A new piece of equipment can create revenue from the day it arrives, but the way you fund it affects cash flow for years. This equipment funding example shows how the numbers can work for an Australian business purchasing a machine, including a deposit, monthly repayments and a balloon payment. It is a guide only, not a loan quote, because rates, fees and approval terms depend on your circumstances.
For a plumber replacing an ageing excavator, a landscaper buying a skid steer, or a workshop adding a vehicle hoist, paying the full purchase price upfront may not be the best use of working capital. Equipment finance can spread the cost over a term that better matches the income the asset is expected to generate.
An equipment funding example for a growing business
Imagine a small earthmoving business is buying a compact excavator for $88,000 including GST. The owner has secured regular work and wants to retain enough cash for fuel, wages, insurance and unexpected repairs.
They choose a chattel mortgage over a five-year term. This is a common structure where the business owns the equipment from settlement, while the lender takes security over it until the finance is repaid.
For this example, the finance arrangement looks like this:
- Equipment purchase price: $88,000 including GST
- Deposit: $8,000
- Amount financed: $80,000
- Loan term: 60 months
- Illustrative interest rate: 8.99% p.a.
- Balloon payment: 20% of the amount financed, or $16,000
Based on these assumptions, the repayment would be approximately $1,448 per month, with a final balloon payment of $16,000 due at the end of the five-year term. Establishment fees, account fees and any other lender charges are not included in this illustration, so the actual repayment and total cost may differ.
Over the term, the business would make around $86,880 in monthly repayments, then pay the $16,000 balloon. Including the $8,000 upfront deposit, the total cash outlay would be about $110,880. That figure is useful for planning, but it should not be mistaken for the exact cost of a particular loan.
Why the balloon changes the repayment
A balloon is a lump sum left owing at the end of the agreement. In this case, it lowers the regular repayment because the borrower is not repaying the full $80,000 across the 60 monthly instalments.
Without a balloon, the monthly repayment on the same $80,000 loan, term and illustrative rate may be closer to $1,661 per month. That is roughly $213 more each month, but there is no large final payment to manage.
Neither option is automatically better. A business with predictable income and equipment likely to retain value may be comfortable with a balloon. Another business may prefer higher monthly repayments and a clear zero balance at the end of the term. The right choice depends on cash flow, the expected resale value of the asset and whether you plan to keep, trade or refinance the equipment later.
Choosing the right structure for your equipment funding
A chattel mortgage is only one way to finance business equipment. The most suitable option often comes down to how your business uses the asset, its age and value, your GST position and your preference for ownership.
With a chattel mortgage, the business generally owns the asset upfront. This can suit operators buying machinery, commercial vehicles, manufacturing equipment, medical equipment or workshop tools that they intend to use over the long term.
A finance lease may suit businesses that prefer the financier to own the equipment during the lease period, with options at the end determined by the agreement. Hire purchase is another arrangement where the financier purchases the asset and the customer pays it off through instalments before taking ownership under the agreed terms.
For smaller equipment purchases, an unsecured or low-document commercial finance option may sometimes be considered. However, the rate, term and lending criteria can be different from secured equipment finance. The asset itself often gives the lender more security, which may support more favourable options for eligible applicants.
It is also worth considering whether the equipment is new or used. New assets can be simpler to finance because their value and condition are clearer. Used machinery can still be fundable, though lenders may look closely at its age, hours of use, service history, supplier details and resale value.
Deposit, term and repayment trade-offs
The deposit is one of the first decisions to make. A larger deposit reduces the amount borrowed and can lower monthly repayments, but it also ties up cash that may be needed elsewhere in the business. A low-deposit solution can preserve working capital, although it means financing more of the purchase price.
Loan term matters too. Extending a term can reduce the monthly commitment, which may help a business manage seasonal fluctuations. The trade-off is that interest is generally paid over a longer period. Choosing a very short term can reduce the overall interest cost, but the higher repayment must still be comfortable during quieter months.
A practical approach is to assess the expected income the asset will produce. If a $88,000 excavator allows the business to take on additional contracted work, estimate the monthly revenue after fuel, labour, maintenance and other direct costs. The repayment should sit within a broader cash-flow plan, rather than relying on the best possible trading month.
GST, tax and the real cost of equipment
For GST-registered businesses, the GST component of an eligible equipment purchase may generally be claimed through the next business activity statement, subject to the business’s circumstances and advice from its accountant or tax adviser. This can affect how much cash is needed at settlement and how a funding structure is set up.
There may also be tax considerations for interest, depreciation and equipment-related expenses. These outcomes vary based on the entity, the way the equipment is used and current tax rules. Finance should be arranged with the numbers in mind, but tax assumptions should always be confirmed with a qualified adviser.
Do not focus on the advertised interest rate alone. The comparison should include the amount financed, fees, the repayment frequency, total interest over the term, balloon amount and any conditions around early payout. A lower monthly repayment can look attractive while leaving a larger final obligation, so it is vital to see the full picture before signing.
What lenders may look at before approval
Lenders want confidence that the equipment is appropriate for the loan and that repayments are affordable. For a straightforward application, this may involve identification, business details, an equipment quote or invoice, bank statements and evidence of income.
Self-employed applicants may be asked for business financials, tax returns or activity statements, although documentation requirements differ between lenders. If the business has only recently started trading, a strong work history, contracts, deposit and the quality of the asset may all help shape the available options.
Past credit issues do not always mean equipment finance is out of reach. They may affect the lender choice, rate, deposit requirement or structure offered. Being upfront about your position from the start allows a finance broker to focus on realistic pathways rather than submitting applications that are unlikely to suit.
Make the repayment work for the business
Before committing to equipment finance, ask three practical questions: Can the business meet the repayment in a slower month? Is the balloon realistic based on the asset’s likely value at the end of the term? And will retaining cash deliver more value than paying a larger deposit?
Auto Link Finance can help assess those questions against your purchase, business position and finance goals. The strongest equipment funding arrangement is not simply the one with the lowest monthly figure. It is the one that puts the equipment to work while leaving your business with the cash flow and confidence to keep moving forward.