The short version
- Asset finance is business funding used to acquire a specific physical asset — a vehicle, machine or piece of equipment — with the asset itself as the security for the loan.
- Six structures dominate the Australian market: chattel mortgage, hire purchase, finance lease, operating lease, novated lease and sale-and-leaseback. They differ on who owns the asset, who claims the depreciation, and how GST is handled.
- Most business asset finance runs one to seven years, secured only against the asset — no real-property security required.
- The right structure usually comes down to two questions: do you want to own the asset at the end of the term, and where do you want the GST and tax deductions to land?
Asset finance is the workhorse product of Australian business lending. Every fleet of utes, every excavator on a building site, every CT scanner in a private clinic — most of it was funded by an asset finance facility, not paid for from cash and not put on a general business loan. It is the most commonly used commercial finance product in the country, and also the most poorly explained. The terms get used interchangeably, the structures sound similar, and the tax treatment looks like fine print until it changes the cost of the asset by tens of thousands of dollars. This guide sets out what asset finance actually is, the six structures Australian businesses use, what each one does to your tax and GST position, and the questions worth asking before you sign.
What is asset finance?
Asset finance is a category of business lending used to acquire a physical asset — typically a vehicle, item of plant, or piece of equipment — where the asset itself is the security for the loan.
The mechanic is simple. A business identifies an asset it needs. A lender pays the supplier in full at settlement. The business takes delivery of the asset and pays the lender back in regular instalments — almost always monthly — over a term of one to seven years. If the business defaults, the lender repossesses the asset and recovers what it can. Because the asset secures the loan, the borrower does not need to put up a house or commercial property as collateral, and the credit decision can be made far faster than a property-secured loan.
Asset finance differs from a general business loan in two ways. First, it is product-specific — the lender funds a particular asset, not working capital you can spend on anything. Second, the asset's residual value and useful life shape the deal: lenders structure terms, balloons and payments around the depreciation curve of what you are buying, which is why you would not finance a phone over seven years or a building over two.
How asset finance works
A typical asset finance transaction in Australia follows the same five steps regardless of structure.
1. The business identifies the asset and its supplier — a dealership, a manufacturer, an importer. 2. The business (or its broker) lodges an application with one or more lenders. For a clean deal under about $250,000, this is often low-doc — ABN, driver's licence, a bank statement or two, and the asset invoice or quote. 3. The lender assesses the deal and approves a finance amount, rate, term, residual or balloon, and any fees. 4. At settlement, the lender pays the supplier directly. The business takes delivery, and the asset is registered to the lender or with the lender's interest noted on the Personal Property Securities Register (PPSR). 5. The business makes monthly repayments until the loan is repaid and the lender's interest is discharged.
Settlement on a small, clean asset finance deal can be same-day. Larger or more complex deals — multi-asset, custom-built equipment, low-doc structures above $500,000 — usually settle in a week or two, still considerably faster than a property-secured loan.
The six structures: how asset finance is written in Australia
Six structures account for almost all asset finance written in Australia. The differences sit in three places: who legally owns the asset during the term, who claims the depreciation, and when GST is paid back to you. Get those three right and the structure follows.
Chattel mortgage
A chattel mortgage is by far the most common business asset finance product in Australia.
The business takes ownership of the asset at the start of the term, and the lender takes a mortgage over the asset as security — registered on the PPSR. The borrower repays the loan over the term, and the lender's interest in the asset is discharged with the final payment.
The tax position is the part most owners care about. Because the business owns the asset from day one, it claims the full GST credit on the purchase in the BAS for the period of acquisition — not over the life of the loan. It also claims depreciation on the asset and the interest portion of each repayment as a deductible expense. For a GST-registered business that uses the asset more than 50% for business purposes, the chattel mortgage is almost always the cleanest structure.
Chattel mortgages commonly run one to seven years, and a balloon payment at the end is normal — typically 20-50% of the original amount on a vehicle, lower on plant and equipment.
Hire purchase
A hire purchase is structurally similar to a chattel mortgage but legally distinct: the lender owns the asset for the term, and the borrower "hires" it with an option to purchase at the end — or with title automatically passing on the final payment.
Hire purchase was the dominant commercial asset finance structure for decades, but its share has shrunk since the GST treatment was aligned with chattel mortgage in 2012. Today most lenders default to chattel mortgage and quote hire purchase only on request. It remains common in some equipment finance markets and for businesses that explicitly want the asset off the balance sheet during the term.
GST is now claimable upfront on the asset cost in the same way as a chattel mortgage. How depreciation and interest are recognised depends on whether you account on a cash or accruals basis — worth working through with your accountant before signing.
Finance lease
A finance lease is a long-term lease where the lender owns the asset and rents it to the business over a fixed term, with a residual value payable at the end.
The business pays GST on each rental payment rather than on the asset cost upfront. The full rental is deductible as an operating expense. The asset does not sit on the balance sheet as an owned asset, although under AASB 16 most leases now have to be capitalised on the balance sheet anyway for reporting purposes, narrowing the off-balance-sheet appeal for larger businesses.
