Chattel Mortgage, Finance Lease or Hire Purchase: How to Choose

Once you have decided to finance a piece of equipment rather than pay cash, the real decision is the structure: chattel mortgage, finance lease, hire purchase or operating lease. The four look similar on a monthly-repayment basis and behave very differently on ownership, GST timing, tax deductions and your balance sheet. Pick the wrong one and you can forfeit an upfront GST credit, miss an instant asset write-off, or end up paying for an asset that is already obsolete.

This guide is the comparison. If you are past the comparison and want the product — what it costs, who qualifies and how to apply — go straight to our business equipment finance page, where Velociti Capital funds $5,000 to $2,000,000 with a conditional offer in 30–60 minutes and no property security.

Below: what the four structures share, how each one works, a side-by-side table, what they look like across construction, transport, healthcare, manufacturing and hospitality, the tax treatment, and how to choose.

The Common Ground

Every one of the four structures is a lending arrangement that allows a business to acquire, use, or upgrade physical assets without paying the full purchase price upfront. The equipment itself typically serves as security for the finance, which means the lender has a claim on the asset if the borrower defaults. This built-in security generally makes equipment finance more accessible and competitively priced than unsecured business loans, because the lender’s risk is reduced.

The core concept is straightforward: a lender provides funds (or the asset itself) and the business makes regular repayments over an agreed term, which usually aligns with the expected useful life of the equipment. At the end of the term, depending on the finance structure, the business either owns the equipment outright, has the option to purchase it at a residual value, or returns it.

Equipment finance in Australia is regulated under the National Consumer Credit Protection Act (for consumer lending) and the Australian Securities and Investments Commission (ASIC) framework, though business-purpose lending has different requirements than consumer lending. Most equipment finance for business use falls outside the National Credit Code, meaning the regulatory requirements are less prescriptive, but responsible lending practices still apply.

The Four Structures, One by One

There are four primary structures in Australia. Each has different implications for ownership, tax treatment, cash flow, and balance sheet reporting. Understanding the differences is essential for choosing the right option.

Chattel Mortgage

A chattel mortgage is a loan secured against a specific moveable asset (the “chattel”). The business takes ownership of the equipment from day one, and the lender registers a mortgage over the asset on the Personal Property Securities Register (PPSR). Once the loan is fully repaid, the mortgage is discharged and the business holds unencumbered title to the equipment.

Key features:

• The business owns the equipment from settlement
• Fixed or variable interest rates over a set term (typically 2 to 7 years)
• Monthly repayments of principal and interest
• A balloon or residual payment can be structured at the end to reduce monthly repayments
• GST on the purchase price can be claimed on the next Business Activity Statement (BAS)
• Interest and depreciation are tax-deductible

Chattel mortgages are popular with businesses registered for GST because the GST on the full purchase price is claimable upfront, even though the loan is repaid over several years. This provides an immediate cash flow benefit.

Finance Lease

Under a finance lease, the lender (lessor) purchases the equipment and leases it to the business (lessee) for an agreed term. While the lender holds legal title during the lease term, the business has effective control and use of the asset. At the end of the term, the business can typically purchase the equipment at a pre-agreed residual value, extend the lease, or return the equipment.

Key features:

• The lender owns the equipment during the lease term
• Fixed lease payments over the agreed term
• A residual value is set at the start (usually 10% to 40% of the purchase price)
• The business claims GST on each lease payment rather than upfront
• Lease payments are tax-deductible as an operating expense
• The asset and corresponding liability appear on the balance sheet under AASB 16

Finance leases suit businesses that want to spread their GST obligations across the lease term rather than claiming upfront, or those that prefer the flexibility of a residual payment at the end.

Hire Purchase

Hire purchase is similar to a chattel mortgage in outcome but structured differently. The finance company purchases the equipment and hires it to the business over an agreed term. Ownership transfers to the business once all payments, including any residual, have been made. Until that final payment, the finance company retains title.

Key features:

• The finance company owns the equipment until all payments are complete
• Fixed repayments over the term, often with a residual or balloon payment
• GST is claimable upfront on the full purchase price (for GST-registered businesses)
• Interest and depreciation are tax-deductible
• The asset appears on the business’s balance sheet from the start

The practical difference between a hire purchase and a chattel mortgage is mainly about the timing of legal ownership transfer. For many businesses, the day-to-day experience is effectively the same.

Operating Lease (Rental)

An operating lease is a true rental arrangement. The business pays to use the equipment for a set period, and the lender retains ownership throughout. At the end of the term, the equipment is returned. There is no option to purchase, and the business never takes ownership.

