Guide · 6 min read
Equipment Finance vs Unsecured Business Loan: How to Choose
Buying equipment for your business? Here's how to decide between the two main financing options — and when each one works better.
If you're buying equipment for your business — a vehicle, a machine, fit-out, technology — you'll likely be choosing between two financing options: equipment finance or an unsecured business loan. The right answer isn't always obvious.
Here's a clear breakdown of how each works, what it costs, and which businesses should use which.
How equipment finance works
Equipment finance (also called asset finance or chattel mortgage) uses the equipment itself as security for the loan. You take ownership of the asset immediately, but the lender holds a registered interest in it until the loan is repaid.
Because the loan is secured against the asset, lenders take on less risk — which typically means lower interest rates, longer repayment terms, and higher loan amounts compared to unsecured lending.
A common structure: you buy a $120,000 vehicle, put down 10–20%, and finance the rest over three to five years at a rate that reflects the asset's value and your business profile.
At the end of the term, the security interest is released and you own the asset outright.
How an unsecured loan works for equipment
An unsecured business loan gives you capital with no asset pledged as security. You can use it for anything — including buying equipment. The lender assesses your creditworthiness based on your business cash flow and trading history, not the value of what you're buying.
You borrow a lump sum, make fixed repayments, and the asset is yours from day one with no encumbrance.
The key differences
| Equipment Finance | Unsecured Loan | |
|---|---|---|
| Security required | The equipment itself | None |
| Interest rates | Generally lower | Generally higher |
| Loan term | Up to 5–7 years | 3–36 months |
| Loan amount | Up to full asset value | Based on revenue (1–3x monthly) |
| Approval speed | 1–3 business days | Often same-day or next day |
| Asset ownership | Lender holds interest until repaid | You own the asset immediately, unencumbered |
| Tax treatment | Depreciation + interest deductible | Interest deductible |
| Application requirements | Asset details + financials | Bank statements only |
When equipment finance is the better choice
The asset has a long useful life
A commercial vehicle, CNC machine, or large piece of plant equipment will be productive for five, seven, or ten years. Financing over a term that matches the asset's working life makes the repayment structure sensible.
You want the lowest possible rate
The security of the asset means equipment finance rates are lower than unsecured rates. On a $100,000 purchase, the difference in total interest cost over the loan term can be significant.
The purchase amount exceeds your unsecured borrowing limit
Unsecured loans are capped at roughly 1–3x your monthly revenue. Equipment finance is based on the asset's value — you can borrow more relative to your revenue.
Tax structuring matters
Equipment finance structures like chattel mortgage allow you to claim the GST component upfront (if registered for GST) and depreciate the asset over time. Your accountant can confirm whether this suits your tax position.
When an unsecured loan is the better choice
Speed matters more than cost
Equipment finance can take two to five days. Unsecured loans through non-bank lenders can be approved the same day. If you need to move quickly — to secure a tender, meet a deadline, or take advantage of a supplier deal — an unsecured loan gets you there faster.
The equipment is difficult to value or finance as an asset
Some equipment doesn't fit neatly into equipment finance: IT infrastructure, fit-outs that become part of a leased property, specialised machinery with a thin resale market. Lenders won't finance assets they can't easily recover and resell. An unsecured loan has no such restriction.
You want a clean, unencumbered asset from day one
With equipment finance, the lender holds a registered security interest over the asset until it's paid off. You can't sell it, dispose of it, or use it as security for other finance without the lender's consent. An unsecured loan leaves your asset unencumbered from purchase.
The amount is small and the term is short
For a $15,000 purchase you plan to pay off in 12 months, the rate difference between equipment finance and an unsecured loan may not be significant — and the faster, simpler approval process of unsecured lending is worth more.
The tax angle: briefly
Both structures allow you to deduct the interest component of repayments as a business expense. Equipment finance adds the ability to claim depreciation on the asset (reducing taxable income over the asset's useful life) and the potential upfront GST claim.
For high-value asset purchases, the tax treatment of equipment finance can meaningfully reduce the net cost. Talk to your accountant about this before choosing.
What most businesses actually do
In practice, businesses often split the difference: use equipment finance for the large, long-lived assets (vehicles, plant, machinery) and unsecured lending for smaller purchases, working capitalneeds, and anything that doesn't fit neatly into an asset finance structure.
If your total requirement is, say, $200,000 — $120,000 for a vehicle and $80,000 for cash flow — structuring them as two separate facilities often gets you better terms on each than trying to fit everything into one product.
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Apply in two minutes. A specialist will recommend the right structure — equipment finance, unsecured loan, or a combination — based on what you're buying and your business profile.
Apply now — it's freeAvoir connects Australian businesses with specialist non-bank lenders for both equipment finance and unsecured business loans. We are not a lender or credit provider. All credit decisions are made independently by our lending partners.