What Finance Options Exist for Purchasing Tools?
Most tool purchases can be funded through a chattel mortgage, hire purchase agreement, or commercial equipment finance arrangement. Each structure treats ownership, tax, and repayment differently, so the right one depends on whether you want immediate ownership, how you manage cashflow, and what your accountant recommends for depreciation.
A chattel mortgage gives you ownership from day one. You borrow the loan amount, buy the tools outright, and repay the lender with fixed monthly repayments over an agreed term, usually one to seven years. At the end, you own the equipment with no further obligations. Because you own the tools, you can claim depreciation and the interest portion of each repayment as a business expense. If you include a balloon payment at the end of the term, your monthly repayments drop, which helps manage cashflow during the repayment period.
Hire purchase works differently. The lender owns the tools until the final payment is made, then ownership transfers to you. You still get to use the equipment throughout the agreement, and the structure often appeals to businesses that want to spread the cost without committing capital upfront. Repayments are fixed, and once the term ends, the tools are yours. The GST treatment differs slightly from a chattel mortgage, so it's worth discussing with your accountant before committing.
Consider a Perth plumber buying a new set of pipe threading machines, a van fitout with racking, and a high-end camera for scope work. The total outlay is around $45,000. Rather than depleting working capital, they arrange a chattel mortgage over five years with a 20% balloon payment. The fixed monthly repayments come in at roughly $750, and the balloon payment of $9,000 is due at the end. The plumber claims depreciation on the full value from year one, and the interest portion of each repayment is deductible. When the term ends, they either pay the balloon from retained earnings or refinance it if cashflow is tight.
How Do Chattel Mortgages and Hire Purchase Compare for Tax?
With a chattel mortgage, you own the tools immediately, so you can claim the full depreciation each year according to the effective life set by the Australian Taxation Office. For many tool categories, that means a write-off over several years, or in some cases, an immediate deduction if the instant asset write-off threshold applies and your business qualifies. The interest you pay is also deductible, which reduces the true cost of the finance.
Under a hire purchase, you do not own the tools until the final payment, so the depreciation treatment is handled differently. Your accountant will typically treat the repayments as a lease expense or amortise the cost over the term. The end result can be similar, but the timing of deductions shifts. If your business benefits from accelerated depreciation or you want to maximise deductions early, a chattel mortgage usually delivers more flexibility.
GST also plays out differently. With a chattel mortgage, you pay GST upfront on the purchase price and claim the input tax credit in that quarter, assuming you are registered for GST. With hire purchase, GST is often included in each repayment, so the credit is spread across the life of the lease. For a business buying $30,000 worth of tools, that GST difference can affect your BAS significantly in the first quarter.
What Tools and Equipment Qualify for Asset Finance?
Almost anything your business needs to operate can be financed, from hand tools and power equipment to work vehicles, specialised machinery, office equipment, and medical equipment. Lenders assess the equipment based on its useful life, resale value, and whether it generates income or supports a revenue-generating activity.
Construction equipment finance covers everything from excavators, graders, cranes, and dozers through to smaller items like compactors, generators, and laser levels. A builder expanding into civil works might finance a skid steer and trailer package, while an electrician could fund a new van, test equipment, and cable pullers under the same arrangement.
Hospitality equipment finance applies to commercial ovens, cool rooms, espresso machines, and point-of-sale systems. Technology equipment finance can cover servers, photography kits, video editing suites, and CAD workstations. If the equipment has a clear business use and retains value, it is usually financeable.
How Does a Balloon Payment Affect Monthly Repayments?
A balloon payment is a lump sum due at the end of the finance term, separate from your regular repayments. Including one reduces your fixed monthly repayments, which can help preserve working capital during the life of the lease. The Australian Taxation Office sets maximum balloon payment percentages based on the term length, typically ranging from 20% to 50% depending on the structure and asset type.
If you finance $40,000 worth of tools over four years with no balloon, your monthly repayment might sit around $950 depending on the interest rate. Add a 30% balloon payment of $12,000, and the monthly repayment drops to roughly $720. That $230 difference each month can matter when you are funding payroll, materials, and other overheads.
