When a business needs to buy something substantial — a work vehicle, a piece of machinery, kitchen equipment, a shop fit-out — there are two broad ways to fund it: asset finance, or a general business loan. They can both get you the equipment, but they work differently, they price differently, and they sit differently on your books. Choosing well is worth real money over the life of the purchase.
The core difference
Asset finance is secured against the thing you are buying. The asset itself is the lender's security, which usually means a sharper rate and a more straightforward approval, because the lender can recover the asset if things go wrong.
A general business loan is more flexible — the money can be used for anything — but it is often unsecured or secured against other assets, which typically means a higher rate and a closer look at your business's overall financial position.
As a rule of thumb: if you are buying a specific, identifiable asset, asset finance is usually the cheaper and cleaner route. If you need flexible working capital, a business loan or line of credit fits better.
The main types of asset finance
- Chattel mortgage: you own the asset from day one and the lender takes a mortgage over it; popular with businesses registered for GST
- Finance lease: the lender owns the asset and leases it to you, with options at the end of the term
- Hire purchase (commercial hire purchase): you hire the asset and own it once the final payment is made
- Novated lease: a three-way arrangement often used for employee vehicles through salary packaging
Each has different ownership, GST and accounting treatment, which is exactly why the choice is worth getting right.
Cash flow and tax considerations
Asset finance lets you spread the cost of equipment over its useful life rather than paying cash up front, which protects working capital. Depending on the structure, you may be able to claim GST on the purchase and depreciate the asset over time, and interest is generally deductible where the asset is used for business.
There are also periodic government incentives around instant asset write-offs and small business depreciation rules that change from year to year. These can materially change the after-tax cost of a purchase — but the detail matters and the rules shift, so this is a conversation to have with your accountant before you commit. This article is general information, not tax advice.
When each option makes sense
Asset finance tends to win when:
- You are buying a specific vehicle, machine or piece of equipment
- You want the sharpest possible rate and a clean approval
- You want the repayment matched to the asset's working life
A business loan or line of credit tends to win when:
- You need flexible funds for mixed purposes — stock, wages, a fit-out and equipment together
- The spend is not tied to a single identifiable asset
- You want a revolving facility you can draw on as needed
The practical steps
- Define exactly what you are buying and what it costs
- Decide whether you need a specific asset funded or flexible capital
- Talk to your accountant about the tax and structure implications
- Compare asset finance structures and lenders against a business loan option
- Proceed with the structure that best fits your cash flow and your books
If you'd like to weigh it up
We specialise in finance for self-employed clients and business owners, including the messier files that do not fit a simple template. We will compare your options across lenders, coordinate with your accountant where it helps, and structure the funding so it works for your cash flow.
Book a call and we will work through the right approach for your purchase.
