Equipment finance or a business loan: how to choose

The most common mistake with equipment is borrowing generally to buy something specific. The second most common is borrowing specifically when the need is general. Getting the match right affects what you pay, what you own at the end and whether your other assets stay free for other funding later.

How does equipment finance differ from a general business loan?

Equipment finance funds a particular asset. The asset is the security. If repayments stop, the funder’s remedy is to repossess and sell that asset.

A general business loan puts money in your account to use as you see fit. Whether it’s secured depends on the product: it may be unsecured, secured on property, or backed by a director guarantee.

	Equipment finance	General business loan
Purpose	One identified asset	Anything for the business
Security	The asset itself	Property, a guarantee, or none
Funder’s main question	What would the asset sell for?	Can the business repay from cash flow?
Flexibility	Low: money goes to the supplier	High: money goes to you
Typical term	Matched to the asset’s life	Set by loan type and amount

Which structure is right: lease, hire purchase or loan to buy?

business.gov.au explains the basic split. When you lease, the leasing company owns the item and you pay to use it; upfront costs are generally lower, but monthly payments and fees can add up to about the same as a loan. When you buy with a loan, you end up owning the item, and it’s generally used to secure the loan. When you buy outright, you own from day one.

For vehicles, business.gov.au points out that you can claim a vehicle as your own business asset if you buy it with a loan, whereas you cannot when leasing. GST credits on vehicles used for business may be claimable if you’re registered for GST, partly where use is mixed.

Your accountant is the right person to decide which structure suits your tax position. The point here is to compare structures on total dollars paid and what you own at the end, rather than on the weekly figure alone. Our guide to total cost in dollars shows how.

When does equipment finance win?

• You have a specific supplier quote for a defined asset.
• The asset has a decent resale market, which makes it good security.
• You want to keep property and other assets free for other funding.
• The repayment term can be matched to the asset’s useful life.

Illustrative example only. A landscaping firm needs a second tipper truck. A supplier quote exists, the truck will earn from day one, and the firm doesn’t want to put a property on the line. Equipment finance, secured on the truck, matches the need closely.

When does a general loan win?

• The need is broader than one asset: fit-out, stock, hiring, a bundle of equipment, or working capital.
• The asset would be hard to finance alone: highly customised, very old, or bought privately.
• You want cash in hand to negotiate with suppliers or buy at auction.
• You already hold security that can carry the amount; see property-secured loans.

If you can’t tell which side you’re on, describe the purchase to us and a specialist will say which structure a funder is likely to prefer.

What about the instant asset write-off?

The ATO states that the $20,000 instant asset write-off is permanent from 1 July 2026. It applies to each asset costing less than $20,000 and to businesses with aggregated annual turnover under $10 million, with the deduction available in the income year the asset is first used or installed ready for use.

Treat that as a tax conversation. Whether a deduction helps depends on your profits and your accountant’s advice, and a tax benefit isn’t a reason to take on a funding structure that doesn’t suit you.

What does a sensible term look like for an asset?

The principle is to repay faster than the asset wears out. A vehicle that will be worn out in six years should not carry a debt that lasts eight. A computer that will be obsolete in three should not be financed for five. Where a longer term is chosen to reduce each repayment, the saving is real but so is the risk that you will owe more than the asset is worth, which makes selling or replacing it awkward.

Ask your supplier or funder for the asset’s expected useful life in your trade, and then build the term from that. If the repayment looks too high for the shorter term, consider a larger deposit, a cheaper asset or a used one that suits the job, rather than stretching the term.

How should you think about balloon or residual payments?

Some structures lower the repayments by leaving a final amount due at the end. That can suit a business that plans to trade the asset in or refinance, but it needs a plan: where will the final amount come from, and what if the asset is worth less than expected? Treat the balloon as a real debt due on a real date, not as a footnote. Include it when you add up the total cost, as the guide on total cost in dollars explains.

What are the risks on either side?

• Depreciation outruns the debt. If the term is longer than the asset’s useful life, you may still owe money on something worn out.
• Over-borrowing. A general loan is easy to spend; an asset loan is tied to the purchase.
• Hidden clauses. Early termination fees, residual payments and end-of-lease conditions matter more than the weekly figure.
• Security clashes. Asset finance sits as a registered security interest on the PPSR; a bank holding a general claim may need to agree. See combining funding routes.

Which should you pick?

Pick equipment finance when the need is one named asset and you want to keep other security free. Pick a loan when the need is broader or the asset can’t carry the funding alone. When you can’t decide, tell us the whole picture. The enquiry takes about a minute with no credit check, and your details won’t be circulated to a crowd of lenders; a real person will talk you through it. Accurate answers on what you’re buying and what you already owe mean a better first match. See if you qualify.