Asset Finance Explained: Funding Equipment Without Draining Cash
Chattel mortgage, lease or rental? How Australian businesses fund vehicles, trucks and equipment while protecting working capital and staying deductible.
Paying cash for a truck, excavator or fleet vehicle feels prudent until a slow quarter arrives and the money is no longer in the account. Asset finance exists to keep productive equipment working without stripping the working capital that keeps a business trading.
The three common structures
Chattel mortgage. The business owns the asset from day one and the lender takes security over it. Interest and depreciation are generally deductible for business use, and GST on the purchase price can usually be claimed in the next activity statement. This is the default choice for most trading businesses.
Finance lease. The lender owns the asset and leases it to the business, with lease payments generally deductible. There is a residual value at the end which can be paid out, refinanced or the asset returned.
Operating lease or rental. Closest to renting. Payments are treated as an operating expense and the asset never sits on your balance sheet, which suits equipment that dates quickly or is needed for a fixed project term.
What lenders actually assess
- Time in business and ABN or GST registration history
- Whether the asset is new, used, and its age at the end of term
- Whether the asset type is considered primary security — vehicles and yellow goods price better than specialised or soft assets
- Director credit history and, for larger facilities, financial statements
Low-doc and time-in-business shortcuts
Many lenders will approve primary assets with minimal financials where the director owns property and credit history is clean. Newer businesses can still be funded, but expect a higher rate, a deposit, or both.
Practical points that save money
Set the balloon or residual with the asset resale curve in mind — an aggressive balloon lowers repayments now and creates a refinancing problem later. Consider seasonal or structured repayments if your revenue is lumpy. And get pre-approval before you negotiate at the dealership; it turns you into a cash buyer.
If you are pricing equipment now, our asset finance team can compare structures against your tax position and cash flow.