Finance leases are common where the business does not want to own the asset at the end of the term or where the cashflow profile of paying GST progressively suits it better than paying it upfront.
Operating lease
An operating lease is a rental arrangement where the business uses the asset for a defined term and hands it back at the end — with no obligation to purchase.
The lender carries the residual risk: they are the ones who have to dispose of the asset at the end of the term. That makes operating leases more expensive than chattel mortgages on a like-for-like basis, but it removes the residual risk from the borrower's balance sheet. They are common for assets with rapidly evolving technology — IT, medical imaging, some specialist plant — where the business wants to refresh every few years without dealing with second-hand resale.
Rentals are fully deductible. GST is paid on each rental.
Novated lease
A novated lease is a three-way agreement between an employee, an employer and a lender, used almost exclusively for vehicles. The employee selects the car, the employer makes the lease payments out of the employee's pre-tax salary, and the lease "novates" back to the employee if they leave the business.
For a commercial finance brokerage, novated leasing sits adjacent to the core market — it is more of a salary packaging product than a business funding product. Many businesses offer novated leasing to staff alongside, not instead of, their fleet asset finance.
Sale and leaseback
A sale and leaseback is a refinancing structure: a business sells an asset it already owns to a financier, then leases it back over a defined term.
The point is to release the equity tied up in an owned asset and convert it back to working capital — often used by businesses that bought equipment from cash during a strong year and need the liquidity back when conditions tighten. Sale and leaseback works on most categories of business asset with a clear resale market: vehicles, plant, yellow goods, medical equipment, even some fit-outs.
It is more expensive than the original purchase financing would have been, because the lender is now funding a depreciated asset and prices for the residual risk. It is a working-capital tool, not a tax-optimisation one.
What asset finance is used for
Asset finance can fund almost any tangible business asset that has a clear resale market. The most common categories Australian businesses fund are:
- **Vehicles** — utes, vans, prime movers, trailers, light commercial fleets, executive vehicles.
- **Yellow goods and plant** — excavators, loaders, dozers, cranes, tippers, attachments.
- **Manufacturing equipment** — CNC machines, presses, lathes, packaging lines, forklifts.
- **Medical and dental equipment** — imaging, dental chairs, surgical and diagnostic equipment.
- **Hospitality fit-outs** — kitchen equipment, refrigeration, coffee machines, broader fit-out packages where the lender will fund them.
- **IT and technology** — servers, networking, full hardware refreshes, sometimes bundled with software via specialist tech-finance lenders.
- **Agricultural equipment** — tractors, harvesters, irrigation, on-farm plant.
- **Transport and logistics fleets** — prime mover and trailer combinations, including refrigerated and specialist transport.
What asset finance is generally not used for: pure software, intangible assets, working capital not tied to a specific purchase, or assets with no clear secondary market. Those needs sit with cashflow finance or commercial lending instead.
Who uses asset finance
Asset finance is used across the full range of Australian businesses, from sole traders to large operating companies. The most common profiles are:
- **Sole traders and small operators** — a tradie financing a ute, a contractor buying a piece of plant. Low-doc asset finance is built for this segment, with no financial statements required up to certain limits.
- **Established SMEs** — businesses with several years of trading history funding fleet expansion, equipment replacement, or growth into a new line.
- **Industry specialists** — medical practices, dental clinics, transport operators, civil contractors, manufacturers — businesses where the equipment is the business and rolls over on a defined cycle.
- **Larger corporates** — using asset finance for fleet management programs or to keep significant capital expenditure off operating cashflow.
It is also the typical first commercial finance product a new business takes out. A new ABN with no trading history will struggle to secure unsecured cashflow finance but can often secure asset finance — because the asset itself secures the deal.
Asset finance vs business loan vs equipment lease
These three terms get used interchangeably, and they should not be.
A **business loan** is unsecured or property-secured general-purpose finance — the lender hands over cash and the business spends it on anything. The credit decision is based on serviceability and security, not on what the money is used for. Rates reflect the lack of asset security: usually higher than asset finance, lower than unsecured cashflow finance.
**Asset finance** funds a specific asset, with that asset as security. Rates are typically lower than an unsecured business loan because the security is concrete and the lender knows what it is funding.
An **equipment lease** is one of the six asset finance structures above — most commonly a finance lease or operating lease over commercial equipment. So "equipment lease" is a subset of asset finance, not a different product. When someone refers to "an equipment lease" they usually mean a finance lease over a specific piece of business equipment.
The right product depends on what the money is for. Buying a specific asset — asset finance. Funding working capital or an acquisition — business loan. Smoothing payables and receivables — cashflow finance. We break the full landscape down in the six categories of business lender in Australia.
What asset finance costs
The headline rate is one input. The structure of fees, the balloon, and the way GST is paid all change the total cost of the deal.
Interest rates
Asset finance rates are priced over the lender's cost of funds, which for the major banks tracks the RBA cash rate and for non-bank asset financiers tracks wholesale debt markets. As a broad guide for the current market, low-risk business chattel mortgages on new vehicles sit in the high single digits, with the same deal on older or specialist assets running higher. Low-doc and no-doc structures price a couple of points above full-doc.
