Equipment Finance Explained: A Complete Guide for Australian Businesses
Understand how equipment finance works, what types of machinery can be financed, and what lenders typically assess before approving a business equipment finance application.
Buying machinery or business equipment can require a significant upfront investment. Equipment finance allows eligible Australian businesses to spread that cost over time while putting the asset to work in the business.
From excavators and skid steers to forklifts, tractors, workshop equipment and specialised machinery, equipment finance can be used across a wide range of industries.
The right structure depends on the asset, the business, the intended use and the lender's policy. This guide explains the fundamentals so you can better understand your options before purchasing.
Quick Take
Equipment finance allows eligible businesses to acquire machinery without paying the full purchase price upfront. Repayments are spread over an agreed term, and the available options depend on the equipment, business profile and lender assessment.
Contents
- What Is Equipment Finance?
- Why Businesses Use Equipment Finance
- What Equipment Can Be Financed?
- New vs Used Equipment
- Dealer vs Private Sale
- How Equipment Finance Works
- Common Finance Structures
- Low Doc Equipment Finance
- What Lenders Look For
- How Interest Rates Are Determined
- Balloon Payments Explained
- Common Mistakes
- Frequently Asked Questions
- Final Thoughts
What Is Equipment Finance?
Equipment finance is a form of asset finance used to help businesses purchase machinery and commercial equipment by spreading the cost over an agreed loan term.
Instead of paying the full purchase price upfront, the business makes regular repayments while using the equipment to generate income or support day-to-day operations.
Depending on the finance structure, the equipment may be used as security for the loan.
Equipment Finance Is Usually Linked to a Business Purpose
The equipment will generally need to be used wholly or predominantly for business purposes. The exact requirements depend on the lender and finance structure.
Why Businesses Use Equipment Finance
Paying cash for equipment can tie up a large amount of working capital. For many businesses, that money may also be needed for wages, stock, marketing, fuel, maintenance or day-to-day operating expenses.
Equipment finance allows a business to acquire the asset sooner while preserving cash for other priorities.
Common Reasons Businesses Use Equipment Finance
- Preserve working capital.
- Acquire equipment sooner.
- Spread the purchase cost over time.
- Replace ageing or unreliable machinery.
- Increase productivity.
- Take on larger contracts.
- Support business growth.
- Match repayments more closely to the useful life of the asset.
Think About What the Equipment Does for the Business
The key question is not only what the equipment costs, but what it may allow the business to earn, save or complete more efficiently.
What Equipment Can Be Financed?
Equipment finance can cover a broad range of commercial assets across many industries. The exact assets accepted will depend on the lender's policy and the nature of the equipment.
Excavators, skid steers, loaders, rollers, graders, compressors and generators.
Tractors, slashers, seeders, sprayers and farming machinery.
Forklifts, pallet equipment, warehouse machinery and material-handling equipment.
Workshop machinery, compressors, generators, access equipment and specialist tools.
Production machinery, fabrication equipment, CNC equipment and industrial systems.
Medical, hospitality, printing, landscaping and other industry-specific business equipment.
Some lenders are more comfortable with standard equipment that has a strong resale market, while specialised assets may require a lender with more flexible policy.
Can You Finance New and Used Equipment?
Yes. Many lenders finance both new and used business equipment.
For new equipment, the value is usually straightforward because the lender can rely on a current dealer invoice or supplier quote.
Used equipment may require closer consideration of age, condition, service history, operating hours and market value.
Lenders May Consider
- Year of manufacture.
- Operating hours.
- Overall condition.
- Service history.
- Purchase price.
- Estimated market value.
- Remaining economic life.
- How specialised the equipment is.
Older Doesn't Automatically Mean Unfinanceable
A well-maintained machine with strong service records and a recognised resale market may still be financeable even if it has been operating for several years.
Dealer Purchase vs Private Sale
Equipment can often be financed whether it is purchased through a dealer or from a private seller.
Dealer purchases are generally easier to document because the seller can provide a tax invoice, equipment details and formal purchase documentation.
Private sales can also be financed, but lenders may require additional verification before settlement.
Usually provides structured purchase documentation and a simpler settlement process.
May require seller identification, proof of ownership and additional equipment verification.
Ownership and existing security interests should be checked before settlement where appropriate.
The best finance option depends on the equipment, borrower and transaction rather than simply whether the seller is a dealer or private owner.
How Equipment Finance Works
The process is generally straightforward once the equipment has been selected.
Typical Equipment Finance Process
- Select the equipment.
- Obtain a dealer quote, invoice or private sale details.
- Provide business and applicant information.
- Submit the finance application.
- The lender assesses the business and equipment.
- Additional information may be requested.
- Finance documents are prepared if approved.
- Settlement occurs.
- The seller receives payment.
- Regular repayments commence.
What Information Is Usually Required?
Requirements vary between lenders and applications. Depending on the business profile, lenders may ask for identification, ABN details, GST registration information, bank statements, financial information or evidence of income.
For some established businesses, Low Doc or streamlined assessment options may be available depending on lender policy.
Prepare Before You Apply
Having accurate equipment details and business information ready can make the application process much smoother, particularly where the purchase is time-sensitive.
Common Equipment Finance Structures
There are several ways equipment finance can be structured. The most appropriate option depends on the business, the asset, accounting treatment and the lender's policy.
Because taxation and accounting outcomes can vary, businesses should obtain advice from their accountant or tax adviser before choosing a structure.
A common structure where the business purchases the equipment and the lender takes security over the asset until the finance is repaid.
The lender owns the equipment during the lease period while the business makes agreed lease payments for its use.