Key features:

• The lender owns the equipment at all times
• Lease payments are generally lower than other finance structures
• The full lease payment is a tax-deductible operating expense
• Under AASB 16, most leases (including operating leases over 12 months) now appear on the balance sheet
• Suited to equipment that becomes obsolete quickly or is only needed temporarily
• No residual risk — the business is not responsible for the asset’s value at end of term

Operating leases are common for technology equipment, company vehicles, and other assets that depreciate rapidly or where regular upgrades are important.

Equipment Finance Comparison

Feature	Chattel Mortgage	Finance Lease	Hire Purchase	Operating Lease
Ownership during term	Business	Lender	Lender	Lender
Ownership at end of term	Business	Purchase option	Business (after final payment)	Returned to lender
GST claim	Upfront on full price	On each payment	Upfront on full price	On each payment
Tax deduction	Interest + depreciation	Lease payments	Interest + depreciation	Lease payments
Balance sheet treatment	Asset + liability	Asset + liability (AASB 16)	Asset + liability	Asset + liability (AASB 16, if >12 months)
Residual/balloon	Optional	Required	Optional	N/A
Best for	GST-registered businesses wanting ownership	Businesses preferring flexibility	Similar to chattel mortgage	Short-term or rapidly depreciating assets

Equipment Types by Industry

Equipment finance is not limited to a single type of asset. Almost any tangible business asset with a defined useful life and resale value can be financed. Here is what this looks like across key Australian industries.

Construction and Civil Works

The construction sector is one of the largest users of equipment finance in Australia. Asset costs are high, project timelines are variable, and the equipment is essential to winning and completing contracts.

Common financed assets include:

• Earthmoving equipment: Excavators, backhoes, loaders, bulldozers, and skid steers. A mid-size excavator can cost $150,000 to $500,000 or more
• Cranes and lifting equipment: Mobile cranes, tower cranes, and telehandlers
• Concrete equipment: Concrete pumps, mixers, and batch plants
• Vehicles: Tippers, flatbed trucks, and utes fitted out for site work
• Power and access equipment: Generators, compressors, elevated work platforms, and scaffolding systems

For construction businesses, the ability to finance equipment can be the difference between tendering for larger projects and being limited to smaller jobs. A builder who can deploy an additional excavator or crane immediately — financed rather than paid outright — can take on work that would otherwise go to a competitor.

Transport and Logistics

Transport businesses have some of the highest capital requirements in the Australian economy. A single new prime mover can cost $200,000 to $400,000, and most transport operations require a fleet.

Common financed assets include:

• Prime movers and trucks: From light rigid trucks to B-double prime movers
• Trailers: Flatbeds, curtain-siders, refrigerated trailers, tippers, and tankers
• Delivery vehicles: Vans and light commercial vehicles for last-mile delivery
• Warehouse equipment: Forklifts, pallet jacks, conveyor systems, and racking
• GPS and fleet management systems: Telematics hardware and tracking technology

Transport operators often use chattel mortgages or hire purchase arrangements because they want ownership of the asset and the ability to claim depreciation. The long useful life of well-maintained trucks (10+ years) aligns well with medium-term finance terms.

Healthcare and Allied Health

Healthcare businesses face significant equipment costs, particularly as diagnostic and treatment technology becomes more sophisticated.

Common financed assets include:

• Medical imaging: X-ray machines, ultrasound units, CT and MRI scanners
• Dental equipment: Chairs, autoclaves, digital imaging systems, and CAD/CAM milling units
• Veterinary equipment: Surgery tables, anaesthesia machines, and diagnostic instruments
• Physiotherapy and rehabilitation: Shockwave therapy devices, laser therapy units, and rehabilitation machines
• Practice fit-outs: Reception furniture, consulting room equipment, and patient management hardware

A dental practice investing in a digital impression scanner and CAD/CAM unit might spend $80,000 to $150,000. Financing this over 5 years keeps the practice’s cash available for wages, rent, and consumables while the equipment generates revenue from day one.

Manufacturing

Manufacturers often rely on expensive, specialised machinery that represents the core productive capacity of the business.

Common financed assets include:

• CNC machines: Lathes, mills, routers, and laser cutters
• Production lines: Assembly equipment, packaging machines, and conveyors
• Welding and fabrication: MIG/TIG welders, plasma cutters, press brakes, and guillotines
• 3D printing and additive manufacturing: Industrial 3D printers for prototyping and production
• Quality control: Coordinate measuring machines (CMMs), testing equipment, and inspection systems

For manufacturers, equipment financing can also support upgrades that improve efficiency. Replacing an older manual machine with a CNC equivalent might double output capacity. Financing the upgrade means the increased revenue from higher production can effectively service the loan.

