If you’re looking to get your hands on a new (or used) car or equipment for your business without having to pay for it upfront, asset finance could be the answer.

Asset financing typically involves paying a fixed monthly repayment for the term of a loan in return for use of an asset. Asset financing may help you:

  • Run, grow or expand your business to meet changing demands
  • Purchase equipment to help your business run more efficiently
  • Ease the burden of purchasing new equipment
  • Manage unexpected costs, like needing to replace or maintain existing assets

The most popular asset finance options are an equipment loan, hire purchase and finance lease. Make sure you understand the features and conditions of each to work out which could best suit you and your business.

Equipment loan

Also known as a chattel mortgage, an equipment loan may suit businesses that want to own a car or equipment as soon as possible and potentially claim an instant tax deduction.

How does it work?

  • You successfully apply for funding with a lender
  • You buy and own the asset
  • You have a mortgage with a lender and the asset is security for the loan
  • You own the asset outright once you’ve paid off the mortgage

Things to consider

  • You’ll typically need to pay for any upfront costs such as stamp duty

Hire purchase

Hire purchase may be for you if you want immediate use of a car or equipment while paying it off over a fixed term.

How does it work?

  • You successfully apply for funding with a lender
  • The lender buys and owns the asset
  • You have an agreement with the lender to use (hire) the asset while you’re paying for it
  • You own the asset outright after your last payment

Things to consider

  • If you’re unable to make your payments, the lender may take the asset back
  • Make sure you understand the terms of the hire purchase agreement before you sign – for example, if there is an option to own the asset sooner – and what your rights are

For both an equipment loan and hire purchase, you may also want to consider:

  • Structuring a larger payment at the end of the term – commonly known as a residual or balloon payment – as this may reduce the monthly repayments by taking a portion of your loan and paying it as a lump sum at the end of the loan term
  • Calculating the total cost involved such as the upfront deposit, application and document fees, monthly repayment amount and account fees, and term of the loan
  • Speaking to an accountant or financial advisor to understand which option may best suit your business’ financial situation – you may also be able to claim GST depending on your finance arrangement

Finance lease

finance lease can suit business owners who want to use a car or equipment without owning it. It can particularly suit business owners who need to keep their assets up to date, for example medical practices that need cutting-edge technology. 

How does it work?

  • You successfully apply for funding with a lender
  • The lender buys and owns the asset
  • You lease it from the lender over a period of time
  • At the end of the lease, you may be able to offer to buy it

Things to consider

  • You may be able claim the lease payments as a tax deduction
  • The lender may be able to arrange a flexible repayment schedule

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on this, consider the appropriateness to your circumstances.