Working Out What You Can Actually Afford Before You Buy
Start with what you can pay each month without pinching your cashflow, not what the dealer says you can borrow. Your monthly repayment capacity determines your loan amount, and that figure needs to fit comfortably alongside your other business costs, your personal drawings, and a buffer for slow months.
Consider a carpenter who brings in roughly $12,000 a month after materials and subcontractors. If wages, rent, insurance, and personal drawings take up $9,000, that leaves $3,000. Putting $1,200 toward a commercial vehicle finance repayment might seem workable until you factor in fuel, servicing, and the weeks when jobs run late or invoices sit unpaid. Dropping that repayment to $800 keeps the business breathing when revenue dips.
Work backwards from what you can afford to repay, then calculate what that buys you. Most lenders use a debt service coverage ratio of at least 1.2, meaning your available cashflow should cover repayments by 20% or more. If your monthly surplus is $1,500, aim for repayments around $1,250 or lower to leave room for the unexpected.
Fixed Monthly Repayments and Balloon Payments Change Your Options
A fixed monthly repayment structure spreads the cost evenly across the term, but a balloon payment at the end reduces those monthly amounts and frees up cashflow during the life of the lease. A $60,000 excavator financed over five years at current rates might cost around $1,300 monthly with no balloon, or closer to $950 monthly with a 30% balloon. That $8,400 difference over the year matters when you're managing payroll and seasonal work.
Balloon payments suit businesses that expect cashflow to improve or plan to trade the equipment before the balloon is due. If you're financing construction equipment that you'll upgrade after three years, a balloon makes sense. If you're buying office equipment you'll use until it dies, paying it off fully avoids a lump sum you might not have when the term ends.
Your deposit also shifts the numbers. Putting down 20% instead of 10% on a $50,000 truck drops your loan amount by $5,000, which might save you $100 to $150 monthly depending on your rate and term. That adds up to $1,800 over 18 months, which could cover a set of tyres or a service interval.
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Depreciation and Tax Benefits Lower Your Real Cost
The upfront cost of equipment isn't what it actually costs your business once you factor in depreciation and the GST treatment that applies to most asset finance structures. A chattel mortgage lets you claim the full GST on the purchase price upfront if you're registered, and you can write down the asset's value through depreciation each year.
A $40,000 work vehicle might depreciate at 25% in the first year under diminishing value, giving you a $10,000 deduction. If your business sits in the 25% tax bracket, that deduction saves you $2,500 in tax. Add the GST refund of roughly $3,636 if you're registered, and your real outlay drops to around $33,864 before you even make your first repayment. That's not a small difference when you're deciding whether to buy now or wait another year.
Different finance structures treat tax differently. A finance lease doesn't put the asset on your balance sheet, so you claim the repayments as an operating expense instead of depreciation. That can suit businesses that want to keep debt off their books or prefer not to own the equipment long-term. A hire purchase structure works more like a chattel mortgage, where you own the asset and claim depreciation.
Talk to your accountant before you commit to a structure, because the tax outcome changes your real cost and might swing your decision between leasing and buying.
Matching the Finance Term to How Long You'll Actually Use It
Financing a piece of equipment over five years when you'll replace it in three leaves you paying for something you've already sold or traded. Match your term to your realistic upgrade cycle so you're not stuck with repayments on gear that's sitting in your yard or already moved on.
In one scenario, a concreter financed a trailer and pump over seven years because the longer term brought the monthly cost down. Three years in, the pump failed and wasn't worth repairing. The business still owed $22,000 on equipment it couldn't use, and refinancing the payout into a new purchase meant doubling up on repayments. If the term had matched the expected lifespan of the pump at four years, the payout would have been closer to $8,000 and far less painful to roll into the replacement.
Shorter terms cost more per month but save on interest and get you out of the loan faster. A $30,000 fit-out for hospitality equipment finance over three years might run $950 monthly, while stretching it to five years drops it to $600. That $350 saving each month costs you several thousand in extra interest over the term, and if your fit-out is outdated in four years, you're paying for equipment you've already replaced.
Know how long the equipment will stay useful in your business, and don't stretch the term beyond that point just to lower the monthly number.
