Everything you need to know about asset finance

Identifying the type of equipment you need for your business is usually the simple part. Working out how to finance it may feel tricker. You may not have large amounts of cash available to pay for vehicles or equipment upfront, and depending on the type of asset you need, it doesn’t always make financial sense to buy it outright. 

‘Asset finance’ is a collective term for finance options that allow a business to acquire an asset they need – like vehicles, machinery, tools or equipment – without having to pay the total cost straight away. Payments are spread out over a longer period, making it easier to manage your cashflow, or you rent the equipment from the lender for as long as you need it. 

Some of the most common reasons business owners contact us for asset finance are for: 

• buying new industrial or construction equipment 

• one-off expenses 

• staff training costs 

• funding renovations or shop fit outs 

• purchasing new or used vehicles 

• upgrading technology or software 

• a cashflow injection to take advantage of a business opportunity. 

There are many different types of asset finance, structures and repayment options to consider. Your Mortgage Choice broker can help guide you in the right direction. 

The three main types of asset finance you might come across are equipment or car loans, commercial hire purchases, and finance or equipment leases. 

Equipment or car loans (chattel mortgage) 

An equipment or car loan (also known as a chattel mortgage) provides you with the capital to buy an asset for your business. The asset is used as security for the loan. Just like a home loan, you pay the money back with interest over the period of the loan, which is usually two to five years. The interest rate is generally fixed for the term of the loan. Most lenders require a deposit of 10–20% for an equipment or car loan.  

This arrangement has some tax advantages in that GST is not paid on loan repayments, and since you’re the owner of the asset, you’re responsible for maintaining it.  

Commercial hire purchases 

Just like with a chattel mortgage, a commercial hire purchase means you will own the asset outright. The main difference is that with a chattel mortgage you will own the asset from the outset of the loan, whereas with a commercial hire purchase, you will only own it after you make all the payments. 

Commercial hire purchase contracts tend to be very flexible, so you can generally structure your loan and manage your payments in a way that suits your business and cashflow. GST is payable on the purchase price of the goods and on all fees and charges associated with the loan. 

Unlike for a chattel mortgage, you generally don’t need a deposit for a commercial hire purchase. This makes it an attractive option for startups or growing businesses.  

Finance or equipment leases 

If you don’t need to own the asset outright, a finance or equipment lease may be a better option. It gives you the flexibility to use the vehicle or equipment for as long as you need it.  

You make regular payments, similar to a commercial hire purchase, but you’re essentially renting the asset rather than paying for it. At the end of the lease contract, you can either continue leasing the asset or choose to lease a new asset instead. This means you can have access to the latest equipment without constantly spending capital. With an equipment lease, you have the option to purchase the equipment at a fair price at the end of the lease arrangement. You may still be required to pay an initial deposit upfront and have the responsibility of maintaining the asset over the length of the lease. 

You may be able to claim your lease repayments as a tax deduction, depending on your business setup and situation. You may also be entitled to claim GST input tax credits in your Business Activity Statement for the GST component of the repayment.  

5 questions to help you determine the right finance option for you 

1. How often will I need to update or replace the asset?  

2. Will it hold its value for a long period of time? 

3. Do I want to be responsible for maintaining the asset during the finance period? 

4. Are my equipment or vehicle needs likely to change during the finance period? 

5. Do I have the budget to put down a deposit for the asset? 

How a broker can help 

Asset finance can be complex to navigate on your own. 

Plenty of lenders offer asset finance options, with some more competitively priced than others, so it pays to shop around. When you're in business, time is money, which means comparing different asset finance options might feel like a burden if it’s all left up to you.  

That’s where your mortgage broker can make all the difference. Our role is to be with you from start to finish. We’ll take the time to learn about your business, so we understand which solution best suits your needs. We’ll search our large panel of asset finance lenders to present you with the best options for your budget and business cashflow. After you decide which option is right for you, we’ll complete the paperwork for you and liaise with the lender – keeping you informed at every stage.  

We do the heavy lifting and legwork on your behalf, so your focus can be where it needs to be – on your business.