Equipment Finance for Tradies: Financing Tools, Machinery and Vehicles

Whether it's a new excavator, a concrete pump, or a ute kitted out for the job, the equipment tradies rely on rarely comes cheap, and buying it outright can tie up cash you need for materials, wages and the next job. Here's how equipment finance actually works for tradies.

The decision usually gets made under time pressure, because the gear is needed for a job that starts in a fortnight. That is exactly when people sign whatever the dealer puts in front of them. The structure you pick affects your GST, your deductions, what sits on your balance sheet and what happens at the end of the term, and none of it is easy to change once the contract is executed.

Why finance equipment instead of buying outright

Cash flow stays free. Instead of one big hit to your working capital, you spread the cost over the equipment's useful life. Cash stays available for the day-to-day running of the business.

Match the cost to the earning. Financing lets the equipment start paying for itself through the jobs it wins you, rather than sitting as a sunk cost before it's even earned a dollar.

Keep pace with tech and compliance. Machinery and vehicle standards move. Financing rather than buying outright can make it easier to upgrade every few years rather than being stuck with ageing gear.

The honest counterweight is that finance costs more in total than paying cash, because you are paying for the money as well as the machine. The test is whether the gear earns more than the finance costs, and whether the cash you keep is doing something useful in the business. If a machine will sit idle half the year, financing it does not fix that. It just spreads the cost of a decision that did not stack up.

The two structures you'll come across most

Chattel mortgage. You own the equipment from day one, the lender holds it as security. Suits businesses that want the asset on their books and are on cash accounting for GST.

Commercial hire purchase (CHP). The lender owns it until the final payment, you get full use of it the whole time. Suits businesses that prefer their GST claims spread across the term rather than upfront.

(We've covered the detailed differences in our guide to chattel mortgage, hire purchase, lease or rental if you want the full breakdown.)

Two more show up often enough to know. Under a finance lease the financier owns the asset and leases it to you with a residual amount owing at the end, the payments are generally deductible to the extent of business use, and the GST sits inside the payments rather than arriving up front. Under a rental or operating lease you use the gear and hand it back, never owning it, which suits equipment that dates faster than it wears out.

Which one suits a work ute?

It depends on what you want at the end. A ute you intend to run into the ground usually points toward owning it. Gear that gets swapped on a cycle points toward a structure where handing it back is the plan rather than a disappointment. Be aware too that a vehicle classed as a car for tax purposes is treated differently to plant and equipment, with a cap on the cost you can depreciate and a matching limit on the GST credit. Your accountant will tell you which side of that line your vehicle falls on.

What you can usually fund, and what you cannot

Most lenders will fund the machine plus the things that make it usable: attachments, a tipper hoist, a crane, a body, a fitout, delivery and installation. Ask about it up front. Finding the finance covers the excavator but not the buckets, a week before the job starts, is an avoidable problem.

What gets harder is very old gear, highly specialised equipment with a thin resale market, and anything being bought privately. Private sales are not off the table, but expect more questions, sometimes an inspection or valuation, and a PPSR search, which is a check of the national register of security interests to confirm the gear is not carrying someone else's finance. Buy a machine with an undischarged security on it and the financier can come for the machine, not for the person who sold it to you.

One practical note on amounts. Where the full GST inclusive price is financed, some businesses use the GST credit, once it comes through, to make an early lump payment against the loan or to reduce a balloon. Whether that is available to you depends on your registration and accounting basis, so raise it with your accountant before you set the loan amount.

What lenders look at for tradie equipment finance

Commercial assessment is about the business, the people behind it and the asset as security. The three below are the ones that come up first, and the rest of the list follows close behind.

• ABN age and business trading history. Newer businesses may face more scrutiny or need additional documentation
• The equipment itself. New gear from a known brand is typically easier to finance than older, second-hand machinery
• Cash flow evidence. Recent BAS statements or financials showing the business can service the repayments
• GST registration, and how long you have held it
• The entity type, whether you trade as a sole trader, a company or through a trust
• Existing commitments, including other equipment finance and any guarantees already given
• The credit file of the directors or the sole trader, including recent enquiries
• Whether a director owns property, which some lenders weigh in the assessment

Do I need a deposit?

Not always. Some commercial lenders will look at funding the full amount for an established business with a clean file and the right asset, while a newer business, an older machine or a private sale can all bring a deposit requirement into play. A deposit reduces what you borrow and therefore what you pay in interest, so even where none is required it can be worth putting something in.

Low-doc options

For businesses that don't have a full set of financials ready, or that are newer to trading, low-doc equipment finance is available through some lenders. Usually with a trade-off of a higher rate or a larger deposit in exchange for less paperwork.

Low doc leans on BAS statements, bank statements and a declaration rather than full financial statements, and it is priced to reflect the lighter verification. It usually carries conditions of its own around time in business, the age and type of the asset, and sometimes property ownership by a director. If your accountant has current financials done, going full doc is normally the cheaper path. If they are a year behind, the real choice is between waiting and accepting low doc terms now.

The tax angle

Equipment finance often comes with genuine tax advantages. Interest and depreciation can be deductible, and instant asset write-off provisions have applied in various forms over the years. The specifics change with policy, so this is one to confirm with your accountant against your current financial year rather than assume from general guidance.

The pattern to understand is that the structure changes what you deduct and when the GST lands. Where you are treated as buying the asset, the deductions are typically split between depreciation on the asset and the interest on the finance, and the GST on the purchase is dealt with as an input tax credit on your BAS. Where the financier owns the asset and you are paying to use it, the deduction is more likely to sit in the payment itself, with the GST spread through those payments.

All of that depends on your GST registration, your accounting basis, the wording of the contract and the rules in force for that type of agreement, and the hire purchase rules in particular have been amended over the years. Send the draft contract to your accountant before you sign it. That conversation is cheap. Restructuring after the fact is not.

Balloons on equipment finance

A balloon is a lump sum left owing at the end of the term. It lowers the monthly payment by pushing part of the debt to the finish line, which helps cash flow but generally means more total interest, because more of the balance stays outstanding for longer.

An example, with round figures that are illustrative only. If a $30,000 balloon brings the monthly payment down on a machine, the question is not whether the lower payment is nicer. It is what the machine will be worth when the $30,000 falls due, and whether you intend to pay it, refinance it or sell the gear to clear it. Equipment with a long working life and a good resale market carries a balloon comfortably. Gear that will be tired and superseded by then does not.

What to have ready

Most of the delay in equipment finance is document delay rather than credit decision. Having this together before you start tends to take days out of the process.

• ABN, entity details and GST registration status
• Your most recent BAS lodgements
• Business bank statements covering recent months
• Financials and tax returns if you are going full doc
• A written quote or tax invoice, itemising attachments, delivery and fitout
• Serial numbers, build year and hours on used machinery
• Director identification, a current address and a list of existing commitments
• A PPSR search on anything being bought privately
• Your accountant's view on the structure, before the contract is signed

Before you sign anything

Compare City runs equipment finance across a full panel of lenders who deal with tradies every day, so you're not stuck with the one option your equipment dealer happens to push.

Work out the gear, the term and the structure first, because those three decide what a rate is even being applied to. Then compare like with like: the same term, the same deposit, the same balloon, and the total cost including establishment and ongoing fees rather than the headline rate alone. Commercial finance is not required to be quoted with a comparison rate the way a consumer loan is, so the fees are on you to ask about. The cheapest looking quote and the cheapest quote are often not the same document.

More on equipment finance and business vehicle finance.