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In our asset finance guide:
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What is Asset Finance?
Asset finance is a collection of business finance products used to finance various business assets. Assets can include all types of short- and long-term business equipment, machinery, and other assets, and can even include office fit-outs.
Asset finance is available from banks, specialist lenders, and by working with a finance broker. You can apply online with specialist lenders, and finance brokers can assist if you are unsure which lender or finance product is most suitable for your needs.
Asset finance at a glance
- Acquire assets and spread the cost over time
- Borrow from $5,000 to $2,000,000 (subject to approval)
- Finance terms from 1 month - 5 years
- No deposit required in most cases
- Loan and lease options available
- Finance is usually secured by the asset
- Flexible repayments to suit your budget
- Options for bad credit borrowers
How does asset finance work?
Asset finance is a category of business loan and lease products used to buy new assets, or replace and upgrade existing assets for a business.
Asset loans are generally secured by the purchased asset. The length of the asset loan and lease term will vary based on the type of asset loan and the lifespan of the product.
In Australia, there are several types of asset finance products, offered by a broad range of lenders. While the rates, terms, and fees may vary between lenders, most asset finance options work in a similar way regardless of who you deal with.
How to access asset finance
Here are the main steps involved when accessing asset finance:
- Calculate how much you need to borrow to finance the assets you require for your business
- Apply to a lender for asset finance
- Meet the approval criteria for the lender
- Receive finance to purchase the asset, or receiving the asset directly from the lender
- Make regular repayments to the lender until the finance amount (plus interest and fees) is repaid, or until the lease term ends.
Compare asset finance options
There are a few options available for asset finance in Australia. Working out which type of asset finance will be best suited to your needs will involve matching the needs of your business to the most appropriate form of asset finance offered various lenders. Here are the main asset finance options:
Asset loans
A common option for businesses looking to acquire is to apply for a secured business loan. These are commonly known as a chattel mortgage, or equipment finance.
Financing an asset with a loan means you have full ownership of the asset from the start, but you spread the cost over a term of usually 1-5 years.
The loan is generally secured by the asset, meaning the lender has a right to reclaim it if you cannot repay the loan. But there are also unsecured business loans available if the asset is not eligible to be used as security.
Asset leasing
The other main option is to acquire the asset through a lease. This means you have full use of the asset but you don’t own it during the lease. There are two main types of asset leases:
Finance lease: This enables your business to lease an asset it needs, with the option to purchase the equipment at the end of the lease by making a final payment.
Operating lease: This is usually a shorter-term lease and is commonly used for assets that need to be upgraded frequently. There usually isn't an option to own the asset at the end of an operating lease.
You can quickly compare your main asset finance options in the comparison table below.
Asset finance comparison guide
| Type of finance | Pros | Cons |
|---|---|---|
Asset loan (chattel mortgage) | Your business owns the asset from the start of the term, interest is tax deductible | Any residual balance (balloon) is not tax-deductible |
Finance lease | Flexibility of options at the end of the lease term | Can be an expensive way to acquire an asset you ultimately want to own |
Operating lease | Can be more cost-effective than paying cash for equipment with a short lifespan | Your business won’t own the asset through an operating lease |
Unsecured business loan | Quick approval timeframe | Expensive relative to secured finance |
How to choose which asset finance option is best for your business
Whenever I speak to business owners comparing asset finance options, these are the questions I usually ask:
- Is it more suitable to purchase the asset or rent the asset for a set period?
- Will you still need the asset at the end of the finance term?
- Are there any benefits your business may receive from certain types of asset ownership (e.g. being able to lease your asset to another business while it’s not in use?)
- Are there any tax deductions available through certain types of asset finance?
- Would you like the option of paying extra to clear the finance sooner?
What are the interest rates for asset finance?
For secured asset finance, where the asset is used as collateral, interest rates generally start from between 4% and 9%. Unsecured asset finance generally comes with higher rates.
However, the interest rate you get will depend on the strength of the application and the risk level presented by the borrower. Credit history is a major factor here typically, so it's a good idea to do a free credit check before you apply to see where you stand.
Your interest rate will also depend on the type of asset – for example, a business car loan versus truck finance rates.
What asset finance fees are there?
Asset finance may come with an application fee and ongoing monthly fees. In the case of a loan, if you plan to repay it early, be sure you won’t be hit with an early repayment or break fee, as this could negate any interest savings you might make on the early repayment.
With a lease, there will likely be break fees charged if you end the lease before the term is complete.
Best uses for asset finance
Purchasing equipment and other assets is one of the most common reasons businesses apply for finance (25% of loans), according Money.com.au lender data.
Asset finance is popular with SMEs that have limited access to cash flow and would prefer to pay for assets over a set period. It can also be used for low-value assets — such as computers — which you plan to upgrade in a short time, or which will likely become obsolete.
Asset finance is commonly used if you...