Leaving Room for Other Costs That Come With New Equipment
Buying equipment doesn't stop at the repayment. Registration, insurance, servicing, and consumables all come out of your cashflow, and underestimating those costs can turn an affordable purchase into a cashflow problem.
A truck financed through commercial vehicle finance might cost $1,100 monthly, but registration could add another $1,200 annually, insurance another $2,400, and servicing another $1,500. That's $5,100 a year on top of repayments, or roughly $425 a month. If you budgeted for the repayment but not the extras, you're $425 short every month.
Some lenders let you roll registration and insurance into the loan amount, which spreads the cost and keeps your upfront cashflow intact. That increases your total loan and your interest, but it avoids the lump sum hit when those bills arrive. Whether that suits you depends on whether you'd rather pay more over time or find the cash upfront.
Factor in the full cost of owning and running the equipment, not just the repayment, before you decide what you can afford.
Building a Buffer Into Your Budget for When Work Slows
Your repayments don't stop when the phone goes quiet. A budget that works when you're flat out falls apart when work dries up for a month or two, and that's when businesses get into trouble.
If your monthly turnover swings between $8,000 and $18,000 depending on the season, budget your equipment repayments against the low months, not the high ones. That might mean financing $35,000 instead of $50,000, or stretching the term to bring the monthly cost down, but it also means you won't be scrambling to cover repayments when invoices are late or jobs get postponed.
Some lenders offer seasonal repayment structures where you pay more in busy months and less in slow ones, which can help if your income follows a clear pattern. That's more common in agricultural finance than construction equipment finance, but it's worth asking about if your cashflow is predictable but uneven.
Your budget should reflect the reality of your income, not the best month you've ever had.
Why Vendor Finance and Dealer Finance Aren't Always the Right Move
Dealer finance is fast and feels convenient because you can sort it at the point of sale, but it often locks you into one lender's rate and structure without comparing what else is available. Vendor finance works the same way, and both tend to cost more than going through a broker who can access asset finance options from banks and lenders across Australia.
A plumber financing a $25,000 van through the dealer might get approved at 9.5% over five years, while a broker could place the same deal at 7.8% with a different lender. That difference costs roughly $1,700 over the life of the loan, which is real money that could go toward tools or a second vehicle.
Dealer finance also tends to push longer terms and higher loan amounts because the salesperson earns commission on the total financed. That's not always in your interest, especially if a shorter term or smaller loan would keep your cashflow healthier.
Get your finance sorted before you walk into the dealership so you know what you can afford and you're not relying on whatever the dealer offers.
Call one of our team or book an appointment at a time that works for you. We'll help you work out what fits your budget, what structure makes sense for your business, and how to keep your cashflow healthy while you grow.
Frequently Asked Questions
What should I budget for before applying for equipment finance?
Budget for what you can afford to repay each month after covering wages, rent, insurance, personal drawings, and a buffer for slow periods. Work backwards from that monthly amount to determine your loan amount, and factor in extra costs like registration, insurance, and servicing on top of your repayment.
How does a balloon payment change my monthly repayments?
A balloon payment reduces your monthly repayments by deferring a lump sum to the end of the term. For example, a 30% balloon on a $60,000 loan might drop your monthly cost from $1,300 to $950, but you'll need to pay or refinance that balloon when the term ends.
Should I match my finance term to how long I'll use the equipment?
Yes, matching your term to your realistic upgrade cycle avoids paying for equipment you've already replaced. Financing over seven years when you'll replace the gear in three leaves you with repayments on equipment you no longer own or use.
Why is dealer finance often more costly than using a broker?
Dealer finance locks you into one lender's rate without comparing other options, and it often comes at a higher rate. A broker can access multiple lenders and typically secures a lower rate, which can save you thousands over the life of the loan.
How do depreciation and GST lower the real cost of equipment?
You can claim depreciation on the asset each year and recover GST upfront if you're registered, which reduces your real outlay. A $40,000 vehicle might give you a $10,000 depreciation deduction in year one and a $3,636 GST refund, dropping your cost to around $33,864 before repayments.
