Business loan or equipment finance: which suits your purchase?

You’ve found the equipment. Now the question: equipment finance, or a general business loan? Both can get the gear into your business, but they work differently, suit different purchases and leave you with different flexibility. The right choice depends on what you’re buying, who from, and what else needs paying for at the same time.

The core difference

Equipment finance is tied to a specific asset. The lender pays the supplier, holds an interest in the item, and you repay over a term matched to its working life. Business.gov.au lists equipment leases, asset financing, hire purchase and chattel mortgages among the debt finance options for vehicles and equipment.

A business loan gives the business funds for a stated purpose. It may be unsecured, sized on your turnover, or secured against property. You can use it for equipment, but also for the works, stock or costs around it.

Side by side

	Equipment finance	Business loan
Security	The equipment	None (unsecured) or property
Who’s paid	Usually the supplier directly	Your business
Best for	Mainstream, valuable, identifiable assets	Mixed costs, hard-to-value or private-sale items
Newer businesses	Often accessible, sometimes with a deposit	Unsecured is harder without history
Flexibility	Tied to one item	Can cover several needs
Paperwork	Supplier quote or invoice is central	Purpose, statements and financials

When equipment finance is usually the better fit

• You’re buying new or dealer-sold equipment with a clear value
• The item is mainstream — ovens, utes, compressors, chairs, POS
• You’re a newer business without the history for unsecured lending
• You want the asset to carry the risk, not your property
• You want repayments matched to the asset’s working life

When a business loan is usually the better fit

• You’re buying second-hand from a private seller or the item is hard to value
• The equipment is custom-built or highly specialised
• You need to fund equipment plus installation, works or stock together
• You want one facility for a project rather than several
• You may want to change suppliers or buy items over time

Why many owners use both

Take a café refit. The espresso machine, grinders and fridges are perfect for equipment finance. The counter rebuild, plumbing, electrical work and new flooring are not — they become part of the building. A small business loan covers those. Two facilities, each doing what it’s good at.

The same applies to a commercial kitchen, a workshop upgrade or a new vehicle with a fit-out. Ask suppliers and tradespeople to quote equipment separately from works, and the split almost designs itself.

Not sure which way to go for your purchase? Send us the details — a specialist will suggest the cleanest structure, and enquiring doesn’t involve a credit check.

Tax and ownership considerations

Different structures treat ownership differently. With a loan or chattel mortgage, the business generally owns the asset from the start. With leases and some rental arrangements, the financier owns it during the term. That affects who claims depreciation and how GST is handled.

The ATO’s simplified depreciation rules let eligible small businesses immediately deduct eligible assets costing less than $20,000 under the instant asset write-off, and pool more expensive assets with a 15% deduction in the first year and 30% after. How these interact with your chosen finance structure is a question for your accountant — ask before you sign.

Illustrative example: A joinery workshop buys a used panel saw from another business that’s closing, plus a new dust extraction system from a dealer, and needs electrical work to run both. The new extraction system goes on equipment finance through the dealer. The used saw, private-sale and harder to value, is funded together with the electrical work through a modest unsecured loan.

Questions to ask yourself

1. Is the item mainstream and bought from a reputable supplier?
2. Are there costs around it — installation, works, training — that can’t secure themselves?
3. Do I have the trading history for an unsecured loan?
4. Do I want this debt tied to the asset, or to the business generally?
5. How long will I keep the item, and does the term match?

Comparing the true cost

Whichever route you lean towards, compare the options on total cost over the time you’ll have the finance — interest, establishment and ongoing fees, and any end-of-term payment — not just the regular repayment. Our fees and total cost page shows how to line up different structures fairly.

What about leasing and rental?

Some businesses prefer to lease or rent equipment rather than own it — especially technology that dates quickly, or equipment they expect to upgrade regularly. With a lease, the financier owns the asset and you pay to use it, sometimes with an option to buy at the end. Leasing can keep the balance sheet simpler and make upgrades easier, but over the long run it may cost more than owning. If you’re weighing a lease against a loan or chattel mortgage, compare the total cost over the period you’ll use the equipment and check the end-of-term arrangements carefully.

Get the structure right first time

Tell us what you’re buying, who from, and what else the project involves. A real person will suggest whether equipment finance, a business loan or a combination suits best. There’s no credit check to ask, your details stay with the person handling your file rather than going to a crowd of lenders, and itemised details help us match you properly from the start. Check your purchase options.