Hospitality and Food Services

Hospitality businesses operate on tight margins and depend heavily on commercial kitchen and service equipment.

Common financed assets include:

• Commercial kitchen equipment: Ovens, fryers, grills, cool rooms, and dishwashers
• Coffee machines: Commercial espresso machines can cost $10,000 to $30,000
• Fit-out and furniture: Seating, bar fit-outs, and front-of-house fixtures
• Point-of-sale systems: POS hardware and integrated payment terminals
• Refrigeration: Walk-in cool rooms, display fridges, and blast chillers

A cafe opening a second location might need $100,000 or more in kitchen equipment alone. Financing this equipment allows the business to open sooner and start generating revenue, rather than saving for months or years to pay cash.

Tax Treatment of Equipment Finance

The tax treatment of equipment finance is one of the most important considerations for Australian businesses. The right structure can significantly reduce the effective cost of the equipment.

Instant Asset Write-Off

The Australian Government’s instant asset write-off scheme has been one of the most impactful tax measures for small and medium businesses in recent years. Under this scheme, eligible businesses can deduct the full cost of an eligible asset in the income year the asset is first used or installed ready for use.

Key points for the 2025-26 financial year:

• Small businesses (aggregated turnover under $10 million) can instantly write off assets costing less than $20,000 each
• The threshold applies to each individual asset, not the total spend
• The asset must be first used or installed ready for use within the relevant income year
• Second-hand assets are eligible, provided they meet the threshold
• The write-off applies to the business portion of the asset’s cost

It is important to note that the instant asset write-off threshold and eligibility rules have changed multiple times in recent years. During the COVID-era temporary full expensing measures, businesses with turnover up to $5 billion could write off assets of any value. Those measures have since ended, and the current thresholds are more modest. Always check the ATO website or consult your accountant for the rules applicable to the current financial year, as these thresholds are subject to change in each federal budget.

How the instant asset write-off interacts with equipment finance:

• Chattel mortgage and hire purchase: The business claims the write-off because it is treated as the owner of the asset for tax purposes. If the asset costs less than the threshold, the full cost can be deducted immediately
• Finance lease: Whether the lessee or lessor claims the deduction depends on the specific terms. Generally, if the lease transfers substantially all the risks and rewards of ownership, the lessee can claim depreciation
• Operating lease: The lessee does not claim depreciation because it does not own the asset. Instead, lease payments are deducted as an operating expense

Depreciation

For assets that exceed the instant asset write-off threshold, businesses can claim depreciation over the asset’s effective life as determined by the ATO. The two methods available are:

• Diminishing value method: A higher deduction in the early years, decreasing over time. The formula is: base value multiplied by (days held / 365) multiplied by (200% / effective life in years)
• Prime cost (straight-line) method: An equal deduction each year over the asset’s effective life. The formula is: cost multiplied by (days held / 365) multiplied by (100% / effective life in years)

The ATO publishes a detailed ruling (TR 2024/3 and related determinations) setting out the effective life of depreciating assets by category. For example, a general-purpose computer has an effective life of 4 years, while a concrete truck has an effective life of 10 years.

GST Considerations

For GST-registered businesses, the GST treatment differs depending on the finance structure:

• Chattel mortgage and hire purchase: The business claims the full GST credit on the purchase price in the BAS period when the equipment is acquired. This provides an upfront cash flow benefit
• Finance lease and operating lease: GST is included in each lease payment, and the business claims the GST credit progressively as each payment is made

The difference can be material. On a $100,000 piece of equipment, claiming the $10,000 GST credit upfront (chattel mortgage) versus over 5 years of lease payments affects cash flow in the early stages of the arrangement.

Where Pricing and Eligibility Come In

Structure moves price. A chattel mortgage or hire purchase, where the equipment secures the loan, generally prices below finance with no asset security, and a lease’s residual shows up in the payment rather than the rate. Beyond that, every lender weighs the same things: the asset’s age and resale strength, your trading history and cash flow, existing commitments, and the term and residual you choose. Whichever structure you pick, compare the total cost of finance — rate plus fees and any residual — rather than the advertised rate alone; a lower rate with a large residual can cost more over the life of the arrangement than a higher rate with none.

