Equipment Finance in Australia: Chattel Mortgages, Leases & Equipment Loans

Equipment finance is funding used to acquire business assets such as vehicles, trucks, earthmoving machinery, agricultural equipment, manufacturing machinery, medical equipment, technology and tools. The equipment commonly forms part of the lender's security.

Rather than paying the full purchase price from working capital, the business repays the finance over an agreed term. This can preserve cash for wages, stock, marketing, tax obligations and other operating needs.

Under a chattel mortgage, the borrower purchases and owns the asset and the lender takes a mortgage or security interest over it until the finance is repaid. It is one of the most common structures for Australian business vehicles and equipment.

Terms can often be structured with or without a balloon payment. A balloon reduces scheduled repayments during the term but leaves a larger amount due at the end, so it should be chosen with the expected future value and cash flow of the asset in mind.

A lease generally gives the business the right to use an asset for agreed payments without the same ownership structure as a chattel mortgage. Lease accounting and tax treatment depend on the legal form of the arrangement and applicable accounting/tax rules.

Leases can suit assets that are regularly replaced or where the business values use of the asset more than long-term ownership. Do not assume every product marketed as a lease has identical tax, balance-sheet or end-of-term treatment.

Typical considerations include an active ABN, trading history, credit conduct, capacity to repay, business use and whether the asset is acceptable security. Asset age, supplier type and expected age at the end of the term can affect lender appetite.

Common documents include identification, ABN/ACN information, supplier invoice or quote, business bank statements and details of existing debts. Larger or more complex applications may require BAS, tax returns, financial statements or management accounts.

Both new and used equipment can be financeable. For used assets, lenders may impose age limits, valuation requirements or restrictions on private-sale purchases. Specialist or unusual equipment may require additional information about condition, value and resale market.

A typical process is: define the asset and amount, compare suitable lenders and structures, provide the required documents, receive credit approval, satisfy any approval conditions, execute finance documents and settle directly with the supplier.

Simple asset-finance applications can be quick, while large exposures, unusual equipment, weak credit or complex financials require more assessment.

Three variables materially change repayments: the amount borrowed, loan term and any balloon. A deposit reduces the financed amount. A longer term generally lowers each scheduled repayment but can increase total interest. A balloon lowers repayments during the term but leaves a larger final obligation.

Model more than one structure before choosing. The lowest monthly repayment is not necessarily the lowest-cost or lowest-risk option.