In some situations, equipment may be acquired under a hire purchase structure with ownership transferring once the agreed terms are completed.
Tax Treatment Can Differ
The GST, depreciation and tax treatment of equipment finance depends on the structure and the business's circumstances. Speak with your accountant before making a decision based on potential tax outcomes.
Low Doc Equipment Finance
Some self-employed businesses may be eligible for Low Doc equipment finance, where the lender uses alternative information to assess the application rather than relying only on full financial statements.
This can be particularly useful for established businesses that have strong trading history but may not have recently prepared financial statements available.
Low Doc Assessment May Consider
- ABN history.
- GST registration.
- Business bank statements.
- Asset and liability information.
- Existing finance commitments.
- Equipment being purchased.
- Credit history.
- Overall business profile.
Low Doc does not mean no assessment. Lenders still need to be comfortable that the finance is appropriate and that the business can meet the repayments.
Low Doc Can Be Useful — But It Isn't Automatically Easier
Eligibility and documentation requirements vary between lenders, so matching the application to the right lender remains important.
What Do Equipment Finance Lenders Look For?
Lenders generally assess both the business and the equipment.
A strong application is not simply about the value of the machine. The lender will also consider whether the business appears capable of supporting the finance.
Business History
How long the business has been operating and whether it has an established trading history may influence lender options.
Income and Cash Flow
The lender may assess whether the business can comfortably support the proposed repayments.
Credit Profile
The credit history of the business and relevant applicants may affect lender selection and pricing.
Existing Commitments
Other loans, leases and financial obligations can influence borrowing capacity.
Equipment Value
Purchase price, market value, condition and expected resale value may all influence the lender's assessment.
Business Purpose
Lenders may also consider how the equipment will be used and whether it fits logically within the business.
How Are Equipment Finance Interest Rates Determined?
There is no single equipment finance rate that applies to every business.
Pricing can vary according to the lender, equipment, finance structure and overall risk profile of the application.
Factors That May Influence Pricing
- Business trading history.
- Credit profile.
- Equipment age.
- Equipment type.
- Loan amount.
- Finance term.
- Deposit or equity contribution.
- Balloon or residual.
- New or used equipment.
- Strength of the overall application.
This is one of the reasons comparing several suitable lenders can be useful. Two lenders may view the same business and equipment differently.
What Is a Balloon Payment?
A balloon is an amount left owing at the end of the finance term rather than being repaid through the regular instalments.
Including a balloon may reduce regular repayments, but it also means a larger amount remains payable at the end of the term.
A balloon may reduce regular repayments because less principal is repaid during the finance term.
The agreed balloon remains payable at the end of the term.
Consider whether the equipment is likely to retain enough value to support your intended end-of-term strategy.
Think About the End of the Loan Before the Beginning
Before choosing a balloon, consider whether you expect to keep the equipment, sell it, trade it or refinance the remaining amount at the end of the term.
Common Equipment Finance Mistakes
A finance structure that looks attractive at first glance may not always be the best fit once the full business and equipment picture is considered.
Choosing on Rate Alone
Fees, finance term, balloon, lender flexibility and total repayment structure also matter.
Buying Before Checking Finance
Committing to equipment before understanding available finance options may create unnecessary pressure.
Ignoring Equipment Condition
Finance approval does not replace a proper mechanical or equipment inspection.
Using the Wrong Finance Term
The finance term should make sense relative to the equipment's expected useful life.
Overstretching Cash Flow
The equipment should support the business rather than creating ongoing repayment pressure.
Forgetting Running Costs
Fuel, servicing, insurance, repairs and downtime sit on top of the finance repayment.
Equipment Finance FAQs
Can Start-Ups Get Equipment Finance?
Potentially. Some lenders consider newer businesses, although the available options may be different from those offered to established businesses. The applicant's experience, financial position and the equipment being purchased can all be relevant.
Can Sole Traders Get Equipment Finance?
Yes. Sole traders may be eligible for equipment finance where the asset is being acquired for business use and the application meets lender requirements.
Can I Finance Equipment From a Private Seller?
In many cases, yes. Private sale equipment finance may require additional documentation and ownership verification before settlement.
Can I Finance Older Machinery?
Potentially. Lender policies vary, and older machinery may still be considered where the asset is in suitable condition and has reasonable remaining economic life.
Do I Need a Deposit?
Not always. Some equipment purchases can be fully financed, while others may benefit from or require a deposit depending on the lender, equipment and overall application.
Can Attachments Be Included?
Often, yes. Attachments may be financed with the main machine where they form part of the purchase and are acceptable to the lender.
Final Thoughts
Equipment finance can help Australian businesses acquire the machinery they need without tying up the full purchase price in working capital.
The right finance structure depends on more than the equipment itself. Business history, cash flow, credit profile, asset condition, finance term and lender policy can all affect the available options.
Understanding those factors before committing to a purchase can help you make a more informed decision and choose finance that fits the equipment and the business.
The Equipment and the Finance Should Work Together
The best outcome is not simply getting approved. It is choosing equipment and a finance structure that support the business over the life of the asset.
Planning Your Next Equipment Purchase?
Yes Approved can compare suitable equipment finance options from a panel of more than 40 Australian lenders for new and used business equipment.
This guide provides general educational information only and does not constitute financial, taxation, accounting or credit advice. Finance structures, eligibility criteria, lender policies and taxation outcomes vary according to individual circumstances and may change over time. Consider obtaining independent accounting, taxation or professional advice before making a business finance decision.
See What Our Customers Say
Real Google reviews from customers who have worked with Yes Approved Finance.
