Every business needs assets, whether that’s vehicles, equipment, plant or machinery. But, these can be expensive, which is where asset finance can help by spreading the cost of those assets over time.
Key points about business asset finance
- Asset finance loans are generally secured by the asset(s) you purchase
- Interest rates on asset finance can range from 5-20% p.a.
- Asset finance providers offer loan and lease options
- Interest, lease payments and depreciation may be tax deductible depending on the type of financing agreement you have
What is asset finance?
Asset finance or equipment finance, is a loan or lease that allows you to buy big-ticket items like vehicles, equipment or machinery for your business. The finance is secured against the asset you’re purchasing and repayments are spread over its expected lifespan, reducing the impact on your cashlow. Repayments are usually fixed, over a fixed term.
In the context of asset finance, an ‘asset’ can be anything your business needs to operate, including IT equipment or everyday equipment (e.g. coffee machines, printers), technology, cars, machinery, etc. Each industry will have specific assets they need to conduct business.
Asset finance providers offer both loan and lease options. The best solution for your business will depend on:
- The type of asset you want to finance
- If you want to purchase or rent the asset
- If you want to own the asset at the end of the term
- Tax deductions available
Asset finance example
Let’s consider an example based on a fictional company called TechHub looking for asset finance of $20,000.
Case: TechHub is a technology consulting firm providing cutting-edge IT solutions to a diverse range of clients, from startups to established enterprises.
TechHub needs more advanced computing equipment to grow the business and will probably need to upgrade them every two or three years. The cost of the new equipment is $20,000, but TechHub uses asset financing to spread the cost over three years, repaying a manageable $655 a month, including interest (11% p.a.). It’s a much better option than spending $20,000 upfront which would dent its cash reverses or impact its ability to offer payment terms to customers.
At the end of the three years, TechHub can upgrade its IT equipment by taking out a new financing contract to spread the cost over another three years, or can opt to sell the equipment if the contract allows it.
How much can you borrow with asset finance?
Borrowing amounts for asset finance can range from $5,000 to $1 million, depending on the value of the asset and your business creditworthiness (credit rating & revenue). You can use our equipment finance calculator to estimate your repayments based on different loan amounts.
Compare asset finance interest rates
|Asset finance||Interest rate|
|Chattel mortgage||5-10% p.a. |
|Hire purchase||7-15% p.a.|
|Operating lease||5-15% p.a.|
|Finance lease||6-15% p.a.|
|Novated lease||6-10% p.a.|
Compare asset finance options for your business
1. Chattel mortgage
A chattel mortgage works like a secured business loan for vehicles or other assets purchased primarily for commercial use. If you opt for this type of finance, you’ll get a lump sum to buy the asset which you’ll own from the outset. You’ll repay the loan with interest over a fixed term tied to the asset's lifespan. Five-year terms are common, but longer terms also exist, especially for heavy machinery with a lifespan of 15 years or more.
You can usually negotiate your repayment schedule to suit your income patterns. Most businesses opt for a balloon payment at the end of the loan term to reduce their monthly costs, although this means you’ll pay more interest overall. Some businesses prefer to repay their loan in regular instalments over the term without a residual sum.
Since you’ll own the asset outright, you can list it on your balance sheet and claim tax deductions on the interest and asset depreciation. However, you’ll need to record the mortgage as a balance sheet debt.
2. Hire purchase
With hire purchase finance, the lender will buy the asset on your behalf and lease it back to your business over a period of time. You’ll make regular payments over the term and ownership of the asset will be transferred to your business after the final payment. At that point, you can sell the asset or continue to use it in your business as you please.
You’ll usually agree to the finance terms upfront, including the hire purchase period, how much of a deposit you’ll pay, and whether you’ll pay for the asset in equal instalments or make a balloon payment at the end of the term. If you plan to sell the asset at the end of the contract, you could use the proceeds to cover the cost of the balloon.
Be aware that getting out of a hire purchase agreement early will mean incurring a hefty early termination fee, which could be a problem if you no longer need or can afford the asset.
The ATO treats hire purchase agreements as a standalone sale or purchase in a tax period, which means you may be able to claim input GST credits and a tax deduction for depreciation of your vehicle.
3. Operating lease
An operating lease is more suitable for assets you might want to upgrade regularly, like vehicles, IT equipment, payment or telecommunications systems, etc. It's a useful option if you know you won't need the assets or equipment for their entire lifespan and want to avoid getting stuck with assets that have become obsolete.
