 100% of the purchase price. Monthly repayments are fixed, which means you know exactly what's leaving your account each month. You can include a balloon payment at the end if you want lower monthly costs, though that leaves a lump sum to refinance or pay out later.

Consider a cafe in Chadstone that needs a new espresso machine, grinder, and undercounter fridge totalling around $35,000. The owner could pay cash and drain the operating account, or finance the lot over five years with fixed monthly repayments of roughly $700, depending on the lender and their credit profile. The equipment starts earning revenue immediately, and the business keeps $35,000 in the bank for rent, stock, and staff costs. The interest and depreciation both reduce taxable income, so the after-tax cost of the finance is lower than the headline rate.

How chattel mortgage works for kitchen equipment

You borrow the full purchase price, the lender registers a security interest over the equipment, and you own it from day one. The equipment sits on your balance sheet, you claim the GST input credit upfront if you're registered, and you write off the depreciation each year according to the ATO schedule for the asset class. The loan term typically runs between two and seven years, depending on the expected life of the equipment and what your cashflow can handle.

Interest accrues daily on the outstanding balance, and you pay it down in equal monthly instalments. If you include a balloon payment, your monthly cost drops but you'll need to either refinance or pay out the remaining balance at the end. The lender holds a security interest registered on the Personal Property Securities Register, which means they can repossess the equipment if you default, but they don't own it and you're not leasing it back.

Finance lease compared to chattel mortgage

A finance lease has you renting the equipment from the lender for a fixed term, with monthly payments that cover the cost of the asset plus interest. You don't own the equipment during the lease, so it doesn't appear on your balance sheet as an asset. At the end of the term, you can pay a residual to take ownership, refinance the residual, or hand the equipment back. Lease payments are fully tax-deductible as an operating expense, which can suit businesses with irregular income or those that want to keep debt off the books.

Chattel mortgage usually works out cheaper over the life of the loan because you're claiming depreciation and interest rather than the full payment, and the accounting is simpler for most small operators. Finance lease makes sense if you're upgrading equipment every few years and don't want to own aging machinery, or if your accountant advises that keeping the asset off your balance sheet improves your financial ratios for other lending purposes.

Equipment you can finance under one facility

Pretty much anything that belongs in a commercial kitchen qualifies. Ovens, rangehoods, combi steamers, fryers, dishwashers, prep tables, cool rooms, freezers, coffee machines, grinders, blenders, food processors, and point-of-sale systems all fall under equipment finance. You can bundle the lot into one loan if you're fitting out a new venue, or finance individual items as you replace or upgrade them. Lenders care about the resale value of the equipment, so well-known brands with strong secondhand markets are easier to finance than obscure imports with no local support.

Some lenders will also include installation costs in the loan amount if they're part of the same invoice, though they won't finance renovations or construction work. If you're buying a commercial vehicle for deliveries or catering, that would fall under vehicle finance rather than equipment finance, even if it's part of the same business expansion.

What lenders look for when assessing your application

Lenders want to see that your business generates enough income to cover the repayments without strain. They'll ask for recent business activity statements, profit and loss reports, and bank statements showing consistent turnover. If you're a new business or buying equipment for a startup venue, they'll also want to see your business plan, lease agreement, and personal financials to understand how you'll service the debt before revenue builds up.

Your credit history matters, but it's not the only factor. A director with a default from three years ago can still get approved if the business is trading profitably and the equipment is good collateral. The loan-to-value ratio is usually capped at 100% of the invoice price, so if you're buying secondhand gear or the equipment has limited resale value, you might need to put some cash in or provide additional security.

How quickly you can get the equipment funded and delivered

Once you've chosen the equipment and have a quote or invoice, the application process takes anywhere from a few hours to a couple of days, depending on how complex your business structure is and whether the lender needs extra documentation. Approval can come through in under 24 hours for straightforward applications with strong financials. The lender then issues a payout authority, the supplier delivers the equipment, and you start making repayments from the first month.

Vendor finance or dealer finance is sometimes offered directly by the equipment supplier, and it can be faster because the supplier and lender already have a relationship. The catch is that you're limited to that lender's terms, which might not be the most suitable for your situation. Working with a broker who has access to asset finance options from multiple lenders means you can compare rates, loan structures, and approval criteria before committing.

Managing GST and tax deductions across the life of the loan

If you're GST-registered, you claim the GST on the purchase price in the activity statement for the period you acquired the equipment, regardless of whether you paid cash or financed it. The GST component of your monthly repayments is not claimable, only the GST on the original invoice. You then claim depreciation each year based on the effective life set by the ATO for that asset class, which for most commercial kitchen equipment sits between five and ten years depending on the item.

Interest on the loan is deductible as a business expense in the year it's incurred. If you've structured the loan with a balloon payment, the interest portion of your repayments will be higher in the early years and lower toward the end, so your deductions will taper off over time. Your accountant will handle the details, but the combination of depreciation and interest deductions typically means the after-tax cost of financing is significantly lower than the nominal interest rate.

When a balloon payment makes sense and when it doesn't

A balloon payment reduces your fixed monthly repayments by deferring part of the principal to the end of the loan term. You might set a 30% balloon on a five-year loan, which drops your monthly cost by around 25% but leaves you with a lump sum to pay or refinance in year five. That structure suits businesses with seasonal income, those planning to sell or upgrade the equipment before the term ends, or operators who expect stronger cashflow down the track.

The downside is that you're paying interest on the deferred amount for the full term, so the total cost of the loan is higher. If you refinance the balloon at the end, you're extending the repayment period and paying interest again on money you've already been charged for. Unless you have a specific reason to keep monthly costs low now, paying the loan down without a balloon usually works out cheaper and leaves you debt-free at the end of the term.

If you're ready to fund new or replacement kitchen equipment and want to talk through your options, call one of our team or book an appointment at a time that works for you. We'll look at your business situation, compare lenders, and set up a structure that fits your cashflow and growth plans.

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