The short version
- Asset finance is business funding to buy a specific physical asset, like a vehicle, machine or piece of equipment. The asset itself secures the loan.
- Six structures cover most of 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. It's secured only against the asset, so you don't need to put up property.
- Picking a structure usually comes down to two questions. Do you want to own the asset at the end? And where do you want the GST and tax deductions to land?
Asset finance is the everyday product of Australian business lending. Most utes in a fleet, excavators on a building site and CT scanners in private clinics were paid for this way, not from cash and not on a general business loan. It's the most used commercial finance product in the country and also the worst explained. People mix up the terms, the structures sound alike, and the tax side looks like fine print until it changes the cost of the asset by tens of thousands of dollars. This guide covers what asset finance is, the six structures, what each does to your tax and GST, and what to ask before you sign.
What is asset finance?
Asset finance is business lending used to buy a physical asset, usually a vehicle, item of plant or piece of equipment, where the asset itself is the security for the loan.
It works like this. You pick the asset you need. A lender pays the supplier in full at settlement. You take delivery and pay the lender back in regular instalments, nearly always monthly, over one to seven years. If you default, the lender takes the asset back and recovers what it can. Because the asset secures the loan, you don't need to offer a house or commercial property, and the lender can decide much faster than on a property loan.
Asset finance differs from a general business loan in two ways. The lender funds one particular asset, not working capital you can spend on anything. And the asset's resale value and useful life shape the deal. Lenders set terms, balloons and repayments around how fast the asset loses value. That's why you wouldn't finance a phone over seven years or a building over two.
How asset finance works
Most asset finance deals in Australia follow the same five steps, whatever the structure.
- You pick the asset and the supplier, such as a dealership, manufacturer or importer.
- You (or your broker) apply to 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 invoice or quote for the asset.
- The lender assesses the deal and approves an amount, rate, term, residual or balloon, and any fees.
- At settlement, the lender pays the supplier directly. You take delivery. The asset is registered to the lender, or the lender's interest is noted on the Personal Property Securities Register (PPSR).
- You make monthly repayments until the loan is paid off and the lender's interest is removed.
A small, clean deal can settle the same day. Bigger or more complex deals (several assets, custom-built equipment, low-doc above $500,000) usually take a week or two. That's still much faster than a property loan.
The six asset finance structures in Australia
Six structures cover almost all asset finance written in Australia. They differ in three places: who legally owns the asset during the term, who claims the depreciation, and when you get the GST back. Sort those three out and the right structure follows.
Chattel mortgage
A chattel mortgage is by far the most common business asset finance product in Australia.
Your business owns the asset from the start, and the lender takes a mortgage over it as security, registered on the PPSR. You repay the loan over the term, and the lender's interest ends with the final payment.
The tax side is what most owners care about. Because you own the asset from day one, you claim the full GST credit in the BAS for the period you bought it, not spread over the loan. You also claim depreciation on the asset, and the interest part of each repayment is a deductible expense. For a GST-registered business using the asset more than 50% for business, a chattel mortgage is almost always the simplest choice.
Chattel mortgages usually run one to seven years. A balloon payment at the end is normal, usually 20 to 50% of the original amount on a vehicle and lower on plant and equipment.
Hire purchase
Hire purchase looks a lot like a chattel mortgage but is legally different. The lender owns the asset during the term, and you "hire" it with an option to buy at the end, or ownership passes to you automatically on the final payment.
Hire purchase was the main commercial asset finance structure for decades. Its share has dropped since its GST treatment was brought into line with chattel mortgage in 2012. Today most lenders default to chattel mortgage and only quote hire purchase if you ask. It's still common in some equipment finance markets and for businesses that want the asset off the balance sheet during the term.
You can now claim the GST on the asset cost upfront, the same as a chattel mortgage. How depreciation and interest are counted depends on whether you account on a cash or accruals basis. Work that through with your accountant before you sign.
