When a business needs a vehicle, a machine or a fit-out, there are two broad ways to fund it: equipment finance secured against the asset itself, or a general business loan used to buy it outright.
The choice affects your rate, your repayment term, what happens at the end, and in some cases how the purchase is treated at tax time. It is one of the more consequential funding decisions a business makes, and it is frequently made on the basis of whichever option the supplier happened to mention.
This guide explains how each option works, when each one suits, and the tax treatment business owners most often get wrong.
Quick Answer
Equipment finance is usually the better option when you are buying a specific, identifiable asset that a lender will accept as security. Because the asset secures the loan, rates are generally lower than unsecured lending and terms can be matched to the asset’s useful life.
A general business loan is usually better when the purchase includes costs equipment finance will not cover, such as installation, freight, training or soft fit-out, or when the asset is too old, too specialised or being bought privately in a way lenders will not finance. It is also faster, since no valuation or asset verification is required.
Importantly, how you finance an asset does not usually determine whether you can claim a deduction for it. That depends on whether your business owns the asset, not on whether you paid cash.
The Misconception That Costs Businesses Money
A common belief is that you have to pay cash for an asset to claim an immediate deduction or depreciation on it. That is generally not correct.
Under a chattel mortgage, which is the most common structure for business vehicles and equipment in Australia, your business owns the asset from the moment of purchase. The lender simply registers a security interest over it. Because you are the owner, the asset generally enters your depreciation calculations at its full cost, even though you have only paid a deposit.
The practical effect is significant. A business can potentially claim a deduction based on the full cost of an asset in the year it is first used, while having outlaid only a fraction of that amount in cash. The interest on the finance is typically deductible as well, though the principal portion of repayments is not.
Structures where the lender retains ownership, such as a lease or a rental agreement, work differently. There you generally claim the payments rather than depreciation on the asset. Neither approach is automatically better, but they are not interchangeable, and the difference is worth understanding before you sign.
This is general information rather than tax advice. Confirm the treatment for your business with your accountant or registered tax agent before committing to a structure.
The Main Equipment Finance Structures
| Structure | Who owns the asset | Typical use | End of term |
|---|---|---|---|
| Chattel mortgage | Your business, from day one, with the lender holding a registered security interest | Vehicles, machinery, most business equipment | You keep the asset. A balloon amount may be payable if one was set |
| Finance lease | The lender | Equipment a business wants to use but not necessarily own long term | Pay the residual to acquire, refinance it, or return the asset |
| Operating lease or rental | The lender | Assets that date quickly, such as IT and some technology | Return the asset, upgrade, or extend the rental |
| Commercial hire purchase | The lender until the final payment | Less common now, largely displaced by chattel mortgage | Ownership transfers to you on completion |
One structural point worth knowing: where the business owns the asset under a chattel mortgage and is registered for GST on a non-cash basis, the GST credit on the purchase price can generally be claimed in the activity statement for the period of the purchase rather than spread across the repayments. For a substantial asset, that can be a meaningful cashflow event in the first quarter. Leases and rentals typically attract GST on each payment instead.
Equipment Finance Vs. Business Loan
| Consideration | Equipment finance | General business loan |
|---|---|---|
| Security | The asset itself secures the loan, so additional security is often unnecessary | Unsecured, or secured against other assets or property |
| Pricing | Generally lower, because the lender holds tangible security | Generally higher where unsecured, reflecting the absence of collateral |
| Term | Matched to the asset’s useful life, commonly 1 to 7 years | Often shorter, commonly 3 months to 3 years for unsecured facilities |
| What it can fund | The asset only, and usually only assets the lender will accept | Anything, including freight, installation, training and soft costs |
| Speed | Slower, since the asset must be identified and often verified or valued | Faster, since there is no asset to assess |
| Asset restrictions | Age, type and condition limits apply, and private sales are often excluded | None, as the lender is not taking the asset as security |
| Effect on other borrowing | Ties up the asset but usually leaves other credit lines intact | Consumes general borrowing capacity and cashflow headroom |
| Risk if it goes wrong | The financed asset can be repossessed | Directors exposed through personal guarantees, or other pledged security at risk |
The pricing difference is the main reason to prefer equipment finance where it is available. If a lender can take the asset as security, you should generally expect a better rate than an unsecured alternative for the same amount. Paying unsecured pricing to buy a financeable asset is a common and expensive mistake.
When Equipment Finance Suits
- You are buying a specific, identifiable asset with a serial or VIN number
- The asset is relatively new and from a recognised dealer or supplier
- The asset will generate revenue over several years, so a longer term makes sense
- You want to preserve working capital facilities for operating needs
- You would rather not offer property as security
- The amount is large enough that the rate difference outweighs the slower process
When a Business Loan Suits Better
- The asset is old, heavily used, or a type lenders will not take as security
- You are buying privately rather than from a dealer
- A large share of the cost is freight, installation, commissioning or training
- You are funding a fit-out, where much of the spend is not a discrete asset
- You need to move within days rather than weeks
- You are buying several small items that individually would not justify separate facilities
Many businesses use both. Equipment finance covers the asset, and a smaller unsecured business loan covers the installation, freight and working capital needed to get it earning.
