An asset finance broker's job is to sort out the credit problem before a lender sees the file. Go direct to a bank and that job falls to the bank's credit assessor. Their answer is yes or no, and they judge your deal against their employer's credit policy, not your situation.
Most borrowers don't notice the difference until they've been declined once.
What an asset finance broker actually does
When a broker takes on an asset finance deal, they do three things you don't get when you go to a lender yourself.
First, they position the deal. Before anything is lodged, they check it against what each lender likes to fund: asset type, asset age, security, your profile, your industry and whether you can afford the repayments. A 2017 prime mover looks very different to a major bank's credit team than to a specialist transport lender. The work is finding which lender sees the deal as plain sailing and which sees a problem, then sending it to the first one.
Second, they pick the structure: chattel mortgage, hire purchase, finance lease or operating lease. The right one depends on your tax position, how you want your balance sheet to look, and how you'll use the asset. That choice changes when you get the GST back, how depreciation works under Division 40, and whether the debt shows on your books at all. A bank will write what it writes. It won't run that comparison with you.
Third, they give you a panel. Aurelius Capital writes across the major banks, the second-tier banks and the specialist asset financiers. Go direct to one lender and you get one set of rules, one price list and one decision. If that decision is no, you start again somewhere else from scratch.
The rate gap, in dollars
Chattel mortgage rates from the Tier-1 banks currently run around 6.26% to 8.74% p.a. Specialist non-bank lenders price low-doc deals between 7.80% and 11.50% p.a.
On a $250,000 equipment finance deal over five years:
| Rate p.a. | Total interest over the term |
|---|---|
| 6.5% | ~$42,300 |
| 7.5% | ~$50,900 |
That's $8,600 from one percentage point inside one lender's own range, before you compare that lender with anyone else.
A file that arrives fully documented, with the asset classified correctly and the structure already decided, lands at the better end of that range time after time. A cold application through an online portal gets whatever the scorecard spits out. The gap between a well-prepared deal and a cold one usually runs 75 to 150 basis points. On a $250K loan that's $5,500 to $8,600 in real money.
Declines make it worse. Every application leaves a credit enquiry on your file, and a lender who sees three enquiries in two months reads them as three other lenders saying no. A broker applies once, to the lender most likely to say yes.
Structure: the part a bank won't explain
A bank relationship manager is trained to write chattel mortgages and finance leases. They aren't paid to ask whether either one suits your tax position.
The structure decides three things a rate comparison will never show you:
- GST. A GST-registered business claims the full GST credit upfront under a chattel mortgage, in the BAS period the deal settles. A finance lease spreads it across the rental payments. An operating lease takes the purchase out of the picture, so the question changes again.
- Depreciation. Under a chattel mortgage your business owns the asset from day one and depreciates it under Division 40. Under a finance lease it depends on the lease terms. Under an operating lease the asset sits on the lessor's books, so there's nothing for you to depreciate.
- Balance sheet. An operating lease can keep the asset off your balance sheet. That matters when you're managing loan conditions (covenants) or your ability to repay other loans. Whether it does depends on the accounting standards your business reports under.
Pick the wrong structure and it can cost more than you saved on the rate. Our chattel mortgage vs operating lease comparison goes through each case.
What a broker costs
On most asset finance deals, nothing directly. The lender pays the broker a commission when the deal settles, usually 2% to 4% of the amount financed. Lenders build that cost into their pricing whether a broker is involved or not. You aren't charged on top of it.
Some brokers charge a fee on complex or unusual deals. If there is one, it has to be disclosed in writing before anything is submitted. Our explainer on how commercial finance brokers get paid covers all three ways brokers are paid, including trail and volume-based payments.
When going direct makes sense
Two situations don't really need a broker.
The first is refinancing with a bank that already knows your business, where the pricing is already sharp, the asset is standard and you've financed the same kind of thing with them before. A broker won't have much left to improve.
The second is a clean deal at a major bank: new asset, full financials, strong credit history, a standard industry, and a relationship manager who already has your numbers. Clean deals get the best rates at the majors anyway, and a banker who knows your business can sometimes move faster than a broker shopping the panel.
Outside those two, a broker is worth more the more complicated the deal is. Older assets, low-doc income, past credit trouble, unusual equipment, security shared across several loans. On those files, positioning and panel access can change whether you get approved at all, as well as the rate.
Three questions to ask any broker
Which lenders on your panel fund this type of asset? A broker who only writes through two or three funders is really a channel partner for those lenders. That rarely matters on a clean deal, but it matters a lot on anything else.
What structure do you recommend, and why? If the answer doesn't mention your tax position and how you'll use the asset, they haven't thought about it. The structure should fit your business, not whatever the broker writes most often.
Is there a broker fee? You should get a clear answer, in writing, before anything is lodged. If they're vague about it, that's a bad sign at the start.
For the bigger picture on what asset finance covers, from vehicles and plant to technology hardware and fit-out, that guide covers the asset types, the types of lender and how deals are set up.
If you have an asset to fund and want a broker's view on structure, which lenders will take it and likely pricing before you approach anyone, the application form is below. Most enquiries get a response within four business hours.