The single biggest mover on rate is the asset itself: a new ute from a major dealership and a five-year-old piece of imported plant attract very different pricing because the secondary market behind each is different.
Fees
Most asset finance deals carry an establishment fee (often a few hundred dollars to around $1,000), a monthly admin fee, and a PPSR registration fee. Some lenders charge a brokerage origination fee that gets added to the financed amount. Early payout fees are common on fixed-rate deals — if you settle early, expect a break cost.
The real cost of a loan is interest plus every fee over the period you actually hold it — see the real cost of a business loan: rate vs fees for the framework.
Balloons and residuals
A balloon payment (on a chattel mortgage or hire purchase) or residual value (on a lease) is a final lump-sum payment due at the end of the term. It serves a purpose: it lowers monthly repayments by pushing some of the principal to the end. Run the same loan with a 30% balloon and with no balloon, and the monthly payment difference is significant — meaningful for a business managing cashflow.
The trade-off is at the end of the term: you owe a lump that has to be paid in cash, refinanced, or covered by the resale of the asset. A balloon set higher than the asset's likely resale value at term-end leaves the borrower with negative equity — a common trap with long terms on assets that depreciate fast.
The ATO publishes minimum residual percentages for finance leases based on term — they exist to stop residuals being set artificially high to minimise rentals during the term. Worth a check before agreeing to an unusually low monthly payment funded by a high residual.
GST
GST treatment depends on structure. On a chattel mortgage or hire purchase, the GST on the asset price is claimable in the BAS period of purchase. On a finance lease or operating lease, GST is paid and claimed progressively on each rental payment. For a GST-registered business, the cashflow timing difference is real — a chattel mortgage often produces a meaningful BAS refund in the first quarter after purchase.
Tax treatment
Two pieces of the tax position matter most.
Depreciation and the instant asset write-off
Where the business owns the asset (chattel mortgage, hire purchase) it claims depreciation in line with the asset's effective life as set by the ATO. Where the lender owns the asset (finance lease, operating lease), the business claims the full rental payment as an expense and does not depreciate the asset itself.
The instant asset write-off lets small businesses immediately deduct the full cost of eligible assets up to a per-asset cap, rather than depreciating over years. The threshold has moved repeatedly through recent budgets — it has been $20,000 per asset for small businesses under $10 million turnover in recent years, and has been substantially higher during temporary expansions. Check the current threshold on the ATO website before relying on it for a specific deal.
Interest deductibility
The interest portion of each repayment is deductible as a business expense across every asset finance structure. On a chattel mortgage or hire purchase the interest is identified separately from principal in the loan schedule. On a lease, the rental payment is deductible in full — the implicit interest is bundled inside it.
This is general guidance, not tax advice. Treatment varies with business structure, asset use percentage and current ATO thresholds — confirm specifics with your accountant before finalising the deal.
Who provides asset finance in Australia
Asset finance in Australia is written across three groups.
**The major banks** — CBA, NAB, Westpac and ANZ — all write commercial asset finance through dedicated asset finance divisions or partner arrangements. They are usually the sharpest on price for clean deals on new assets, and slowest on anything that does not fit the credit template.
**Specialist non-bank asset financiers** write the largest share of business asset finance in the country by volume. They are typically faster than the banks, with broader appetite on used assets, low-doc deals, and businesses with shorter trading history. Pricing is higher than the majors but usually inside the gap, not above it.
**Commercial finance brokers** — like Aurelius Capital — do not lend, they arrange. We take a client's deal across multiple lenders simultaneously and place it with the one offering the best terms for that specific asset and that specific business. For a borrower the value is two-sided: you do not have to apply to four lenders one at a time, and you benefit from the broker's read on which lender's credit team will actually approve a deal that looks borderline. Our lender panel covers the major banks and the main specialist asset financiers.
How to apply for asset finance
The documents needed depend on the deal size and the lender's appetite for that asset type. As a rough guide:
- **Low-doc deals up to $150,000-$250,000** — ABN, driver's licence, asset invoice or quote, sometimes a recent bank statement. Settlement can be same-day on simple files.
- **Full-doc deals above that threshold** — add the last two years of business financials and tax returns, a recent BAS, and a brief application form covering use of the asset.
- **Specialist or non-standard deals** — newer ABN, low credit score, complex structure, custom-built asset — may need additional supporting information and will typically take longer to assess.
Lenders look at three things: the asset itself (what is it, how old, what is the resale market), the borrower (trading history, credit conduct, serviceability), and the use of the asset (what it earns, how essential it is to the business).
Across 13 years placing commercial deals, the pattern I see most often is a borrower who took the first quote without testing the structure — paying a finance lease where a chattel mortgage would have refunded the GST in the next BAS, or carrying a balloon set well above what the asset will be worth at term-end. Asset finance is a competitive market — the deal you get depends on which lender you ask, in which structure, and how the file is presented.
If you have an asset to finance, start an application — it takes about three minutes, and the response tells you which lenders will write the deal and at what rate.