Asset finance is a flexible funding solution that allows businesses to acquire essential equipment, vehicles, and machinery without significant upfront capital investment. This guide covers everything you need to know about asset finance in Australia.
What is Asset Finance?
Asset finance is a form of business lending secured against the asset being purchased. The lender provides funds to acquire the asset, which serves as security for the loan. This makes it easier for businesses to access funding and typically offers better rates than unsecured business loans.
Types of Asset Finance
1. Chattel Mortgage
A chattel mortgage is ideal for businesses purchasing vehicles or equipment:
Features:
- Own the asset from day one
- Claim GST input tax credit on purchase
- Depreciation deductions available
- Balloon payment options
- Interest charges tax deductible
Best for: Profitable businesses with regular cash flow wanting to own assets.
2. Equipment Finance Lease
A finance lease allows you to use the asset without owning it:
Features:
- Don't own the asset during the lease term
- Fixed monthly payments
- Tax deductions for lease payments
- Option to purchase at end of term
- No balance sheet impact
Best for: Businesses wanting to preserve cash and off-balance sheet financing.
3. Hire Purchase
Similar to a chattel mortgage but with different ownership timing:
Features:
- Ownership transfers at end of term
- Fixed repayments
- Asset appears on balance sheet
- Depreciation claims available
- Flexible terms
Best for: Startups and businesses building credit history.
4. Operating Lease (Novated Lease for Vehicles)
An operating lease is essentially a rental agreement:
Features:
- Rent the asset for a fixed period
- Return or upgrade at end of term
- Maintenance often included
- Lower monthly payments
- Always have latest equipment
Best for: Businesses needing regularly updated technology or vehicles.
What Can You Finance?
Asset finance can cover virtually any business asset:
Vehicles:
- Cars and utes
- Trucks and vans
- Trailers and machinery
- Motorcycles
- Marine vessels
Equipment:
- Manufacturing machinery
- Construction equipment
- Medical and dental equipment
- IT hardware and servers
- Office equipment
- Agricultural machinery
- Restaurant and cafe equipment
Other Assets:
- Solar panel systems
- Security systems
- Fit-outs and renovations
- Software (in some cases)
Asset Finance Eligibility
Business Requirements:
- Operating for at least 6-12 months
- ABN registered
- Positive cash flow
- Reasonable credit history
Asset Requirements:
- Used for business purposes
- Appropriate age and condition
- Sufficient value to secure loan
- Clear title available
Interest Rates and Terms
Interest Rates:
- Typically 6% - 12% p.a.
- Varies based on asset type, age, and amount
- Fixed or variable rates available
- Secured rates lower than unsecured loans
Loan Terms:
- Usually 2-7 years
- Shorter terms for vehicles
- Longer terms for major equipment
- Balloon payments can reduce monthly costs
Tax Benefits
Asset finance offers significant tax advantages:
Immediate Deductions:
- GST input tax credit (chattel mortgage)
- Instant asset write-off (eligible assets under $20,000)
- Depreciation deductions
Ongoing Deductions:
- Interest charges
- Lease payments
- Finance charges
Consult your accountant to maximize tax benefits based on your situation.
Application Process
- Choose Asset: Identify the equipment or vehicle needed
- Get Quote: Obtain quote from supplier
- Apply for Finance: Submit application with business documents
- Assessment: Lender reviews financials and asset
- Approval: Receive finance approval and terms
- Purchase: Supplier delivers asset
- Repayment: Begin scheduled payments
Required Documentation
- ABN and business registration
- 2 years of financial statements
- Recent BAS statements
- Bank statements (3-6 months)
- Supplier quote or invoice
- Driver's license (for vehicles)
- Asset specifications
Advantages of Asset Finance
**Preserve Cash Flow: No large upfront payment **Tax Benefits: Multiple deduction opportunities **Flexibility: Various structures to suit needs **Credit Building: Establish business credit history **Budget Certainty: Fixed payments **Latest Equipment: Upgrade options available **Quick Approval: Faster than traditional business loans
Disadvantages to Consider
**Interest Costs: Pay more than outright purchase **Commitment: Locked into repayment schedule **Asset Security: Risk of repossession if defaulting **Depreciation: Asset may depreciate faster than loan reduces
Chattel Mortgage vs Finance Lease
| Feature | Chattel Mortgage | Finance Lease |
|---|---|---|
| Ownership | Immediate | End of term |
| GST Claim | Yes | No |
| Depreciation | Yes | No |
| Balance Sheet | Asset & liability | Off balance sheet |
| Tax Deduction | Interest only | Full payment |
| Best For | Profitable businesses | Cash flow management |
Asset Finance vs Traditional Business Loan
Asset Finance Advantages:
- Easier approval (asset is security)
- Higher borrowing amounts
- Better rates than unsecured loans
- Specific to asset purchase
- Tax efficient structure
Traditional Loan Advantages:
- More flexible use of funds
- Own asset outright sooner
- No restrictions on asset
- Potentially cheaper if rates are low
How to Get the Best Deal
- Compare Multiple Lenders: Banks, non-bank lenders, and specialist finance companies
- Negotiate Terms: Don't accept first offer
- Consider Total Cost: Not just monthly payment
- Choose Appropriate Term: Balance payments with depreciation
- Understand Fees: Application, establishment, and early exit fees
- Check Flexibility: Early repayment options and upgrade ability
- Read Fine Print: Understand all obligations
Common Mistakes to Avoid
Over-committing: Borrowing too much or too long Ignoring Total Cost: Focusing only on monthly payment Wrong Structure: Choosing lease vs mortgage without tax advice Skipping Comparison: Taking first offer Missing Tax Planning: Not consulting accountant Inadequate Insurance: Underinsuring financed assets
Asset Finance for Startups
New businesses can access asset finance with:
- Directors' guarantee: Personal guarantee from owners
- Larger deposit: 20-30% upfront reduces risk
- Shorter terms: 2-3 year agreements
- Strong business plan: Demonstrate viability
- Personal credit history: Good personal credit helps
Balloon Payments Explained
A balloon payment is a lump sum due at loan end:
Advantages:
- Lower monthly payments
- Frees up cash flow
- Tax planning flexibility
Considerations:
- Need to refinance or pay balloon
- Asset may be worth less than balloon
- Interest paid on balloon amount
Typical Balloon Percentages:
- Vehicles: 20-40%
- Equipment: 10-30%
- Heavy machinery: 20-40%
Find the Right Asset Finance with Introducr
Introducr connects businesses with specialist asset finance lenders across Australia. Our platform helps you:
- Compare multiple asset finance options
- Access competitive rates from various lenders
- Get expert guidance on best structure
- Fast approval process
- Support throughout application
Next Steps
Ready to finance your business assets? Introducr can help you find the right solution:
- Assess Your Needs: Determine what assets you need
- Compare Options: Understand different finance structures
- Get Expert Advice: Consult with finance specialists
- Apply with Confidence: Submit application through Introducr
Contact Introducr today to explore asset finance options tailored to your business needs.
Disclaimer: This information is general in nature. Asset finance terms, rates, and tax treatment vary. Consult with financial and tax advisors for advice specific to your circumstances.