The Instant Asset Write-Off: Where Things Stand
Asset purchase decisions are often driven by the instant asset write-off, so it is worth being precise about its current status, because a good deal of published commentary is not.
The $20,000 threshold is settled law for the 2025-26 income year. Assets first used or installed ready for use by 30 June 2026 are covered, and there is no uncertainty about those claims.
For 2026-27, the position is different. The 2026-27 Federal Budget of 12 May 2026 announced that the $20,000 threshold would become permanent from 1 July 2026 for small businesses with aggregated annual turnover under $10 million. The enabling legislation, the Treasury Laws Amendment (Tax Reform No. 2) Bill 2026, was introduced into the House of Representatives on 25 June 2026.
As at the date of publication, that measure has not completed its passage through Parliament, and the ATO’s own guidance states that it is not yet law. Until it passes, the standing legislated threshold for assets first used from 1 July 2026 is $1,000.
Passage is widely expected, and the measure is drafted to apply from 1 July 2026. But announced is not the same as enacted, and you should confirm the current position on the ATO website or with your accountant before making a purchase decision that depends on it.
Assets Above the Threshold
Most business vehicles and serious machinery cost well over $20,000, so the write-off is not the main event for them. Eligible small businesses can generally place those assets in the small business simplified depreciation pool, which under the current rules is depreciated at 15% in the first income year and 30% in each year after that.
For passenger vehicles, a separate car cost limit caps the amount you can depreciate regardless of what you paid. It is indexed each year, so check the figure applying to your income year.
Two general points hold regardless of the threshold. The asset must be used or installed ready for use in the income year, so something on order or in transit at 30 June does not qualify for that year. And a deduction reduces taxable income rather than handing you the cash back, so it should never be the sole reason to buy something the business does not need.
Balloon and Residual Payments
Equipment finance often includes a balloon or residual, a lump sum payable at the end of the term. It lowers your monthly repayment by deferring part of the principal.
Used deliberately, this is a sensible cashflow tool. Used carelessly, it creates a problem years later. The risks worth weighing:
- You pay interest on the deferred amount for the whole term, so the total cost is higher
- If the balloon is set above what the asset will be worth at the end, you owe more than the asset is worth
- You will need to fund it, refinance it or sell the asset, and refinancing at that point depends on your position then, not now
A reasonable test is whether the balloon is comfortably below the asset’s likely resale value at the end of the term. If it is not, you are deferring a problem rather than managing a cashflow one.
What Lenders Often Will Not Finance
Equipment finance is only available if the lender will accept the asset. Common sticking points:
- Assets beyond a certain age, often assessed as age at the end of the loan term rather than today
- Highly specialised equipment with a thin resale market
- Assets that will be permanently affixed to premises you do not own
- Private sales, or purchases from a related party
- Assets located overseas or not yet imported
- Soft costs such as freight, installation, extended warranties and training
If your purchase falls into one of these categories, a general business loan is often the practical route rather than a sign that funding is unavailable.
Worked Scenarios
Two-Year-Old Excavator From a Dealer, $95,000
A textbook equipment finance case. Identifiable asset, recognised supplier, strong resale market, revenue-producing over several years. A chattel mortgage over five years would generally price better than any unsecured alternative, and the business owns the asset from settlement.
Cafe Fit-Out, $70,000 Across Many Items
Harder for equipment finance. Some items, such as a commercial oven or coffee machine, may be financeable individually. Joinery, plumbing, tiling and labour generally are not, and the premises are leased. A business loan covering the whole project is usually simpler, with equipment finance considered only for the larger discrete machines.
Twelve-Year-Old Truck Bought Privately, $40,000
Most equipment financiers will decline this on asset age and the private sale. A secured or unsecured business loan is the realistic path, at a higher rate than equipment finance would have offered had the asset qualified. Worth factoring into whether the cheaper truck is actually cheaper.
Three Laptops and a Printer, $9,000
Too small to justify separate equipment facilities. A small business loan, line of credit or rental arrangement is generally more practical, and each item may fall under the write-off threshold in its own right depending on the rules applying in your income year.
Explore Equipment and Asset Finance Options
The right structure depends on the asset, its age and source, how long it will earn, what you can offer as security and how quickly you need to move. Supplier or dealer finance is convenient, but it is one option rather than the market.
Ezy Pzy Finance helps Australian businesses compare equipment finance, chattel mortgages, secured and unsecured business loans, low doc business finance and working capital facilities, so the structure matches the purchase rather than whichever product was offered first.
To talk through funding an asset purchase, get in touch with Ezy Pzy Finance. You may also find our guides to how much you can borrow and low doc versus full doc applications useful.
This article contains general information only and is not tax, legal or financial advice. It does not take into account your objectives, financial situation or needs. Tax treatment depends on your circumstances and on legislation in force at the relevant time, and the instant asset write-off measure referred to for 2026-27 was announced but not yet law as at the date of publication. Confirm the current position with the ATO and your registered tax agent before making a purchase or funding decision.