Most business owners searching for equipment finance hit the same wall. You find a quick overview that names three structures, maybe four, and then the page tries to sell you one of them without explaining why it suits your situation. You are left knowing more words but making the same guess.
This article does the bit those pages skip. At Riverwalk Finance, we work across all three structures every day, and the right answer depends on your trade, your cash flow, and what you want to happen when the term ends. Here is how to work it out.
The Three Structures in Plain English
Every equipment finance product in Australia is built on one of three frameworks. The names change between lenders, but the mechanics do not.
Equipment loan / chattel mortgage
- You borrow the purchase price and own the equipment from day one
- The lender registers a security interest over the asset until the loan is repaid
- Repayments are fixed over an agreed term (typically two to seven years)
- Once the final payment clears, the security is removed and you own the asset outright
This is the most common structure for businesses that want ownership and plan to keep the equipment long-term.
Hire purchase
- You take possession of the equipment and make fixed payments over the term
- The finance provider retains ownership until the final instalment is paid
- Once you have paid in full, ownership transfers to you automatically
- Repayments and terms are fixed from the start
Hire purchase suits businesses that want certainty on cost and intend to keep the asset, but prefer the ownership transfer to happen at the end rather than upfront.
Finance lease
- The lender purchases the equipment and leases it to you for an agreed term
- You make regular lease payments for the right to use the asset
- At the end of the term, you typically choose to purchase the equipment at its residual value, return it, or upgrade to a replacement
- The equipment does not sit on your balance sheet during the lease (subject to accounting standards)
Leasing suits businesses that upgrade equipment regularly, want to preserve working capital, or prefer not to carry the asset on their books.
What Happens at the End of Each Term
This is the question that separates the three structures in practice:
- Chattel mortgage: Nothing to decide. You already own the asset. The lender’s security interest is discharged and the equipment is yours, free and clear.
- Hire purchase: Ownership transfers to you automatically once the final payment is made. No residual, no negotiation.
- Finance lease: You face a decision. Most leases offer the option to purchase the equipment at an agreed residual value, return it to the lessor, or negotiate a new lease on replacement equipment. If you plan to keep the asset, make sure the residual is set at a level you can afford or refinance.
Knowing this upfront matters because it shapes your total cost and your exit options.
GST and Tax in General Terms
Tax treatment is one of the main reasons businesses choose one structure over another. In general terms:
- Chattel mortgage: GST-registered businesses can typically claim the full GST on the purchase price upfront on their next BAS. Interest and depreciation are generally deductible over the life of the loan.
- Hire purchase: GST is generally claimable progressively on each instalment. Interest and depreciation may be deductible, depending on your circumstances.
- Finance lease: Lease payments are typically deductible as a business expense. GST is generally included in each payment and claimed on each BAS cycle.
Important: These are general principles, not specific advice. The actual tax outcome depends on your business structure, turnover, the asset’s use, and current legislation. Confirm with your accountant before committing to any structure.
The Balloon: Keeping Payments Manageable
A balloon (or residual) is a lump sum left owing at the end of the term. It reduces your monthly repayments during the loan, but you need a plan for it when it falls due.
- A balloon works well when the equipment holds its value and you can sell it, trade it in, or refinance the residual at term end
- It becomes a problem when the equipment depreciates faster than expected and the balloon exceeds what the asset is worth
- For equipment with a short useful life (technology, hospitality fit-outs), a balloon can create a gap between what you owe and what the equipment is worth
Your broker should model the balloon against the asset’s realistic resale value, not just the monthly repayment you want to hit.
Trade by Trade: Which Structure Suits Which Business
There is no universal answer. The right structure depends on how you use the equipment, how long you plan to keep it, and how your cash flow works.
Tradie buying a mini excavator or CNC machine
- Equipment holds its value well and gets used for years
- A chattel mortgage typically makes sense: own it from day one, claim GST upfront, depreciate it over the effective life
- Explore our workshop and trade equipment finance options
Farmer buying a header or tractor
- Seasonal income means cash flow varies significantly across the year
- A chattel mortgage with structured repayments (higher during harvest, lower during off-season) can align payments with income
- Some lenders offer seasonal payment structures for agricultural equipment
- See our agricultural equipment finance page for details
Cafe owner buying a commercial kitchen fit-out or POS system
- Hospitality equipment depreciates quickly and technology moves fast
- A finance lease can make sense here: lower monthly cost, no large upfront outlay, and the option to upgrade at term end
- Visit our hospitality equipment finance page
Medical or dental clinic buying imaging or treatment equipment
- High-value asset with a long useful life
- A chattel mortgage or hire purchase both work well, depending on whether the clinic wants immediate ownership or prefers to spread it
- Our medical equipment finance page covers common scenarios
Construction business buying earthmoving or heavy plant
- Large purchase price, hard-wearing assets, strong resale market
- A chattel mortgage is the most common choice for heavy machinery finance in Australia: own the asset, depreciate it, and sell or trade when you are ready to upgrade
New Versus Used Equipment and How It Changes the Options
Whether you buy new or used affects your finance options in several ways:
- Term length: Lenders typically offer longer terms on new equipment. Used assets, particularly older ones, may attract shorter terms.
- Residual values: New equipment depreciates at a more predictable rate. Used equipment can be harder to value at term end, which affects balloon calculations.
- Lender appetite: Some lenders specialise in used or older equipment. Others prefer new assets with manufacturer warranties. A broker with a wide lender panel can match the right lender to the asset.
- Total cost: Used equipment costs less upfront, which means smaller repayments, but maintenance costs may be higher and the finance term shorter.
Neither option is automatically better. The decision depends on your budget, the expected life of the equipment, and what your business needs right now. See how it works when you apply through Riverwalk Finance.
Tip: Before you start comparing monthly repayments, decide what matters most: owning the asset, minimising your monthly outgoing, or maximising your tax position. That narrows the structure before you even look at numbers. Then bring your broker and accountant into the same conversation early. Your broker structures the finance. Your accountant confirms the tax position. Together, they help you avoid surprises.
FAQs
Is equipment finance a business loan?
In practical terms, yes. Equipment finance is a type of commercial lending secured against the asset being purchased. The structure (chattel mortgage, hire purchase or finance lease) determines ownership, tax treatment and end-of-term options, but all three are forms of business finance.
Do I own the equipment?
It depends on the structure. With a chattel mortgage, you own it from settlement. With hire purchase, you own it once the final payment is made. With a finance lease, the lender owns it during the term and you may have the option to purchase it at the end.
Can I upgrade mid-term on a lease?
Some lenders allow early termination or trade-up during a finance lease, though fees or payout figures may apply. If upgrading regularly is important to your business, raise it with your broker before signing so the terms can be structured accordingly.