When the balloon is due, you have three options: pay it from retained earnings, refinance it over a new term, or sell the equipment and use the proceeds to clear the balance. In our experience, businesses that plan for the balloon from the outset treat it as a known expense and either save for it or time it with a planned upgrade cycle.
What Role Do Vendor Finance and Dealer Finance Play?
Vendor finance and dealer finance are arrangements where the supplier or manufacturer provides the funding, often at a promotional rate or with deferred payments. These offers are common at trade shows, product launches, and end-of-financial-year sales. While the headline rate can look attractive, the terms are not always as flexible as commercial equipment finance from a broker who can access Asset Finance options from banks and lenders across Australia.
A dealer might offer 0% interest for 12 months on a $20,000 tool package, but require a 30% deposit and limit the term to two years. If your cashflow works with that structure, it can be a practical option. If you need a longer term, a lower deposit, or a balloon payment, you will likely need to look at a chattel mortgage or hire purchase arranged through a broker.
The advantage of working with a broker is choice. We regularly see scenarios where a client is quoted one rate and term by a dealer, then qualifies for a lower rate or longer term through a different lender once we submit the application. The equipment is the same, but the structure and cost differ.
How Does Equipment Finance Preserve Capital for Business Growth?
Paying cash for tools means that capital is no longer available for other uses. If you spend $50,000 on equipment, that is $50,000 you cannot allocate to stock, wages, marketing, or unexpected repairs. Financing the purchase spreads the cost over time, so you keep more cash in the business and retain the ability to respond to opportunities or cover short-term gaps.
Consider a Perth-based landscaping business buying a new truck, trailer, excavator, and tractor to take on larger council contracts. The combined cost is $180,000. Paying cash would wipe out most of the operating account and leave the business exposed if a client delays payment or a machine breaks down. Instead, they arrange commercial vehicle finance and construction equipment finance with a five-year term and a 25% balloon. The monthly repayment is around $3,200, which the new contracts more than cover, and the business retains $150,000 in working capital to manage labour, fuel, and materials.
The same principle applies to smaller purchases. A mobile mechanic financing $15,000 worth of diagnostic tools and a van fitout over three years keeps that capital available for insurance, licensing, and the first few months of operation when income is less predictable.
When Should You Consider Leasing Instead of Purchasing?
A finance lease or operating lease can make sense when you want access to the latest equipment without the commitment of ownership, or when the equipment has a short upgrade cycle. Under a lease, you make regular payments for the right to use the tools, and at the end of the term, you either return them, upgrade to newer models, or purchase them at a residual value.
Leasing works well for technology equipment that becomes outdated quickly, or for businesses that prefer predictable costs and do not want to manage resale. A fitout company leasing CAD workstations and large-format printers might prefer a three-year operating lease with an upgrade option, rather than owning equipment that loses value and capability over time.
The trade-off is cost. Leasing is usually more expensive than buying over the long term, but it shifts the risk of obsolescence to the lessor and keeps your business current. If you are in a field where equipment capability directly affects competitiveness, leasing can be worth the premium.
How Do Lenders Assess Tool Finance Applications?
Lenders look at the equipment being financed, the business financial position, and your ability to service the repayment. For established businesses, that means reviewing recent BAS statements, profit and loss reports, and bank statements to confirm income and cashflow. For newer businesses, lenders might place more weight on the equipment itself, treating it as collateral that can be recovered if the loan defaults.
The type of equipment matters. A lender is more confident financing a new excavator or commercial vehicle with strong resale value than a custom-built tool specific to one niche task. General-use equipment with a broad market is approved more readily and often attracts lower interest rates.
If your business has impaired credit or limited trading history, some lenders will still consider the application but may require a larger deposit, charge a higher rate, or limit the term. We work with businesses across the spectrum, and access to multiple lenders means we can usually find a structure that fits, even if the first option says no.
Call one of our team or book an appointment at a time that works for you. We will walk through your equipment needs, compare the finance options, and arrange a structure that keeps your business moving without tying up capital you need elsewhere.
