A commercial kitchen runs on reliable equipment, and when a combi oven, blast chiller, or dishwasher needs replacing, the upfront cost can put pressure on your cashflow at exactly the wrong time.
Most business owners we work with assume they need to choose between paying cash or accepting whatever finance the supplier offers. Neither option makes sense when equipment finance is structured properly. The difference between a well-set-up agreement and one that locks you in for too long or costs more than it should often comes down to a handful of decisions made before you sign.
Choosing the wrong finance structure for your equipment type
The structure you choose should match how long the equipment will stay productive in your kitchen. A chattel mortgage works when you want to own the equipment outright and claim depreciation, which suits most commercial ovens, fridges, and extraction systems that will last seven to ten years. A finance lease makes more sense for equipment that you'll replace on a shorter cycle, such as point-of-sale systems or small appliances that need upgrading every three to four years.
Consider a cafe owner replacing a three-group espresso machine and grinder. The equipment cost $22,000, and the business wanted to own it outright to claim the instant asset write-off. A chattel mortgage over four years with fixed monthly repayments preserved working capital while allowing the business to claim the full GST upfront and depreciate the asset. If that same owner had chosen a lease, they would have missed the depreciation benefit and paid more overall.
The life of the equipment should guide the term. Financing a dishwasher over seven years when it will need replacing in five leaves you paying for equipment that's already been retired.
Ignoring the GST treatment and tax benefits
GST treatment changes depending on which structure you use, and getting this wrong costs you either upfront cash or ongoing tax deductions. With a chattel mortgage or hire purchase, you can claim the GST on the equipment cost upfront if you're registered for GST. With a finance lease, you claim GST on each lease payment as you make it, which spreads the benefit over the term but doesn't require the same initial outlay.
Depreciation works differently again. Under a chattel mortgage, you own the asset and can depreciate it according to ATO rules, or use the instant asset write-off if your business qualifies and the equipment falls under the threshold. A finance lease means the lender owns the asset, so you can't claim depreciation, but the lease payments are typically fully tax-deductible as an operating expense.
A restaurant in Fremantle upgrading its entire cold room and refrigeration system for $95,000 used a chattel mortgage and claimed the instant asset write-off in the same financial year, which reduced taxable income and improved cashflow at tax time. The same business considered an operating lease but would have foregone the depreciation benefit entirely, which didn't suit their longer ownership plans.
Accepting vendor finance without comparing loan terms
Suppliers and dealers often offer finance at the point of sale, and it feels convenient to sign everything in one transaction. Vendor finance or dealer finance is not always structured in your favour. The interest rate may be higher than what you'd access through a broker, and the term may be longer than the equipment's productive life, which means you're still paying off a fridge that's already been replaced.
The loan amount, interest rate, and any balloon payment need to be compared against what's available through asset finance options from banks and lenders across Australia. A balloon payment can lower your fixed monthly repayments, but it also means a lump sum is due at the end of the term, which can disrupt cashflow if it's not planned for.
We regularly see hospitality businesses that accepted vendor finance on a full kitchen fitout without questioning the rate or term, only to realise halfway through that they're paying 9% when they could have secured 6.5% through a different lender. The convenience of signing on the spot cost them thousands over the life of the agreement.
Overlooking how the finance term affects your upgrade cycle
Kitchen equipment doesn't all age at the same rate, and your finance term should reflect that. Financing a commercial oven over five years makes sense. Financing a laptop, tablet-based POS system, or small prep equipment over the same term means you're paying for outdated technology long after it's been replaced.
If your business relies on staying current with equipment standards, particularly in food safety or energy efficiency, a shorter term or an operating lease with a planned upgrade cycle gives you more flexibility. Locking yourself into a seven-year agreement on equipment that will be obsolete in four doesn't preserve capital, it wastes it.
The structure should also account for how you manage cashflow. Fixed monthly repayments help with budgeting, but if your revenue is seasonal or variable, a longer term with lower repayments and a balloon payment might suit better, provided you plan for that final lump sum.
Not reviewing collateral requirements and approval conditions
Most commercial equipment finance is asset-based, meaning the equipment itself acts as collateral. That works well for high-value items like combi ovens, blast chillers, or refrigeration systems. For smaller or mixed purchases, some lenders may ask for additional security or a director's guarantee, particularly if your business is newer or doesn't have strong financials.
Understanding what the lender requires before you apply means you're not caught off guard during approval. If you're financing multiple items at once, such as a full kitchen fitout, the lender may treat it as a single loan amount with one interest rate, or they may split it into separate agreements depending on the equipment type and supplier.
Balloon payments can help reduce the monthly cost, but they also mean you're carrying a liability that needs to be refinanced or paid in full at the end of the term. If that amount is significant and your business hasn't planned for it, it can force you into another finance agreement under pressure, which rarely results in favourable terms.
Call one of our team or book an appointment at a time that works for you. We'll review your equipment needs, compare finance options from lenders across Australia, and structure an agreement that suits your business, your cashflow, and your ownership plans.
Frequently Asked Questions
What's the difference between a chattel mortgage and a finance lease for kitchen equipment?
A chattel mortgage means you own the equipment and can claim depreciation and the GST upfront, while a finance lease means the lender owns it and you claim GST on each payment. Chattel mortgages suit equipment you want to own long-term, while leases work better for shorter upgrade cycles.
Can I claim the instant asset write-off on financed kitchen equipment?
Yes, if you use a chattel mortgage or hire purchase and your business meets the ATO eligibility criteria. You can't claim it under a finance lease because the lender owns the asset, not your business.
Should I accept vendor finance when buying commercial kitchen equipment?
Not without comparing it to other options. Vendor finance can be convenient, but the interest rate and terms may not be competitive with what's available through a broker or directly from lenders.
How long should I finance commercial kitchen equipment for?
The term should match the equipment's productive life. Most commercial ovens, fridges, and dishwashers suit four to seven-year terms, while technology-based equipment like POS systems should be financed over shorter periods to match upgrade cycles.
What does a balloon payment mean for my kitchen equipment finance?
A balloon payment reduces your fixed monthly repayments by deferring a lump sum to the end of the term. You'll need to either pay it in full, refinance it, or trade in the equipment when the term ends, so plan for it in advance.
