Ultimate Guide to Asset Finance

Everything you need to know about financing vehicles, equipment, and other business assets.

What is Asset Finance?

Asset finance refers to financial products that allow businesses or individuals to acquire equipment, vehicles, machinery, or other assets without paying the full cost upfront. Payments are made over time, and the asset itself often serves as collateral for the loan or lease.

• Purchase vehicles for a delivery fleet
• Obtain manufacturing or IT equipment
• Acquire agricultural, medical, or construction equipment
• Upgrade office fit-outs or heavy machinery

All without needing the full purchase price in cash.

Benefits of Asset Finance

• Preserve Working Capital: Spread costs over time, keeping cash available for other needs.
• Flexible Structures: Choose loan, lease, or hire purchase options that fit your business.
• Ownership or Upgrade Options: Own the asset or lease it temporarily with upgrade possibilities.
• Security Means Better Rates: Collateral-backed financing often has lower interest rates.
• Tax Advantages: Payments, interest, and depreciation may be deductible.
• Inflation Hedge: Finance locks in today's asset price while paying over time.

Common Types of Asset Finance

• Term Loan / Equipment Loan: Own the asset from day one; repay the loan over a set term.
• Finance Lease: Lease an asset with the option to buy or return it at the end.
• Operating Lease: Long-term rental where you return the asset at lease end.
• Commercial Hire Purchase: Use the asset during payments, then gain ownership.
• Novated Lease: Employer-sponsored vehicle lease for salary packaging.
• Sale and Leaseback: Sell your existing asset, then lease it back for cash flexibility.

Each type of finance suits different use cases, whether securing long-term assets or upgrading frequently.

How Asset Finance Works

While the exact steps can vary, here’s a typical process for obtaining asset finance.

The Process

• Identify the Asset: Get quotes or invoices; lenders require details like make, model, serial number, cost.
• Choose Finance Type: Decide on the best finance option—loan, lease, etc.
• Application: Submit documents; requirements vary by business size and asset type.
• Credit Assessment: Lenders evaluate financial health, asset value, and intended use.
• Approval & Documentation: Sign contracts outlining terms, repayments, and any balloon payments.
• Settlement: Lender pays supplier or reimburses you; ownership structure depends on finance type.
• Use & Repayment: Utilize the asset and make agreed payments while keeping it insured.
• End of Term: Either own the asset outright or decide on next steps (return, upgrade, refinance).

Tips for Approval

• Maintain Good Credit: Ensure personal and business credit history is strong.
• Prepare Financials: Larger financing may require financial statements.
• Save a Deposit: While many deals are 100% financed, having equity strengthens applications.
• Justify the Asset: Show how the asset contributes to business income or efficiency.
• Use a Broker: Experienced brokers can improve approval chances and lender matches.
• Understand Costs: Consider interest rates, fees, and residual value before committing.

Asset finance is a powerful tool that enables business growth without draining cash flow. With the right strategy, businesses can leverage financing to stay competitive and efficient.

Commercial Property Finance Explained

An in-depth look at how commercial property loans work and how to navigate financing commercial real estate.

Introduction

Commercial property finance funds real estate used for business purposes. This includes offices, shops, warehouses, factories, medical clinics, hotels, and more. These loans differ from residential mortgages, with lenders focusing on income generation and business viability.

Owner-Occupied vs. Investment Property

• Owner-Occupied: Businesses purchase commercial property for their own operations, with repayments covered by trading income.
• Investment Property: Properties rented to tenants, where rental income ideally covers loan repayments.

Key Differences from Residential Mortgages

• Larger Down Payments: Typically 25-30% deposit compared to 90-95% for homes.
• Higher Interest Rates: Risk-based pricing means commercial rates can be higher.
• Shorter Loan Terms: Often 5-15 years, sometimes amortized over longer periods.
• Income-Based Approval: Debt Service Cover Ratio (DSCR) ensures rent or business profit can cover repayments.
• Valuation & Liquidity: Independent valuation required, with lender assessing marketability.
• Loan Covenants: Some agreements include financial conditions the borrower must maintain.
• Higher Fees: Valuation, legal, and lender fees are typically more expensive.

Requirements to Qualify

• Collateral: Strong property type and tenant lease.
• Capacity: Business revenue or rental income must support repayments.
• Capital: A strong deposit improves loan approval chances.
• Character: Clean credit history and personal guarantees.
• Conditions: Lender assesses market conditions and property sector trends.

