A quick guide to the main equipment finance structures and how each is treated.
Buying equipment outright ties up cash you could use elsewhere in the business. Finance spreads the cost, but the structure you choose affects ownership, cash flow and how the asset is treated at tax time. Here's the plain-English version of the three main options.
Chattel mortgage
You own the asset from day one, and the lender registers security over it — similar to a home loan. Repayments can be structured with a balloon at the end to keep monthly costs down. It's the most popular structure for GST-registered businesses, as you can generally claim the GST on the purchase price upfront.
Finance lease
The lender owns the asset and you pay to use it over an agreed term. At the end you can usually make an offer to buy it, upgrade to new equipment, or hand it back. Leasing keeps assets off your balance sheet and suits businesses that refresh equipment regularly.
Hire purchase
A middle ground: you hire the asset over the term and own it automatically once the final payment is made. GST is generally claimed progressively rather than upfront, which changes the cash-flow picture compared to a chattel mortgage.
Which one is right?
It comes down to three questions: do you want to own the asset, how long will you keep it, and what does your accountant say about your tax position? The repayments between structures are often similar — the differences show up at tax time and at the end of the term.
- Want ownership and upfront GST? Chattel mortgage
- Want to upgrade regularly? Finance lease
- Want ownership with simpler accounting? Hire purchase
The bottom line
Always speak with your accountant before choosing a structure — the right answer depends on your tax position. Once that's settled, a broker can compare lenders to sharpen the rate and terms.