- Work in an industry that requires constantly up-to-date technology
- Want to purchase an asset for everyday business use and reclaim the GST on their next BAS
If you qualify for asset finance with a lender, you can finance almost any asset related to your business. This can include:
- Vehicles — e.g. company cars, trucks, trailers, delivery vans, motorcycles
- Electronics — e.g. computers, servers, GPS equipment
- Machinery — e.g. excavators, lifts and access equipment, forklifts
- Equipment — e.g. printing, medical, dental, engineering
- Construction — e.g. tools, trade vehicles, scaffolding
- Earthmoving — e.g. yellow goods, machinery, diggers, front loaders
- Business acquisition – e.g. acquiring a competitor or buying out a business partner
Generally, asset finance is not suitable for covering ongoing operating expenses (e.g. borrowing to buy stock or inventory), as it is intended as a long-term form of borrowing. For ongoing, short-term finance businesses can consider a business line of credit, a business overdraft or a short-term business loan. For businesses with invoices owed to it, invoice finance is another option.
Asset finance case study
Type of business: Real Estate Agency
Loan amount: $35,000
Case: A real estate agency has been operating for two and a half years and has increased its client book considerably in the last six months.
Based on the projected sales figures for the next three months, the agency is confident it can hire a staff member to manage the increased sales activity. It will require an additional company vehicle which can be branded with the agency’s logo and branding
The agency applies for finance and receives $50,000 to finance the purchase of the vehicle and additional marketing decals for the vehicle as well. The business makes steady repayments during the initial month of onboarding and training.
In the second month, the increased activity by the agency in both marketing itself and managing more properties allows for greater profits, which the agency uses to make additional repayments.
Instead of repaying the amount in full, the agency decides to refinance its initial loan for a further $50,000, repeating the process as the team grows again.
This time, the agency repays the loan amount in full during the third month of the loan term and decides to reassess its situation in the following year. The agency now has additional staff, additional vehicles, and a strong relationship with its lender.
How to qualify for asset finance
Qualifying for asset finance is relatively simple. Most lenders will be able to provide options if you:
- Have been trading for at least 6-12 months (including self-employed individuals and sole traders)
- Have an ABN (Australian Business Number)
- Are registered for GST
- Can demonstrate your business revenue is sufficient to afford the repayments
- Have a credit history that meets the lender's criteria (otherwise you could consider a bad credit business loan)
How to apply for asset finance
The fastest approval speed will generally be offered by specialist lenders. Often, you can apply online and receive approval and finance within 24 hours. These lenders also offer a streamlined method of applying; many will allow you to compare offers and apply using our simple, online smart form.
However you choose to apply, you will need to demonstrate the ability to service your finance amount, and meet individual lender criteria, such as:
- An ABN and GST registration
- An acceptable credit rating
- A minimum level of turnover
- A maximum level of other debt
You may also be asked to provide additional supporting documents, which may include:
- Proof of identity
- Financial records (provided by your accountant)
- Profit and loss statements
- Business balance sheet
- Details of the asset you wish to purchase
- Business bank statements
- Rates notice (if you own a home)
- Rental agreement (if you are renting)
There are low doc business finance options available if you cannot provide the standard documentation required by mainstream lenders.
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Asset finance frequently asked questions
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What is an asset?
In a business context, an asset is any possession you’d record on your balance sheet. It could be a valuable resource like a building, a vehicle or a piece of equipment or technology. Or it could be something that fluctuates, like the stock in your warehouse or the cash in your bank account.
What is asset finance used for?
Asset finance is often used for business purchases that have a reasonable lifespan and cost a considerable amount of money. Most often, this will include business vehicles, IT equipment, and machinery.
Can I get short-term asset finance?
Yes some lenders offer short-term asset finance with terms of as little as one month. If you can afford the higher repayments (compared to spreading the cost over a longer period), short-term finance could ultimately be a lower-cost way to acquire an asset. But be sure to watch out for high application fees, which are sometimes calculated as a percentage of the asset value, rather than a flat amount.
Can newly-established businesses access asset finance?
It’s generally difficult for brand-new businesses to get approval for asset finance. Most lenders will want to see the business has established customer and revenue streams to support the repayments, before offering finance.
How much can I borrow with asset finance?
This will depend on the lender, the asset you want to buy and how much your business can afford to repay, but some lenders will offer asset finance up to $2,000,000.
Can my asset be repossessed?
Yes, with secured asset finance, the lender has the right to repossess your asset if you cannot make the repayments during the finance term. With unsecured finance, the lender cannot reclaim the asset. Interest rates on unsecured finance are usually higher as a result.
Can I pay off my asset loan early?
Yes. In most instances, you can repay your loan or clear your financial debt through extra payments. However, some lenders may specify that there will be penalties for doing so. If you intend to pay out your loan early, it’s best to work with a lender who is more accepting of early payouts.
Can I get asset finance with a bad credit rating?
If you are applying for asset finance, lenders will generally look at the creditworthiness and serviceability of your business, instead of your credit rating. You may be able to find lenders who will approve asset finance even if you have a less-than-perfect credit score. Generally it's easier to be approved for finance if the loan is secured by an asset (e.g. a bad credit truck loan) as this reduces risk for the lender.
Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