What Velociti Capital actually charges, the eligibility criteria, the documents you need and the four-step application are all on the money page: see equipment finance rates and eligibility. That is the place to go once you have picked a structure.

How to Choose the Right Structure

Selecting the right finance structure is not just about getting the lowest rate. The best option depends on your specific business circumstances, tax position, and how you intend to use the equipment.

Consider Your Tax Position

If your business is GST-registered and you want to claim the full GST credit upfront, a chattel mortgage or hire purchase is usually the better choice. If spreading the GST claim over time suits your cash flow better, a finance lease or operating lease may be more appropriate.

If your business is eligible for the instant asset write-off, a chattel mortgage gives you the clearest path to claiming the full deduction in the year of purchase. Discuss the specifics with your accountant before committing, as the interaction between the write-off, depreciation, and your overall tax position can be complex.

Evaluate the Equipment’s Useful Life

Match the finance term to how long you expect to use the equipment. If you are financing a piece of machinery you will use for 10 years, a 5-year finance term makes sense — you will have years of use after the finance is paid off. If you are financing technology that will be outdated in 3 years, an operating lease with a shorter term and no residual risk may be the better option.

Assess Your Cash Flow

Consider how the repayment structure affects your monthly cash flow:

• A longer term reduces monthly payments but increases total interest paid
• A balloon or residual payment reduces monthly payments but requires a lump sum at the end of the term
• Daily or weekly repayments may suit businesses with frequent revenue (such as retail or hospitality), while monthly repayments suit businesses with monthly invoicing cycles

Ownership vs Flexibility

If you want to own the equipment outright and build equity in your asset base, a chattel mortgage or hire purchase is the right choice. If you prefer the flexibility to upgrade regularly or want to avoid holding depreciating assets on your balance sheet (noting AASB 16 changes), a lease structure may suit better.

Compare Total Cost

Always compare the total cost of the finance arrangement, not just the interest rate or monthly payment. Factor in:

• Total interest paid over the term
• Any establishment, documentation, or ongoing fees
• The residual or balloon payment amount and timing
• Insurance costs (some lenders require comprehensive insurance on financed equipment)
• Early repayment penalties, if applicable

Common Mistakes to Avoid

Financing Equipment You Do Not Need Yet

It can be tempting to finance equipment in anticipation of growth that has not materialised. Borrowing to acquire an asset that sits idle means you are making repayments without generating a return. Finance equipment when you have a clear and immediate need, or when you have strong evidence that demand is imminent (such as a signed contract or confirmed project).

Ignoring the Total Cost of Ownership

The purchase price is only part of the picture. Equipment also has ongoing costs including maintenance, consumables, insurance, operator training, and eventually disposal or decommissioning. A cheaper piece of equipment that breaks down frequently or requires expensive parts may cost more over its lifetime than a higher-quality alternative.

Choosing the Wrong Finance Structure for Your Tax Position

As discussed, the tax treatment varies significantly between finance structures. Choosing a structure without understanding the tax implications — or without consulting your accountant — can mean missing out on legitimate deductions or creating unexpected tax liabilities.

Not Shopping Around

Equipment finance is a competitive market in Australia, with banks, specialist equipment financiers, and alternative lenders all offering products. Rates, fees, terms, and flexibility vary significantly between lenders. Getting quotes from multiple providers gives you leverage and ensures you are not overpaying.

Overlooking the Fine Print

Pay close attention to:

• Early repayment terms: Some lenders charge significant penalties for repaying early. If there is a chance you may want to pay off the finance ahead of schedule, negotiate favourable early repayment terms upfront
• End-of-term obligations: For leases, understand exactly what happens at the end of the term. Are there return conditions, make-good obligations, or fees?
• Default provisions: Know what constitutes a default and what the consequences are, including whether the lender can repossess the equipment and whether you remain liable for any shortfall
• Insurance requirements: Most equipment finance agreements require the asset to be comprehensively insured for the duration of the term. Factor this cost into your calculations

Stretching the Term Too Long

While a longer term reduces monthly payments, it also means paying more interest over the life of the loan. Worse, if the equipment’s useful life is shorter than the finance term, you could end up making payments on equipment that is no longer productive or has been replaced. Aim for a finance term that is no longer than the asset’s expected useful working life.

Next Steps

Once you know which structure fits — ownership and the upfront GST credit, or flexibility and a residual — the rest is a lending decision. Our business equipment finance page covers what it costs, who qualifies, the documents to have ready and how to apply, or you can apply now and have a conditional offer back in 30–60 minutes. If you would rather talk it through first, get in touch with our team.