Finance lease
A finance lease is a long-term lease. The lender owns the asset and rents it to your business over a fixed term, with a residual value to pay at the end.
You pay GST on each rental payment, not on the asset cost upfront. The full rental is deductible as an operating expense. The asset doesn't sit on your balance sheet as something you own. That said, under AASB 16 most leases now have to go on the balance sheet anyway for reporting, so larger businesses get less of that benefit.
Finance leases suit businesses that don't want to own the asset at the end, or that prefer paying GST bit by bit instead of upfront.
Operating lease
An operating lease is a rental. Your business uses the asset for a set term and hands it back at the end, with no obligation to buy it.
The lender carries the residual risk, because it has to sell the asset at the end. That makes an operating lease dearer than a chattel mortgage on the same asset, but it takes the residual risk off your balance sheet. Operating leases are common for assets where the technology moves fast, like IT, medical imaging and some specialist plant, where the business wants to upgrade every few years without selling second-hand gear.
Rentals are fully deductible. GST is paid on each rental. If you're deciding between owning and renting the same asset, chattel mortgage vs operating lease compares the two side by side.
Novated lease
A novated lease is a three-way deal between an employee, their employer and a lender, used almost only for cars. The employee picks the car, the employer makes the lease payments out of the employee's pre-tax salary, and the lease passes back to the employee if they leave.
For a commercial finance broker, novated leasing sits next to the main market. It's more a salary packaging product than business funding. Many businesses offer novated leases to staff on top of their own fleet finance. For a comparison, see how a novated lease compares with a chattel mortgage.
Sale and leaseback
A sale and leaseback is a way to refinance. Your business sells an asset it already owns to a financier, then leases it back over a set term.
The aim is to free up the money tied up in that asset and turn it back into working capital. Businesses often use it after buying equipment with cash in a good year, then needing the cash back when things get tighter. It works on most business assets with a clear resale market: vehicles, plant, yellow goods, medical equipment, even some fit-outs.
It costs more than financing the original purchase would have, because the lender is now funding a used asset and prices in the residual risk. It's a working capital tool, not a tax tool.
The six structures at a glance
The same three questions separate every structure: who owns the asset, where the GST lands, and what you can deduct.
| Structure | Who owns the asset | GST | Tax treatment | Best suited to |
|---|---|---|---|---|
| Chattel mortgage | The business, from day one | Full credit claimed upfront on the BAS | Depreciation and interest deductible | GST-registered businesses that want to own the asset |
| Hire purchase | The lender until the final payment | Claimable upfront (same as chattel mortgage since 2012) | Depends on cash vs accruals accounting | Businesses that want the asset off balance sheet during the term |
| Finance lease | The lender, with a residual payable at term end | Paid on each rental | Full rental deductible | Businesses that don't want ownership, or prefer paying GST progressively |
| Operating lease | The lender, who carries the residual risk | Paid on each rental | Full rental deductible | Assets you replace often, like IT, medical imaging, specialist plant |
| Novated lease | The lender, under a three-way agreement | Handled within salary packaging | Payments made from the employee's pre-tax salary | Employee vehicles, offered alongside fleet finance |
| Sale and leaseback | The financier, after buying it from the business | Paid on each rental | Rentals deductible | Freeing up working capital tied up in assets you already own |
What asset finance is used for
Asset finance can pay for almost any physical business asset with a clear resale market. The most common things Australian businesses fund are:
- Vehicles: utes, vans, prime movers, trailers, light commercial fleets, executive cars.
- 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 gear.
- Hospitality fit-outs: kitchen equipment, refrigeration, coffee machines, and full fit-out packages where the lender will fund them.
- IT and technology: servers, networking, full hardware upgrades, sometimes bundled with software through specialist tech-finance lenders.
- Farm equipment: tractors, harvesters, irrigation, on-farm plant.
- Transport and logistics fleets: prime mover and trailer combinations, including refrigerated and specialist transport.
Asset finance generally isn't used for pure software, intangible assets, working capital not tied to a specific purchase, or assets with no clear second-hand market. Those needs go to cashflow finance or commercial lending instead.
Who uses asset finance
Every size of Australian business uses asset finance, from sole traders to large companies. The most common types are:
- Sole traders and small operators, like a tradie financing a ute or a contractor buying a piece of plant. Low-doc asset finance is built for them, with no financial statements needed up to certain limits.
- Established SMEs with several years of trading, funding fleet growth, equipment replacement or a new line of business.
- Industry specialists such as medical practices, dental clinics, transport operators, civil contractors and manufacturers, where the equipment is the business and gets replaced on a set cycle.
- Larger companies, using asset finance for fleet programs or to keep big capital spending off operating cashflow.
It's also usually the first commercial finance product a new business takes out. A new ABN with no trading history will struggle to get unsecured cashflow finance but can often get asset finance, because the asset secures the deal.
Asset finance vs business loan vs equipment lease
People use these three terms as if they mean the same thing. They don't.
A business loan is general-purpose money, either unsecured or secured by property. The lender hands over cash and the business can spend it on anything. The lender decides based on your ability to repay and the security, not on what you'll use the money for. Rates are usually higher than asset finance, because there's no asset behind it, and lower than unsecured cashflow finance.
Asset finance pays for a specific asset, with that asset as security. Rates are usually lower than an unsecured business loan because the lender knows exactly what it's funding and has something solid to fall back on.
An equipment lease is one of the six asset finance structures above, most often a finance lease or operating lease over business equipment. So an equipment lease is a type of asset finance, not a separate product. When people say "an equipment lease" they usually mean a finance lease over one piece of business equipment.
Which one you need depends on what the money is for. Buying a specific asset, use asset finance. Funding working capital or buying a business, use a business loan. Smoothing out bills and incoming payments, use cashflow finance. We cover the full set in the six categories of business lender in Australia.
What asset finance costs
The headline rate is only one part. Fees, the balloon and how 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. For the major banks that follows the RBA cash rate. For non-bank asset financiers it follows wholesale debt markets. The RBA's lenders' interest rates series puts the average rate on new variable-rate small-business loans at around 6.86 to 7% a year, a handy guide to where the sharpest secured deals sit. As a rough guide in today's market, low-risk business chattel mortgages on new vehicles sit in the high single digits. The same deal on older or specialist assets costs more. Low-doc and no-doc deals price a couple of points above full-doc.
Indicative ranges differ by structure. The asset, your profile and the term all move each band (current asset finance rate ranges):
- Chattel mortgage: roughly 6.26 to 8.74% p.a. on clean deals, higher on specialised or older assets.
- Hire purchase: roughly 6.54 to 9.24% p.a.
- Finance lease: roughly 7.14 to 9.50% p.a.
- Operating lease: roughly 7.20 to 10.10% p.a., because the lender carries the residual risk.
The asset itself moves the rate more than anything else. A new ute from a major dealer and a five-year-old piece of imported plant get very different pricing, because the second-hand market for each is very different.
Fees
Most asset finance deals have an establishment fee (often a few hundred dollars up 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 amount financed. Early payout fees are common on fixed-rate deals, so if you pay off early, expect a break cost.
The real cost of a loan is the interest plus every fee over the time you actually hold it. See the real cost of a business loan: rate vs fees for how to work it out.
Balloons and residuals
A balloon payment (on a chattel mortgage or hire purchase) or residual value (on a lease) is a lump sum due at the end of the term. It lowers your monthly repayments by pushing some of the loan to the end. Run the same loan with a 30% balloon and with no balloon, and the monthly repayments are a lot lower with the balloon. That matters if you're managing cashflow.
The catch comes at the end of the term. You owe a lump sum that has to be paid in cash, refinanced, or covered by selling the asset. If the balloon is higher than what the asset will likely sell for at the end, you're left owing more than it's worth. That's a common trap with long terms on assets that lose value fast.
The ATO publishes minimum residual percentages for finance leases based on the term. They stop people setting residuals too high just to cut rentals during the term. Check these before you agree to an unusually low monthly payment propped up by a high residual.
GST
GST depends on the structure. On a chattel mortgage or hire purchase, you claim the GST on the asset price in the BAS period you buy it. On a finance lease or operating lease, you pay and claim GST bit by bit on each rental. For a GST-registered business the timing difference is real. A chattel mortgage often brings a decent BAS refund in the first quarter after purchase.
Tax treatment
Two parts of the tax position matter most.
Depreciation and the instant asset write-off
If your business owns the asset (chattel mortgage, hire purchase), it claims depreciation over the asset's effective life as set by the ATO. If the lender owns the asset (finance lease, operating lease), your business claims the full rental as an expense and doesn't depreciate the asset.
The instant asset write-off lets small businesses deduct the full cost of eligible assets straight away, up to a cap per asset, instead of depreciating them over years. Through FY2025-26 (assets first used or installed ready for use by 30 June 2026), the limit was $20,000 per asset for businesses with aggregated turnover under $10 million. In the 2026-27 Budget the Government announced it would make the $20,000 limit permanent from 1 July 2026. That isn't law yet. Until the legislation passes, the legislated limit from 1 July 2026 is $1,000. The cap applies per asset, not per business, and the figure has changed often in recent budgets. Always check the amount for your year on the ATO website before relying on it for a deal.
Interest deductibility
The interest part of each repayment is a deductible business expense under every asset finance structure. On a chattel mortgage or hire purchase, the loan schedule shows interest separately from principal. On a lease, the full rental is deductible, with the interest built into it.
This is general information, not tax advice. The treatment depends on your business structure, how much you use the asset for business, and the current ATO limits. Check the details with your accountant before you finalise the deal.
Who provides asset finance in Australia
Three groups write asset finance in Australia.
The major banks (CBA, NAB, Westpac and ANZ) all write commercial asset finance through their own asset finance divisions or partner arrangements. They're usually the sharpest on price for clean deals on new assets, and the slowest on anything that doesn't fit their credit rules.
Specialist non-bank asset financiers write the biggest share of business asset finance in the country by volume. They're usually faster than the banks and more open to used assets, low-doc deals and businesses with a short trading history. Their pricing is higher than the majors, but usually sits within the gap, not above it.
Commercial finance brokers, like Aurelius Capital, don't lend. We arrange. We take your deal to several lenders at once and place it with the one offering the best terms for that asset and that business. You get two things out of it. You don't have to apply to four lenders one at a time, and you get the broker's read on which lender's credit team will actually approve a borderline deal. Our lender panel covers the major banks and the main specialist asset financiers.
How to apply for asset finance
The documents you need depend on the deal size and how keen the lender is on that type of asset. As a rough guide:
- Low-doc deals up to $150,000 to $250,000: ABN, driver's licence, the asset invoice or quote, and sometimes a recent bank statement. Simple files can settle the same day.
- Full-doc deals above that: add the last two years of business financials and tax returns, a recent BAS, and a short application form on how you'll use the asset.
- Specialist or unusual deals (newer ABN, low credit score, complex structure, custom-built asset): may need more supporting information and usually take longer to assess.
Lenders look at three things. The asset (what it is, how old it is, how easy it is to resell). You as the borrower (trading history, credit record, ability to repay). And how you'll use the asset (what it earns, how much the business depends on it).
In 13 years placing commercial deals, the mistake I see most is a borrower who took the first quote without testing the structure. They pay a finance lease where a chattel mortgage would have refunded the GST in the next BAS, or they carry a balloon set well above what the asset will be worth at the end. Asset finance is a competitive market. The deal you get depends on which lender you ask, which structure you use, 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.