Mining equipment finance lets you buy machinery now and pay for it over a set term, using the asset itself as security. The structure you choose changes your repayments, your end-of-term position and your flexibility, so it pays to compare options before you sign.
This article is for Mandurah and Australia-wide business owners, including contractors who supply machines to mine sites in regions such as the Pilbara and Goldfields. It explains how the main structures work and what each one costs you.
How Does Mining Equipment Finance Work?
Mining equipment finance is a loan or lease used to buy machinery such as excavators, graders, loaders or cranes. The machine is usually the security, so the lender can repossess it if repayments stop.
Because the asset secures the debt, these loans often sit apart from your home loan or other borrowing. Lenders may take the age and type of the machine into account. Our equipment finance team can explain how lenders view the specific machine you are buying.
The trade-off is that the loan ties you to repayments whether or not a contract is running. If a site shuts or a contract ends, the repayments continue.
Chattel Mortgage, Finance Lease or Rental: Which Structure Suits?
A chattel mortgage gives you ownership of the machine from the start, while a finance lease or rental means the lender owns it during the term. The right choice depends on whether you want to keep the machine, how you want to handle the end of the term and how your accountant advises you to treat it.
With a chattel mortgage, you borrow to buy the machine and the lender holds security over it. You carry the maintenance and resale risk. With a lease or rental, the lender owns the asset, and at the end you may return it, upgrade or pay a residual to keep it. The cost is that you may not build equity in the machine in the same way.
Tax treatment differs between structures and depends on your circumstances. Speak with your accountant before choosing, as we do not provide tax advice. Our asset finance page covers these structures in more detail.
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Equipment Finance Repayments: A Balloon Example
A balloon, or residual, lowers your regular repayments by leaving a lump sum due at the end of the term. It also means you still owe that lump sum when the loan finishes.
The figures below are illustrative only and use an example rate of 6.75% p.a. Your actual rate will depend on your lender, the machine and your business profile.
Consider a contractor who needs a used excavator and borrows $200,000 over five years.
- With no balloon, the repayment is about $3,937 a month.
- With a 20% balloon of $40,000 due at the end, the repayment drops to about $3,375 a month.
That is roughly $562 a month of breathing room. It could help with fuel, wages or the gap between invoices and payment. At the end of the term, the contractor faces a decision: pay the $40,000 from cash, refinance it, or sell or trade the machine. If the excavator has lost more value than expected, the sale price might not cover the balloon, leaving a shortfall.
In this scenario, the contractor chose the balloon because contract payments arrived 30 to 45 days after invoicing. They also set aside a portion each month toward the $40,000. Reaching the end of the term, they were able to refinance the balloon or pay it out, and avoided a forced sale. The lower repayment helped cash flow, but the balloon remained a real debt that needed a plan. Use a repayment calculator to test different balloon sizes against your own cash flow.
What Do Lenders Look at for Mining Equipment?
Lenders look at the machine, your business income and your repayment history. The weight each factor carries varies between lenders, which is why comparing more than one is worthwhile.
In the excavator scenario above, the contractor would typically provide business financials or recent bank statements, details of the machine from the seller and information about upcoming work. Ask your broker how the age and type of the machine affect terms for the machine you are buying. A contractor with signed work on a mine site may present a stronger case than one still hoping for a contract.
If the business is new or the income is irregular, a broker can match you with lenders suited to that profile. Your personal borrowing capacity can also be affected by business debts, particularly if you plan to buy a home or investment property later.
Should You Use Property as Security for Equipment Finance?
Using property as security puts your home or investment property at risk if the business cannot repay. Some lenders may offer different terms if additional security is offered, but this varies by lender and is not guaranteed. Many equipment loans can be secured against the machine alone, so property security is not always needed.
The main cost is risk. If the loan is secured by your home and repayments fall behind, the lender may take action against the property. It can also make later changes harder, such as selling the property or refinancing other loans, as more than one lender may have an interest.
For larger or more complex purchases, a commercial loan or business loan may suit better than equipment-specific finance. A broker can compare these against an equipment loan so you see the full trade-offs.
If you are planning a mining equipment purchase, Status Home Loans can compare lenders and structures for your situation. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is mining equipment finance?
It is a loan or lease used to buy machinery such as excavators, graders and cranes. The machine usually acts as security for the debt.
Does a balloon payment reduce my repayments?
Yes. In an illustrative example at 6.75% p.a., a $200,000 loan over five years falls from about $3,937 to about $3,375 a month with a 20% balloon. The $40,000 balloon still needs to be paid, refinanced or covered by selling the machine.
Do I need to use my home as security?
Not always, as many equipment loans can be secured against the machine alone. Some lenders may offer different terms if additional security is offered, but this varies and is not guaranteed. Using property puts that property at risk if repayments are missed.
Is mining equipment finance tax deductible?
Tax treatment depends on the finance structure and your circumstances. Speak with your accountant before you decide.
