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Financing new equipment funds an asset you don't own yet. Refinancing equipment you already own uses it as security to release working capital. Here's how each works.
Equipment finance funds the purchase of an asset your business doesn’t own yet, with the new asset as security. Equipment refinancing uses equipment you already own, outright or with equity, as security to release working capital. Lenders weigh the business’s ability to repay in both cases, but refinancing puts more weight on the age, condition and resale value of the asset.
Most business owners are familiar with the idea of financing a new equipment purchase. Fewer realise that equipment already sitting in their business, whether fully paid off or still being financed, may also be a source of working capital through refinancing.
The two processes are related but work differently.
Financing a new equipment purchase
When a business finances the purchase of new equipment, the lender provides funds to acquire an asset the business does not yet own. The asset then acts as security for the loan. The lender assesses the value of the equipment, the creditworthiness of the business and its ability to service the repayments over the agreed term.
The structure can take several forms, including a chattel mortgage, finance lease or hire purchase, each with different implications for ownership, tax and GST. The right choice depends on how the asset will be used and the business’s tax position.
| Chattel mortgage | Hire purchase | Finance lease | |
|---|---|---|---|
| Who owns the equipment during the term | Your business | The lender | The lender |
| Ownership at the end | Already yours once the loan is repaid | Passes to you on the final payment | Lender keeps it unless you pay the residual or agree to buy it |
| Balloon or residual | Optional | Optional | Residual usually applies |
| Typical tax treatment | Business may claim depreciation and interest | Business may claim depreciation and interest | Lease payments may be deductible |
| GST | GST-registered businesses can generally claim GST on the purchase price upfront | Talk to your accountant | GST is included in each lease payment |
Tax and GST treatment depends on your business structure, accounting method and how the asset is used, so check the details with your accountant before you choose. Our guide on how to use asset finance to upgrade equipment without draining cash goes through the cash flow side.
Refinancing equipment you already own
Refinancing existing equipment works differently. Rather than funding a new purchase, the business uses an asset it already owns as security to unlock working capital. The lender assesses the current market value of the equipment and may provide a loan against a portion of that value. The business receives a cash injection it can use for other purposes, while making repayments on the new facility over time.
This is sometimes called asset refinancing or equity release on equipment. A fleet of vehicles, manufacturing machinery or specialist equipment owned outright for several years may represent capital that could be put to better use elsewhere in the business.
Refinancing can take a few forms:
- A loan secured against owned equipment, usually structured as a chattel mortgage.
- A sale and leaseback, where the business sells the equipment to a finance provider and leases it back, receiving cash while continuing to use the asset.
- Refinancing equipment still under finance, where a new lender pays out the existing loan and may release some of the equity above the payout figure.
What lenders look at in each case
For a new equipment purchase, lenders focus primarily on the business’s ability to service the loan and the value of the asset being acquired. For refinancing existing equipment, the condition, age and marketability of the asset become more significant factors, as the lender needs confidence that the asset holds sufficient value to support the loan. Older or highly specialised equipment may attract a lower loan-to-value ratio than newer, more marketable assets.
In both cases, the trading history and financial health of the business are assessed. Strong, consistent revenue and well-maintained financial records generally support a more straightforward application. Your credit history matters too. Our article on how to improve credit scores for equipment finance approval covers what lenders check.
| New equipment finance | Equipment refinance | |
|---|---|---|
| Purpose | Buy an asset you don’t own yet | Release cash from an asset you already own |
| Security | The equipment being purchased | Equipment the business already owns |
| Main lender focus | Ability to repay and value of the new asset | Ability to repay plus the age, condition and resale value of the asset |
| Use of funds | Paid to the supplier for the asset | Working capital or other business purposes |
| Typical structures | Chattel mortgage, hire purchase, finance lease | Chattel mortgage, sale and leaseback, refinance of existing loan |
When refinancing existing equipment makes sense
Asset refinancing tends to be most useful when a business needs working capital but does not want to take on unsecured debt or dilute ownership. It can also be a practical option for businesses looking to fund a new opportunity without waiting to build up cash reserves, or for those navigating a short-term cash flow challenge who have assets available to support a facility.
It is not the right solution for every situation, but for businesses with owned equipment, it is a funding option worth understanding. Before you go ahead, weigh up:
- the total cost of the new facility, including fees, against other funding options
- whether the term of the loan matches the remaining useful life of the equipment
- what happens to the equipment if repayments become difficult
- whether a revolving facility such as a business line of credit or invoice finance suits the cash need better
Businesses planning their next round of purchases can also read about the instant asset write-off and FY27 equipment finance planning, equipment finance strategies for business growth planning and the cash flow planning mistakes that cost Australian SMEs. Manufacturers will find more in the benefits of asset finance for Australian manufacturers.
Compare equipment finance and refinance options
A finance broker can help you compare your options across both new equipment finance and asset refinancing products, and other cash flow finance if refinancing isn’t the right fit. Attain Loans is a business finance broker in Melbourne’s west that compares equipment and working capital finance across its lender panel, subject to each lender’s assessment.
This article is general information only and doesn’t take into account your objectives, financial situation or needs. Consider whether it’s appropriate for you and speak with a licensed professional, including your accountant, before making a decision.
Further questions
What is equipment refinancing?
Can I refinance equipment that is still under finance?
What is the difference between a chattel mortgage and hire purchase?
What is a sale and leaseback?
What equipment can be refinanced?
This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
