A guide to equipment finance for business owners.

Whether you’re running a business, expanding a fleet, upgrading tools, or investing in machinery, equipment finance can be a smart way to preserve cashflow while still acquiring the assets you need.

Equipment finance is broader than most people realise — it covers everything from work vehicles and trailers to heavy machinery, medical equipment, IT infrastructure, farming equipment, and even commercial fit-outs.

At Lumo, we help clients choose the right structure based on tax benefits, cashflow needs, asset type, and long-term business planning.

What is equipment finance?

Equipment finance allows you to purchase or use business equipment without paying the full cost upfront.
The lender funds the asset, and you repay it over time while benefiting from ownership or usage rights depending on the product structure.

Common assets financed include:

• Cars, utes, vans and commercial vehicles
• Trucks and trailers
• Construction equipment (excavators, loaders, forklifts, cranes)
• Agricultural machinery (tractors, harvesters, irrigation systems)
• Medical and dental equipment
• Office and IT fitouts
• Manufacturing machinery
• Hospitality and café equipment
• Tools of trade
• Gym, salon or studio equipment

Every asset class has its own rules, risk profile and lender appetite.

The main types of equipment finance

The term “equipment finance” is a broad umbrella. Here are the major product types and how they differ.

1. Chattel mortgage (the most common)

A chattel mortgage is the most widely used form of equipment finance in Australia, especially for vehicles.

How it works:

• You own the asset from day one
• The lender takes security over the asset
• You claim tax deductions based on business use
• Balloon/residual options are available

Tax treatment:

• You can claim GST upfront via the BAS (if registered)
• Interest and depreciation are tax-deductible
• Immediate asset write-off may apply depending on tax rules at the time

Good for:

• Businesses wanting ownership
• Clients wanting tax efficiency
• Assets with long life expectancy
• Fleets and work vehicles

2. Finance lease

A finance lease allows you to use the asset while the lender retains ownership.

How it works:

• The lender buys the equipment
• You lease it for a fixed term
• At the end, you can pay the residual to own it, refinance the residual, or return the asset

Tax treatment:

• Lease payments are tax-deductible
• GST applies to lease payments rather than upfront

Good for:

• Assets that depreciate quickly
• Businesses wanting predictable cashflow
• Situations where ownership at the start is not important

3. Hire purchase (Commercial Hire Purchase – CHP)

Very similar to a chattel mortgage but structured differently.

How it works:

• The lender owns the asset until the final instalment
• You make repayments over time and take ownership at the end

Tax treatment:

• Interest and depreciation are deductible
• Unlike leasing, GST applies upfront and is claimable

Good for:

• Clients wanting eventual ownership without upfront GST complications
• Vehicles and long-term assets

4. Operating lease (rental)

This structure is more like renting equipment rather than buying it.

How it works:

• You rent the asset for a set term
• You do not own it at any point
• You return it or upgrade at the end
• No residual risk — the finance company carries it

Tax treatment:

• Rental payments are fully deductible

Good for:

• Equipment that becomes obsolete quickly (IT, tech, medical gear)
• Businesses wanting no residual value risk
• Short-term or project-based assets

5. Novated lease (for employees)

Commonly used for work vehicles.

How it works:

• The employee leases the vehicle
• The employer makes lease payments from pre-tax salary
• The employee can take the vehicle to future employers

Benefits:

• Significant tax advantages for some employees
• Running costs can be bundled (fuel, servicing, insurance)
• Flexible terms and vehicle choice

Good for:

• Employees using salary packaging
• Business owners who want clean employee vehicle arrangements

6. Unsecured equipment finance

Some lenders offer finance for smaller equipment purchases without taking security over the asset.

How it works:

• No asset security
• Higher interest rate
• Faster approval
• Often suited for smaller ticket items (tools, laptops, fitout items)

Good for:

• Small businesses needing fast access to equipment
• Situations where specialised security is impractical

Balloon and residual payments

A balloon (or residual) is a lump sum due at the end of the loan.

Why use one?

• Reduces monthly repayments
• Aligns with expected resale value
• Improves cashflow

Considerations:

• Larger balloon = lower monthly repayments but higher end payment
• You can refinance the balloon, pay it out, or trade-in the asset

This is one of the main levers in shaping business cashflow.

Documentation levels and lender appetite

Lenders offer a range of assessment types:

Full-doc

• Financial statements
• Tax returns
• BAS
  Best for larger purchases or specialised equipment.

Low-doc

• Bank statements
• Accountant’s declaration
  Used for smaller assets and simpler deals.

No-doc

• ABN and GST registration
• Basic identification
  Often available up to a certain limit (e.g., $150k) for established businesses.

Lender appetite varies across industries. For example:

• Strong appetite: transport, construction, medical, agriculture
• Moderate appetite: hospitality, retail
• Cautious: start-ups without trading history

Common terms for equipment finance

• Loan terms generally range 2–7 years
• Deposits may or may not be required
• Interest may be fixed for the term
• Security is typically the equipment itself

Why equipment finance is so powerful

Equipment finance helps businesses:

• Preserve cash for operations
• Avoid large upfront capital outlay
• Take advantage of tax benefits
• Upgrade equipment frequently
• Position for growth

It can be far more strategic than simply spreading out repayments.

Let’s chat.

If you’re considering purchasing equipment — whether it’s vehicles, machinery, tools, medical equipment, or agricultural assets — we can help you choose the structure that maximises tax benefits, improves cashflow, and aligns with your business goals. Let’s chat.

This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.