By the Loan Phone team Reviewed by Anthony Moncada, M.App.Fin, Cert IV Finance & Mortgage Broking
Quick Answer
Equipment finance options in Australia include chattel mortgages (immediate ownership), finance leases (ownership at term end), operating leases (rental with return option), and commercial hire purchase (ownership after final payment). Rates typically range from 6-12% p.a. in 2025 depending on business profile and asset type (indicative only). Loan amounts from $5,000 to $5M+ with terms of 1-7 years. Modern platforms can provide fast online comparison across multiple structures, with settlements possible within days for straightforward applications (subject to lender and circumstances). Most traditional lenders require minimum 12 months trading history, though specialist lenders may consider alternatives.
| Finance Type | Ownership Timing | GST Treatment | Typical Term | Best Suited For |
|---|---|---|---|---|
| Chattel Mortgage | Immediate (day one) | Upfront GST claim possible | 2-5 years | Businesses wanting asset ownership and tax benefits |
| Finance Lease | At term end (purchase option) | GST on lease payments | 2-5 years | Flexibility with eventual ownership option |
| Operating Lease | Lessor retains (rental) | GST on lease payments | 1-3 years | Short-term needs, regular equipment upgrades |
| Commercial Hire Purchase | After final payment | Upfront GST claim possible | 2-5 years | Gradual ownership with fixed payments |
Finance structures are indicative examples only. Actual terms depend on individual circumstances and lender assessment.
Navigation Guide
Understanding Equipment Finance Structures
Australian businesses access equipment through various finance structures, each offering distinct ownership paths, tax treatments, and operational flexibility.
Selecting the optimal structure depends on your business’s cash flow requirements, tax position, equipment usage patterns, and ownership objectives. Understanding the core differences helps match finance products to your specific circumstances.
The four primary equipment finance options available to Australian businesses are:
- Chattel Mortgage - Secured loan with immediate ownership
- Finance Lease - Medium-term lease with purchase option
- Operating Lease - Short-term rental arrangement
- Commercial Hire Purchase - Installment purchase agreement
Additionally, businesses may consider unsecured equipment loans, vendor finance programs, or line of credit facilities for equipment acquisitions.
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Chattel Mortgage Equipment Finance
A chattel mortgage represents one of Australia’s most popular equipment finance structures, particularly for businesses seeking immediate ownership and maximum tax benefits.
Structure and Ownership: With a chattel mortgage, your business purchases the equipment outright, and the lender provides the funds while registering a mortgage (security interest) over the asset. You own the equipment from day one, appearing on your balance sheet as both an asset and corresponding liability.
The lender removes the mortgage registration once the loan is fully repaid, transferring clear title to your business.
GST and Tax Benefits: Businesses registered for GST on a cash basis can claim input tax credits on the full GST-inclusive purchase price in their next Business Activity Statement (BAS). This immediate GST recovery provides significant cash flow benefits.
Additionally, chattel mortgages allow businesses to claim:
- Depreciation deductions over the asset’s effective life
- Interest charges as tax-deductible expenses
- Potential instant asset write-off benefits (subject to eligibility and current ATO thresholds)
Balloon Payment Options: Chattel mortgages commonly incorporate balloon (residual) payments—a lump sum due at term end. Balloon payments reduce monthly repayments during the term but increase total interest costs.
Typical balloon percentages range from 20-40% of the financed amount, depending on asset type and term length.
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Ideal For:
- Businesses wanting immediate asset ownership
- Companies seeking maximum tax deductions
- Long-term equipment requirements
- Businesses with GST registration (cash basis)
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Finance Lease Arrangements
Finance leases provide a middle ground between ownership-focused chattel mortgages and flexible operating leases, offering eventual ownership through structured lease payments.
Structure and Operation: Under a finance lease, the finance provider purchases the equipment and leases it to your business for an agreed term (typically 2-5 years). Your business uses the asset and makes regular lease payments covering depreciation and financing costs.
At lease expiry, you typically choose between:
- Purchasing the asset for the predetermined residual value
- Extending the lease under new terms
- Returning the equipment and upgrading to newer assets
Tax Treatment: Finance lease payments are generally tax-deductible as operational expenses. The finance provider claims depreciation as the legal owner during the lease term.
GST applies to lease payments rather than upfront on the full purchase price, spreading the GST cost over the lease term.
Accounting Considerations: Finance leases may appear on your balance sheet as both an asset and liability under certain accounting standards, depending on the lease structure and your business’s reporting requirements.
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Ideal For:
- Businesses wanting flexibility at term end
- Companies preferring operational expense treatment
- Medium-term equipment requirements (2-5 years)
- Businesses planning eventual ownership without immediate commitment
Operating Lease Solutions
Operating leases function similarly to long-term equipment rental, providing maximum flexibility without ownership obligations.
Structure and Flexibility: The finance provider owns the equipment and accepts residual value risk. Your business pays for the right to use the asset over the lease term (typically 1-3 years) through fixed monthly or quarterly payments.
At term end, you simply return the equipment—no residual payment, no disposal concerns. This structure suits businesses needing:
- Equipment for specific projects with defined timeframes
- Technology requiring frequent upgrades
- Simplified budgeting without resale responsibilities
- Short-term asset access
Tax and GST Treatment: Operating lease payments are tax-deductible as operational expenses. GST applies to each lease payment, which may be claimable depending on your business’s GST status.
Maintenance Considerations: Some operating leases include maintenance provisions, though this varies by provider and asset type. Review lease agreements carefully to understand maintenance responsibilities.
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Ideal For:
- Short-term equipment needs (under 3 years)
- Technology or vehicles requiring regular upgrades
- Project-based equipment requirements
- Businesses prioritising operational flexibility over ownership
Commercial Hire Purchase (CHP)
Commercial hire purchase agreements offer a straightforward path to ownership through installment payments, similar to consumer hire-purchase arrangements but structured for business use.