Commercial Loan Process

• Pre-Assessment: Discuss plans with broker/lender for feasibility.
• Gather Documents: Financials, leases, and property details prepared for application.
• Application Submission: Narrative-driven loan application to highlight property and borrower strengths.
• Valuation: Independent appraisal to confirm market value.
• Credit Decision: Lender reviews all details and issues conditional or final approval.
• Loan Offer & Documentation: Contract outlining loan terms and repayment schedule.
• Legal Processing: Signing of mortgage documents and final due diligence.
• Settlement: Loan funds paid towards property purchase or refinance.
• Post-Settlement Obligations: Repayments start, financial reviews, and insurance maintenance.

Understanding commercial property finance helps businesses and investors secure the right funding for growth.

Tips for Commercial Loan Success

Financing a commercial property may seem daunting, but with the right preparation and guidance, it can be a smooth process.

Key Strategies

• Strong Financials: Apply when your financial statements show growth and profit.
• Secure Good Leases: Long-term leases with strong tenants improve approval chances.
• Prepare a Business Plan: Show how the new premises will support business revenue growth.
• Manage Personal Finances: Keep personal debt low and credit scores strong.
• Use Additional Collateral: Offering property equity can improve loan terms.
• Fixed vs Variable Rates: Assess interest options based on your risk appetite.
• Engage Professionals: Use brokers, solicitors, and accountants for expert guidance.

Choosing the Right Asset Finance Option

Compare three popular finance structures for business equipment and vehicle purchases.

Chattel Mortgage

• Ownership: Borrower owns the asset from the start.
• Loan Structure: Funds borrowed to purchase, up to 100% financing available.
• Tax & GST: Claimable interest and depreciation; GST on purchase can be claimed upfront.
• Use-case: Best for outright ownership and full tax benefits.

Commercial Hire Purchase (CHP)

• Ownership: Financier owns the asset during the term; borrower gains ownership after final payment.
• Loan Structure: Payments are structured like a loan, with potential residuals.
• Tax & GST: Interest and depreciation deductible; GST handling depends on accounting method.
• Use-case: Preferred for businesses on accrual accounting.

Finance Lease

• Ownership: Asset remains lender-owned during lease.
• Lease Payments: Payments cover usage; residual must be addressed at lease-end.
• Tax & GST: Lease payments deductible as an operating expense.
• Use-case: Best for businesses needing regular equipment upgrades.

Each finance type serves different business needs. Choosing the right structure ensures long-term financial efficiency.

Comparing Asset Finance Options

A quick reference guide to help you choose the right financing method for business equipment and vehicles.

Quick Reference

• Ownership: Chattel – owned from start; HP – owned at end; Lease – lender owns (with purchase option).
• Balance Sheet: Chattel/HP – asset and loan recorded; Lease – traditionally off balance sheet (accounting standards may change this).
• Tax Deductions: Chattel/HP – claim interest + depreciation; Lease – claim lease payments as an expense.
• GST Timing: Chattel – upfront on full price; HP – upfront (if accrual) or spread over time; Lease – GST on each payment.
• Flexibility: Lease allows easy upgrades; Chattel/HP ensure ownership certainty.
• Cost: Chattel mortgage and hire purchase often have lower interest rates; leases provide lower monthly payments but require a residual payment.
• Early Termination: Chattel/HP – repay early with possible break fees; Lease – pay remaining rentals plus residual adjustment.

Choosing the Right Option

• Cash Flow Prioritization: Lease lowers monthly payments but requires a residual at the end.
• Ownership & Asset Equity: Chattel mortgage or HP ensure eventual ownership without surprises.
• Tax Implications: Consult an accountant to determine whether immediate depreciation (chattel mortgage) or ongoing lease deductions suit your business.
• GST Considerations: GST-registered businesses may benefit from chattel mortgage claiming GST upfront.
• Asset Disposal: Leasing simplifies periodic upgrades; chattel mortgage/HP suits long-term use.
• Accounting Preferences: Some businesses prefer leases for balance sheet considerations.

Final Thoughts

Chattel mortgages, hire purchases, and finance leases all serve unique business financing needs. The best choice depends on ownership preferences, tax strategy, and cash flow priorities.

B.K Brokers can provide side-by-side comparisons tailored to your specific situation, including payment breakdowns, tax implications, and financial structuring advice.

Get a Free Quote Today!

Sources

• Wikipedia - Leaseback (Sale-and-leaseback concept)
• Wikipedia - Chattel mortgage (Australia) (GST and stamp duty for chattel mortgages)
• Wikipedia - Chattel mortgage (Definition and ownership structure)
• Wikipedia - Chattel mortgage (Australia) (GST credit on purchase for chattel mortgage)
• Wikipedia - Chattel mortgage (Australia) (Tax and GST implications)
• Wikipedia - Hire purchase (Australia) (GST treatment for hire purchase)
• Wikipedia - Hire purchase (Australia) (Commercial hire purchase definition)