With an operating lease, the lender will buy the asset on your behalf and rent it to you in exchange for regular payments over a fixed period of time. The main difference to other asset finance options is that you never get ownership of the asset. This means you won’t build equity or be able to sell the asset for a profit at the end of the term. That’s great if you just want to upgrade and move on, and don’t want the hassle of disposing of the asset, but it does mean you’ll be forced to take out more finance and replace the asset if you still need it.
Lease payments include service and maintenance costs (for an added fee) and are tax deductible as a business expense.
4. Finance lease
The main difference between an operating lease and a finance lease is what happens at the end of the contract. With a finance lease, you’ll have the option to buy the asset at the end, and you also have the chance to make a profit on that purchase.
You’ll still have to make fixed repayments over a period of time before you can claim ownership. You’ll pay close to the full value of the asset (plus interest) throughout your contract, which can make it a pretty expensive option. Your lender will tell you how much you can expect the asset to be worth by the end of the contact, and your final payment will be based on that anticipated value. If the asset turns out to be worth more when the contract ends, you’ll only have to pay the amount agreed in advance, and you can then sell the asset for its higher value. But, if the market value is lower, your business will take the loss.
You’ll be able to claim a tax deduction for your lease payments but will still have to record the finance lease on your balance sheet like you would with a business loan.
5. Novated lease
A novated lease is a salary packaging finance agreement. It allows business employees to purchase a new or used vehicle through their pre-tax salary. The vehicle can be used for business and personal use by the employee. Your business will be responsible for deducting lease payments from the employee's salary.
If your employee leaves your company during the contract term, they’ll have to take the lease over and continue payments themselves. At the end of the lease, they’ll usually have the option to buy the vehicle.
Novated lease payments include vehicle running costs and are generally fixed over a fixed term, ranging from 1-5 years.
A novated lease offers income tax savings for employees, while employers can claim an input tax credit for the GST included in the vehicle purchase price.
Business asset finance pros & cons
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How to apply for asset finance
To apply for asset finance, you’ll need to supply financial documents and business information.
1. Supporting documents
Lenders will ask for financial documents to support your application and assess your business revenue, including:
- Bank statements from the last six to 12 months
- Business registration and tax information (e.g. BAS statements, tax returns)
- Identification documents
2. Business information
Lenders will also look at your business trading history and experience, including:
- If you’ve been operating for the minimum required period
- Your business structure (e.g. company, partnership, joint venture, sole trader)
- The location of your business
- The industry your business operates in
Once you apply, your lender will assess your application based on the ‘five Cs of business credit’, just as they would with any other form of business finance. Mostly, they’ll look at:
- The value and lifespan of the asset you’re buying (collateral)
- Your credit history and financial position (character and capital)
- Your capacity to repay the loan (based on your income and expenditure)
Best asset finance lenders in Australia
- Angle Finance
- Branded Financial Services
- Capital Finance
- Drive Finance
- Finance One
- Flexi Commercial
- Group & General
- Grow Finance
- Iron Capital
- Macquarie Capital
- Metro Finance
- Morris Finance
- Pepper Money
- Selfco Leasing
- Shift Thornmoney
- Vestone Capital
FAQs about asset finance
What’s the typical interest rate on asset finance?
Interest rates on asset finance can range from 5-20% p.a. Lenders will determine your individual rate based on your business risk profile and the strength of your application. Unsecured asset finance generally fetches higher rates to reflect the added risk to the lender.
Is asset financing secured or unsecured?
Asset finance is generally secured against the asset you purchase. However, some businesses may use unsecured business loans for a variety of purposes, including to buy assets. These typically have higher rates and lower borrowing limits than secured finance.
Do I need a deposit for asset finance?
You don’t normally need a deposit for asset finance because the asset itself serves as security for the loan, and the lender will finance 100% of the value of the asset or equipment. However, some hire purchase agreements may require you to pay a deposit and the rest of the loan balance as normal.
Is asset finance tax deductible?
Yes, asset finance offers various tax advantages depending on the type of agreement you have. The interest portion on loan repayments or lease payments are generally tax deductible as a business expense. You can also claim depreciation of the asset with a chattel mortgage or hire purchase agreement. Speak to a broker or accountant about the best option for business.
Can I apply for asset finance if I have bad credit?
Yes, you may still qualify for asset finance if you have impaired credit, but be prepared to pay more interest to reflect the added risk. Lenders will consider both your business creditworthiness and loan serviceability when assessing your application. You could alternatively look at bad credit business loans.