Beginner's Guide to Financing Tools & Equipment

A landscaper in Kariong needs a new ride-on mower and trailer to take on larger commercial jobs, but spending $25,000 in cash would leave the business exposed if a client pays late.

That scenario plays out across the Coast every week. You need equipment to grow or maintain your business, but tying up cash in tools creates risk. Asset finance lets you spread the cost over time while preserving the capital you need for wages, materials, and unexpected expenses.

What Asset Finance Covers When You Buy Tools

Asset finance can fund almost any equipment your business uses to generate income. This includes hand tools, power tools, machinery, vehicles, and specialised equipment across trades like construction, landscaping, plumbing, electrical, and mechanical work. The loan amount is secured against the equipment itself, which means lenders will generally consider the resale value and how essential the equipment is to your operations. Office equipment, medical devices, hospitality fit-outs, and technology hardware also qualify, provided they support a registered business activity.

For Kariong businesses working across the M1 corridor or servicing the growing residential developments around The Ridgeway and Langford Drive, upgrading existing equipment or buying new gear often determines whether you can take on the next contract.

How a Chattel Mortgage Works for Tool Purchases

A chattel mortgage is secured against the equipment you purchase, and you own it from day one. You make fixed monthly repayments over a set term, usually between one and seven years depending on the equipment's expected lifespan. Interest is charged on the outstanding balance, and you can often include a balloon payment at the end to reduce your regular repayment amount.

The key advantage is the tax treatment. You can claim depreciation on the full purchase price and deduct the interest portion of each repayment. If your business is registered for GST, you can claim the GST on the purchase price in your next Business Activity Statement, which improves cashflow in the first quarter.

Consider a carpenter who finances $40,000 worth of cutting and milling equipment under a chattel mortgage with a five-year term. The business claims the GST upfront, depreciates the equipment over the useful life, and deducts the interest as an operating expense. The equipment stays on the balance sheet, and ownership transfers immediately.

Hire Purchase as an Alternative Structure

Hire purchase is similar to a chattel mortgage, but you don't own the equipment until the final payment is made. The lender holds title during the term, and once the agreement is complete, ownership transfers to you. The structure is often used when lenders want additional security or when the borrower has less trading history.

Repayments are fixed, and you can still claim depreciation and interest deductions during the term. GST is claimed upfront if your business is registered. The difference is largely technical, but it can affect how the asset appears on your balance sheet and whether certain lenders will approve the application.

In our experience, hire purchase works for businesses that need newer equipment but don't yet have two full years of financials. A concreting contractor in Kariong who had been operating for 14 months financed a new concrete mixer and vibrating screed using hire purchase after a chattel mortgage application was declined elsewhere. The equipment was delivered within a week, and the contractor completed three jobs in the first month that covered the repayment.

Leasing Options and When They Apply

A finance lease lets you use the equipment without owning it. You make regular lease payments over an agreed term, and at the end you can either return the equipment, upgrade to newer gear, or purchase it for a residual value. The equipment stays off your balance sheet, which can suit businesses that want to preserve capital and avoid holding depreciating assets.

Operating leases are less common for tools and are typically reserved for items with high resale value or rapid upgrade cycles, such as vehicles or technology hardware. The life of the lease is usually shorter, and payments are fully deductible as an operating expense.

For businesses in Kariong that rely on the latest equipment to stay competitive, such as electricians working on smart home installations or mechanics servicing hybrid vehicles, a lease structure can align the upgrade cycle with technological change. You avoid the risk of owning obsolete equipment, and you can budget for predictable monthly costs.

GST Treatment and How It Affects Cashflow

If your business is registered for GST, you can claim the GST component of the equipment purchase in your next Business Activity Statement, regardless of whether you finance the purchase or pay cash. This applies to chattel mortgages and hire purchase agreements where you are considered the end user.

For a $30,000 equipment purchase, that means claiming back $2,727 within the quarter, which can offset some of the upfront deposit or cover initial running costs. The timing of that refund can make a material difference when you're managing cashflow around settlement and delivery.

Under a lease arrangement, GST is typically built into each lease payment rather than claimed upfront, which spreads the benefit over the term but reduces the immediate cashflow impact.

How Balloon Payments and Residual Values Work

A balloon payment is a lump sum due at the end of the finance term. It reduces your regular repayments during the term, which can help you manage cashflow while you're building revenue with the new equipment. The trade-off is that you'll need to either pay the balloon at the end, refinance it, or sell the equipment and use the proceeds to cover it.

Balloon amounts are typically set as a percentage of the original loan amount, often between 10% and 40% depending on the term and asset type. A tradie financing a $50,000 excavator over five years might structure the agreement with a 30% balloon, reducing monthly repayments by several hundred dollars. At the end of the term, the excavator is either paid out, traded in, or refinanced depending on its condition and the business's needs.

Residual values work the same way under a lease. The lessor sets a residual based on the expected market value of the equipment at the end of the term, and you have the option to purchase it for that amount if you want to keep it.

Vendor Finance and Dealer Finance

Some equipment suppliers and dealers offer their own finance arrangements, either directly or through a panel of lenders they work with. Vendor finance can be faster to arrange because the supplier already has the asset details and knows the market value. Dealer finance is often promoted at the point of sale with pre-approved terms.

The interest rate on vendor or dealer finance can be higher than what you'd get through a broker who can access asset finance options from banks and lenders across Australia. It's worth comparing. A plumber in Kariong recently saved more than $3,000 over a four-year term by arranging finance independently rather than accepting the dealer's in-house offer on a new pipe camera and locator kit.

That said, vendor finance can work if the supplier offers a discount or incentive that offsets the higher rate, or if you need the equipment immediately and your business doesn't meet conventional lending criteria.

How Lenders Assess Equipment Finance Applications

Lenders look at your business financials, the type of equipment you're purchasing, and how long you've been operating. Most require at least 12 months of trading history, though some will consider newer businesses if there's a strong business plan or prior industry experience. The equipment itself acts as collateral, so lenders also assess its resale value and whether it's integral to your operations.

If you're buying work vehicles, specialised machinery like excavators, tractors, or cranes, or tools that hold their value, the application is generally more straightforward. Items that depreciate quickly or have limited resale appeal may require a larger deposit or a shorter term.

For Kariong businesses, being able to show consistent revenue from local contracts, particularly servicing the residential growth around Gindurra Road or commercial work along the Pacific Highway, strengthens the application. Lenders want to see that the equipment will generate income and that your cashflow can cover the repayments.

Tax Benefits and Depreciation on Financed Equipment

When you finance equipment under a chattel mortgage or hire purchase, you can claim depreciation on the full purchase price from day one, even though you haven't paid for it yet. Depreciation is spread over the asset's effective life as determined by the ATO, and it reduces your taxable income each year.

You can also claim the interest portion of each repayment as a business expense. The combination of depreciation and interest deductions can significantly reduce the after-tax cost of the equipment, particularly in the first few years when depreciation is highest.

If you're considering new tools or machinery, it's worth running the numbers with your accountant before committing. The tax treatment can make financing more attractive than paying cash, even if you have the capital available, because it preserves working capital while still delivering the full tax benefit.

Coco Finance Broking works with Kariong business owners to structure equipment finance in a way that fits both your cashflow and your tax position. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions