A new excavator, ute, workshop machine or specialist tool can help a business take on more work, but it also raises a fair question: does equipment finance require security? In many cases, yes – but the security is often the equipment you are buying, rather than your home or another unrelated asset. The exact arrangement depends on the lender, the equipment, your business position and the type of finance selected.
Understanding this before you apply makes the process clearer and helps avoid surprises at approval or settlement.
Does equipment finance require security?
Most equipment finance in Australia is secured. This means the lender takes a security interest in the financed equipment until the loan or agreement is fully paid out. If repayments are not met and the issue cannot be resolved, the lender may have the right to repossess and sell the asset to recover the outstanding balance.
For many borrowers, this is the practical part of equipment finance. The asset itself – whether it is a skid steer, crane, trailer, commercial mower, manufacturing machine or other business equipment – supports the lending decision. Because the lender has security over an asset with a measurable value, secured finance can often offer sharper pricing and longer terms than finance with no security.
The lender will generally register its interest on the Personal Property Securities Register, commonly called the PPSR. This records that the lender has a claim over the equipment while the finance remains in place. Once the facility is paid out, the lender should release that registration.
Security does not automatically mean your other personal or business assets are tied up. The agreement should clearly set out exactly what the lender is taking security over. That is why it pays to read the finance documents carefully and ask direct questions before signing.
When the equipment is enough security
For straightforward applications, the equipment being purchased may be the only security required. This is common when the asset is new or near-new, readily saleable and priced in line with what the lender is comfortable funding.
A lender will look at the equipment’s age, condition, make, model and expected resale value. A late-model piece of yellow gear from a recognised manufacturer, for example, is usually easier to use as security than a highly specialised machine with a narrow resale market. Likewise, standard workshop equipment may be simpler to fund than custom-built equipment that would be difficult to sell quickly.
The amount you want to borrow matters too. If you are contributing a deposit or trading in existing equipment, the lender may be funding a lower percentage of the purchase price. That lower exposure can strengthen an application. It can also reduce the chance that extra security will be requested, although every lender assesses this differently.
For an established business with a sound repayment history and a sensible equipment purchase, asset-only security is often achievable. It is not a guarantee, but it is a common structure.
When a lender may ask for more than the asset
There are situations where the equipment alone may not give a lender enough comfort. This does not necessarily mean an application will be declined. It may simply mean the lender asks for another form of support or adjusts the terms offered.
A personal guarantee is one of the most common examples. If a company is borrowing, a lender may ask its directors to personally guarantee the business’s obligations. This means the guarantor can become responsible for the debt if the company cannot meet its repayments. A personal guarantee is a serious commitment, so it should be understood clearly before proceeding.
A lender may also seek a general security agreement over business assets, particularly for larger facilities or where the asset has limited resale value. This can give the lender security over certain present and future property of the business, subject to the agreement’s terms. It is a broader arrangement than security over one machine or vehicle.
Extra security or support is more likely where:
- the equipment is older, unusual or difficult to resell;
- the amount financed is high compared with the asset’s value;
- the borrower is a new business or has limited trading history;
- the equipment is being purchased privately rather than from a recognised dealer;
- the repayment amount is high relative to the business’s demonstrated income; or
- there are existing finance commitments that affect servicing capacity.
None of these points automatically rules out finance. They help explain why two businesses buying similar equipment may receive different lender requirements.
Security is different from a deposit
A deposit and security are often discussed together, but they do different jobs. Security is what the lender can rely on if the finance is not repaid. A deposit is your upfront contribution towards the purchase.
Some equipment finance options can be arranged with no deposit, provided the application and equipment meet lender criteria. Others may require a deposit to reduce the amount borrowed or to cover costs outside the lender’s maximum advance. For example, a lender may be comfortable funding the equipment itself but not delivery, installation, modifications or accessories in full.
Putting in a deposit may improve the strength of an application, but it does not remove the lender’s security interest in the equipment. The asset will usually remain secured until the agreement is finalised.
The finance product changes how security works
The term equipment finance covers several structures, and the legal ownership of the asset can vary between them.
With a chattel mortgage, the borrower generally owns the equipment from the start while the lender takes a mortgage over it as security. This is a familiar option for many businesses purchasing vehicles, machinery and commercial equipment.
With a finance lease, the lender typically owns the asset and leases it to the business for an agreed period. The business has use of the equipment while making lease payments, and end-of-term options depend on the agreement.
Under a hire purchase arrangement, the financier retains ownership until the contract conditions are met, while the customer has possession and use of the equipment. Whatever structure is used, the lender’s interest in the asset is central to the arrangement.
The best option is not always the one with the lowest advertised rate. Term length, repayments, residual or balloon amounts, ownership preferences and the type of equipment all need to suit how your business operates.
Can equipment finance be unsecured?
Unsecured business funding can sometimes be used for equipment purchases, but it is not the standard approach for a major asset purchase. Without specific security over the equipment, a lender takes on more risk. That may result in a shorter term, a lower borrowing limit, higher pricing or more detailed assessment of your business cash flow.
For lower-cost equipment, fast-moving purchases or assets that do not hold their value well, unsecured funding may be worth considering in the right circumstances. For a substantial ute, piece of construction equipment or income-producing machine, secured equipment finance is often the more practical fit because the term can better match the working life of the asset.
Questions to ask before accepting an offer
Before you sign, make sure you know what is being secured and who is taking on the obligation. Ask whether the lender is relying only on the equipment, whether a director guarantee is required, and whether a general security agreement is part of the proposal.
It is also worth confirming the total amount financed, repayment frequency, term, any balloon or residual amount, and whether insurance is required. Most lenders will expect comprehensive insurance for higher-value equipment, with their interest noted on the policy. This protects both the borrower and lender if the asset is damaged or written off.
A clear answer upfront is far better than discovering an extra condition late in the process. A broker can compare lender requirements across a panel and explain the security terms in plain English before you commit. Rivercity Finance helps Australian businesses assess equipment finance options without unnecessary complexity, from application through to settlement.
The right security structure should support the purchase, not create uncertainty around it. If you are planning to finance equipment, start by being clear about the asset, the amount required and how it will generate income. That gives you the best basis for finding a facility that fits your business and keeps the process moving.