Structure and Ownership Path: Under a CHP agreement:
- The finance provider purchases the equipment
- Your business uses the asset and makes regular installment payments
- The provider retains legal ownership during the term
- Ownership transfers to your business after the final payment (including any balloon amount)
GST Treatment: CHP agreements typically allow GST-registered businesses (cash basis) to claim input tax credits upfront on the full purchase price, similar to chattel mortgages.
Tax Deductions: Businesses can generally claim:
- Interest component of payments as tax-deductible expenses
- Depreciation deductions as the beneficial owner
- GST input tax credits (if eligible)
Differences from Chattel Mortgages: While both lead to ownership, CHP agreements transfer legal title only after final payment, whereas chattel mortgages provide immediate legal ownership. This distinction affects asset disposal rights and certain accounting treatments.
Compare equipment loan structures.
Ideal For:
- Businesses wanting clear ownership pathway
- Companies seeking similar benefits to chattel mortgages
- Long-term equipment holds (3-5 years)
- Straightforward installment payment preference
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Alternative Equipment Finance Options
Beyond the four primary structures, businesses may access equipment through additional financing methods:
Unsecured Equipment Loans: Unsecured business loans don’t require asset security, offering faster approval for smaller equipment purchases (typically under $100,000). Rates are generally higher than secured finance, reflecting increased lender risk. Suitable for: Quick equipment acquisitions, businesses with strong credit profiles, lower-value equipment.
Vendor Finance Programs: Equipment suppliers sometimes offer in-house financing programs with competitive rates to facilitate sales. These arrangements streamline purchasing as you negotiate both equipment and finance simultaneously. Suitable for: Specific vendor relationships, bundled equipment packages, potential promotional rates.
Business Lines of Credit: Approved credit lines provide flexible access to funds for various purposes, including equipment purchases. You pay interest only on drawn amounts. Suitable for: Multiple small equipment purchases, irregular acquisition patterns, working capital flexibility.
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Choosing the Right Equipment Finance Structure
Selecting the optimal finance structure requires evaluating multiple factors specific to your business circumstances:
Ownership Objectives: If immediate ownership and asset control are priorities, chattel mortgages or commercial hire purchase provide clear ownership paths. Finance leases offer ownership optionality, while operating leases prioritize flexibility over ownership.
Tax Position: Businesses with strong profitability may maximize benefits through chattel mortgages with immediate GST claims and depreciation deductions. Companies preferring operational expense treatment might favor lease structures.
Equipment Lifecycle: Long-lived equipment (5-10+ years useful life) suits ownership structures like chattel mortgages. Technology or vehicles requiring frequent upgrades align better with operating leases allowing regular equipment refresh.
Cash Flow Management: Operating leases typically offer the lowest monthly payments but no equity building. Ownership structures (chattel mortgage, CHP) build asset equity but may require higher payments. Balloon payments reduce monthly obligations across various structures.
Industry and Asset Type: Certain industries favor specific structures:
- Manufacturing/Construction: Often prefer chattel mortgages for long-term equipment ownership
- Technology/IT Services: Frequently use operating leases for regular hardware upgrades
- Transport/Logistics: Mix of chattel mortgages (long-term fleet) and operating leases (flexible capacity)
Consultation Recommendation: Given the complexity and tax implications, consult your accountant before committing to any equipment finance structure. They can model different scenarios based on your specific business structure, profitability, and long-term equipment strategy.
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Frequently Asked Questions
What’s the most common equipment finance option in Australia? Chattel mortgages are among the most popular structures for Australian businesses, particularly for vehicles and long-term equipment, due to immediate ownership, GST benefits, and depreciation claims. However, the best option depends on your specific business circumstances, equipment type, and financial objectives.
Can I switch between finance structures for different equipment? Yes, businesses commonly use different finance structures for various equipment types. You might use a chattel mortgage for a truck (long-term hold), an operating lease for IT equipment (regular upgrades), and a finance lease for specialized machinery (flexibility at term end).
How do balloon payments affect total financing costs? Balloon payments reduce monthly repayments but increase total interest paid over the loan term, as you’re financing a larger amount for longer. While improving cash flow during the term, you’ll pay more interest overall compared to the same loan without a balloon payment.
Which equipment finance option offers the best tax benefits? Tax benefits depend on your business’s structure, profitability, and circumstances. Chattel mortgages often provide maximum deductions (GST, depreciation, interest), but lease structures may suit businesses preferring operational expense treatment. Consult your accountant to determine which structure optimizes your specific tax position.
Can new businesses access equipment finance? Yes, though approval may be more challenging with limited trading history. Operating leases are sometimes more accessible for newer businesses as lessors accept residual value risk. Specialist lenders may consider businesses with 6-12 months trading history depending on circumstances and asset type.
What equipment types suit operating leases vs chattel mortgages? Operating leases suit equipment requiring regular upgrades or short-term needs (technology, short-term project equipment, vehicles with frequent model updates). Chattel mortgages suit long-lived equipment with extended useful life (manufacturing machinery, specialized equipment, long-term commercial vehicles).
Speak with Specialists
Need expert guidance on your equipment finance options application? Email: loans@loanphone.com.au Website: www.loanphone.com.au
Related Resources
Explore these related guides for business owners and ABN holders:
Disclaimer: This article provides general information only and should not be relied upon as financial or tax advice. Rates, terms, and eligibility vary by lender and individual circumstances. Tax benefits are subject to your specific business structure and circumstances. Always seek independent professional advice from a qualified accountant and financial adviser before making financing decisions.
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Last updated: 2025-10-29