What Not to Do When Financing Restaurant Equipment

Buying restaurant kitchen equipment ties up cash you might need elsewhere in the business.

Whether you're opening a new venue in Bellevue Hill or upgrading an existing kitchen, equipment finance lets you spread the cost over time while keeping working capital available for fit-outs, stock, and wages. The structure you choose affects your cashflow, tax position, and what happens to the equipment at the end of the term.

Chattel Mortgage vs Hire Purchase

A chattel mortgage means you own the equipment from day one and use it as security for the loan. You claim the full GST upfront, depreciate the asset, and deduct interest as a business expense. At the end of the term, you own the equipment outright with no further payments.

Hire Purchase means the lender owns the equipment until the final payment is made. You can't claim the GST upfront, but the regular payments are still tax deductible. Ownership transfers to you at the end of the term, often with a small final payment.

Consider a restaurateur replacing a commercial oven, dishwasher, and coolroom. If they use a chattel mortgage with a five-year term, they own the equipment immediately, claim back the GST in the next BAS, and start depreciating the asset. Monthly repayments are fixed, and the interest component is deductible. If they choose Hire Purchase instead, the GST is built into the monthly payment and claimed progressively, which may suit a business with limited cashflow in the early months.

Matching the Loan Term to Equipment Life

Finance terms typically range from one to seven years, depending on what you're buying.

Heavy commercial kitchen equipment like ovens, grills, and coolrooms often suit a five-year term because the equipment lasts longer and holds residual value. Shorter-lived items like coffee machines or point-of-sale systems might suit a three-year term so you're not still paying off equipment that's already been replaced.

If you finance a $60,000 fit-out over seven years but plan to refresh the kitchen in four, you're left paying for equipment you've already written off or replaced. Matching the term to the realistic working life of the asset keeps repayments manageable without extending debt beyond the useful period.

Don't Underestimate the Loan Amount You Need

Restaurant equipment costs include more than the sticker price.

You'll also need to cover delivery, installation, electrical or plumbing work, and sometimes certification or compliance costs. If you only finance the equipment itself and pay for installation separately, you may drain the working capital you were trying to preserve.

In our experience, buyers who finance the full project cost, including fit-out and ancillary expenses, manage cashflow more effectively than those who split the costs across multiple funding sources. Lenders will generally finance equipment and associated costs as part of a single facility if the total amount is reasonable relative to the business income.

Tax Deductibility and Depreciation

Most commercial kitchen equipment qualifies as plant and equipment, which means you can claim depreciation and deduct the interest on the finance.

Under a chattel mortgage, you depreciate the full purchase price of the equipment over its effective life. The interest you pay on the loan is also deductible. Under Hire Purchase, you can't depreciate the asset because you don't own it until the final payment, but the lease payments themselves are deductible.

If you're operating a business in Bellevue Hill with strong early revenue and taxable income, a chattel mortgage may offer a larger upfront deduction. If cashflow is tighter and you'd rather spread the tax benefit over time, Hire Purchase may suit your position. Your accountant will confirm which structure aligns with your broader tax strategy, but the finance structure should support that outcome rather than dictate it.

Buying Used Equipment

Lenders will finance second-hand commercial kitchen equipment, but the terms are usually shorter and the deposit requirement may be higher.

Used equipment is valued based on age, condition, and how much working life remains. A five-year-old commercial oven might only qualify for a three-year loan term because the lender needs to ensure the equipment outlasts the debt. Some lenders won't finance equipment over a certain age or with unclear service history.

If you're considering used equipment to reduce upfront cost, confirm the finance terms before committing to the purchase. A lower purchase price doesn't help if the loan term is so short that repayments become unaffordable.

What Lenders Look at When Assessing Equipment Finance

Lenders assess the business income, trading history, and the equipment itself.

If you've been operating for more than two years and can show consistent revenue, you'll generally have access to a wider range of finance options. Newer businesses may still qualify, particularly if the equipment is essential to generating income and the business plan is realistic.

The equipment acts as security, so lenders also consider its resale value. Standard commercial kitchen items like ovens, fridges, and prep benches are straightforward to finance. Highly specialised equipment with limited resale appeal may require a larger deposit or personal guarantee.

If you're self-employed or operating through a company structure, lenders will ask for recent financials, BAS statements, and sometimes a director's guarantee. The application process is generally quicker than a commercial property loan, but you'll still need to demonstrate serviceability.

Fixed Monthly Repayments and Cashflow

Equipment finance is structured with fixed monthly repayments, which makes budgeting predictable.

You know exactly what's due each month, and the repayment amount doesn't change if interest rates move. This suits businesses where margins are tight and unexpected cost increases create problems.

If you're opening a new venue or undergoing a major refit, spreading equipment costs over several years protects your working capital and keeps cash available for stock, wages, and marketing. The alternative, paying cash upfront, might leave you undercapitalised during the critical early months when revenue is still building.

Call one of our team or book an appointment at a time that works for you. We'll confirm which finance structure suits your situation, walk through the numbers, and help you set up the facility before you need to place the order.

Frequently Asked Questions