What is Machinery Finance?

Machinery finance is the act of borrowing money from a lender, in order to purchase an otherwise unaffordable piece of equipment. This equipment could be a vehicle (for example a tractor or a forklift), or it could be a set of accessories for an office. 

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    Published On Date 06/12/2021 by Dana Boyd

    Unlike leasing, which is the technical term used in Australia for renting machinery until it’s either paid off or no longer required, a machinery loan will allow the borrower to receive money from their lender and then pay back what is owed over time while having ownership of the machinery. A number of banks and other financial institutions offer this lending possibility, though there is a range of equipment finance options borrowers can choose from. Choosing the right approach for your business will depend on a range of factors including your financial situation, taxation needs and budget. We would recommend discussing this with your accountant or financial adviser before deciding on which approach you take.

    How Does Machinery Financing Work?

    Machinery finance gives you access to whatever important equipment you need without having to pay for it upfront. Instead, you can receive the funds you need from a bank or lender and then work to pay off your purchase over a set repayment period. In other words, you get all the benefits of ownership before you actually own the equipment. However, there are several different financing options you can choose to go with, including chattel mortgage, a hire purchase, finance lease or operating lease.

    How Does Machinery Leasing Differ?

    For those that would prefer not to take out a loan, there will always be the option to sign up to a leasing agreement instead. Machinery leasing companies work in much the same way as those offering machinery financing options – but instead of requiring the need for a vehicle or piece of equipment to be paid off over time, a lease will allow the borrower to use their asset for as long as they need; acting as a rental agreement in many respects.

    Which Method Is Better?

    For those hoping to own their purchased asset when they have finished repaying what they owe, then a financing arrangement might be the better option to pursue. In a case where a lease may be sufficient – or even long term usage of an asset like a car for example, then an applicant might be better off applying for leasing instead. Ultimately, the decision to purchase or finance equipment will depend on discussions you have with your accountant.

    As machinery financing works by allowing an individual to take out a loan and pay off what they owe over time; they can be a great way to purchase assets for a business, without any need to cater to an early expense using their own cash.


    Getting finance to purchase machinery means that you don’t need to pay for it upfront. You can receive the purchase price funds required from a lender and pay it back over a specified period while having use of the equipment for your business.


    It is a convenient way to finance machinery without having to make a large capital outlay that could impact your cash flow or balance sheet.

    The main benefit of financing the purchase of machinery is that you can invest in your business without tying up capital or impacting your cash flow. It means you can acquire the equipment without having to provide the funds yourself and then repay them over time. This helps to avoid the risks of having such a large capital expenditure on your balance sheet.


    Both large and small businesses use equipment financing as a way to make large capital expenditures while managing their cash flow and the company’s balance sheet. It allows you to acquire machinery for your business whilst also avoiding the uncertainties that are associated with large capital expenditures.

    There are four main types of loans available for machinery financing:


    • Finance Lease. In this type of financing the machinery is owned by you (the lessee) and is not on your balance sheet. Payments made in full for its financing are tax-deductible. At the end of the finance term, the machinery is returned to the finance provider (the lessor) or purchased by you for an agreed price.
    • Operating Lease. In this type of financing the machinery is owned by the lessor and is not on your balance sheet. Payments made in full for its financing are tax-deductible. At the end of the finance term the machinery can be returned to the lessor or purchased by you for an agreed price.
    • Commercial Hire Purchase. In this type of financing the machinery is owned by you and is categorised as on your balance sheet. In this type of financing, only the interest portion of your payments is tax-deductible but you can claim depreciation costs for the machinery. At the end of the finance term you own the machinery (although in some cases a final, residual payment may be required).
    • Chattel Mortgage. This type of financing is like a traditional secured loan where the machinery acts as security for the loan. Like the previous financing method, the machinery is owned by you, the interest component is tax-deductible and you can claim for depreciation costs. At the end of the finance term, you own the machinery outright.


    The type of financing you choose for your machinery will depend on your specific business needs including the tax implications of payments and depreciation costs, whether you want it on your balance sheet, and whether you want to have ownership of the machinery the end of the finance term (and whether you have to make an additional payment).

    Applying for a loan to finance the purchase of your machinery couldn’t be easier. Simply complete the form at https://equipmentloansonline.com.au/application-for-finance and a broker will be in touch with you to discuss your machinery finance needs.

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