What is asset finance? A complete guide for Australian businesses

What is asset finance? A complete guide for Australian businesses

By Michael Russell, Managing Director, Finwave |  26 June 2026

THE SHORT VERSION

Asset finance funds a specific physical asset, with that asset as the security.

Six structures dominate: chattel mortgage, hire purchase, finance lease, operating lease, novated lease, and sale-and-leaseback.

The right structure 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?

Most deals settle in one to ten business days. No real-property security required.

Finwave compares 80+ lenders to find the structure and rate that suits your business.

Asset finance is the most commonly used commercial finance product in Australia, and also the most poorly explained. 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 from cash. Not put on a general business loan.

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 is, how the six structures work, what each one does to your tax and GST position, what it costs in 2026, 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.

A lender pays the supplier in full at settlement. The business takes delivery and repays the lender in monthly instalments over a term of one to seven years. If the business defaults, the lender repossesses the asset. Because the asset secures the loan, no property collateral is required, and the credit decision is made far faster than on a property-secured facility.

Asset finance differs from a general business loan in two ways. First, it is product-specific, meaning the lender funds a particular asset, not working capital. Second, the asset's useful life and residual value shape the deal. Lenders structure terms, balloons, and payments around the depreciation curve of what you are buying. For more on how asset finance sits within the broader lending landscape, see our guide to equipment finance structures.

HOW ASSET FINANCE WORKS

A typical asset finance transaction in Australia follows five steps regardless of structure.

•        The business identifies the asset and its supplier, such as a dealership, manufacturer, or importer.

•        The business, or its broker, lodges an application. For clean deals under approximately $250,000 this is often low-doc: ABN, driver's licence, bank statement, and the asset invoice.

•        The lender approves a finance amount, rate, term, residual or balloon, and fees.

•        At settlement the lender pays the supplier directly. The asset is registered on the Personal Property Securities Register (PPSR) with the lender's interest noted.

•        The business makes monthly repayments until the loan is repaid and the lender's interest is discharged.

Settlement on a clean low-doc deal can be same-day. Larger or specialist deals usually settle in one to two weeks, 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.

Chattel mortgage

The most common business asset finance product in Australia. The business takes ownership of the asset from day one and the lender takes a mortgage over it as security, registered on the PPSR.

Because the business owns the asset immediately, it claims the full GST credit on the purchase in the BAS period of acquisition, not over the life of the loan. It also claims depreciation and the interest portion of each repayment as a deductible expense. For a GST-registered business using the asset more than 50 per cent for business purposes, the chattel mortgage is almost always the cleanest structure. Terms run one to seven years, and a balloon of 20 to 50 per cent is common on vehicles.

Hire purchase

Structurally similar to a chattel mortgage but legally distinct: the lender owns the asset for the term and the borrower hires it, with title transferring on the final payment. Since the 2012 GST changes aligned the tax treatment, hire purchase has largely been superseded by chattel mortgage in most markets. It remains available on request and is used in some equipment finance segments where the off-balance-sheet treatment during the term is preferred.

Finance lease

The lender owns the asset and rents it to the business over a fixed term, with a residual value payable at the end. GST is paid on each rental payment rather than upfront on the asset cost. The full rental is deductible as an operating expense.

Under AASB 16, most finance leases now have to be capitalised on the balance sheet for reporting purposes, narrowing the traditional off-balance-sheet appeal. Finance leases remain common where the business does not want to own the asset at the end of the term, or where paying GST progressively suits the cashflow better than a lump-sum upfront claim.

Operating lease

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, which makes operating leases more expensive on a like-for-like basis. They are most common for assets with rapidly evolving technology, such as IT hardware, medical imaging, and specialist plant, where the business wants to refresh every few years without dealing with second-hand resale. Rentals are fully deductible and GST is paid on each payment.

Novated lease

A three-way agreement between an employee, an employer, and a lender, used almost exclusively for vehicles. The employee selects the vehicle, the employer makes lease payments from the employee's pre-tax salary, and the lease reverts to the employee on departure. For most commercial finance purposes, novated leasing sits adjacent to the core market as a salary packaging product rather than a business funding product.

Sale and leaseback

A refinancing structure where a business sells an asset it already owns to a financier and leases it back over a defined term. The purpose is to release equity tied up in an owned asset and convert it to working capital. Sale and leaseback works across most categories of business asset with a clear resale market: vehicles, plant, yellow goods, medical equipment. It is more expensive than original purchase financing because the lender is funding a depreciated asset and pricing for the residual risk.

WHAT ASSET FINANCE COSTS IN 2026

The RBA's cash rate and lender interest rate series provide the baseline reference for where secured business lending sits. Asset finance is priced over the lender's cost of funds, which for non-bank specialist financiers tracks wholesale debt markets. Rates vary by structure, asset type, borrower profile, and whether the deal is full-doc or low-doc.

Structure	Indicative rate range	Security / notes
Chattel mortgage	6.26% to 8.74% p.a.	Vehicle or equipment as security
Hire purchase	6.54% to 9.24% p.a.	Vehicle or equipment as security
Finance lease	7.14% to 9.50% p.a.	Business equipment
Operating lease	7.20% to 10.10% p.a.	IT, tech, vehicles
Low-doc equipment finance	7.49% to 10.99% p.a.	ABN holders, limited financials
Medical and dental equipment	6.14% to 7.70% p.a.	Medical professionals
Construction and earthmoving	6.70% to 9.90% p.a.	Heavy machinery

Rates are indicative ranges sourced from current market data. Comparison rate warning: comparison rates are based on a $30,000 loan over five years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Rates subject to lender assessment and approval. Source: commercial-loans.net.au, June 2026.

The single biggest mover on rate is the asset itself. A new vehicle 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. Low-doc and no-doc structures price two to three points above their full-doc equivalents.

TAX TREATMENT: WHAT YOU CAN CLAIM

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 as an expense with no separate depreciation claim. The instant asset write-off currently allows eligible small businesses to immediately deduct the full cost of assets up to $20,000 per asset for businesses with aggregated turnover under $10 million, for assets first used or installed ready for use by 30 June 2026. From 1 July 2026 the threshold is legislated to drop to $1,000. The cap applies per asset and has moved repeatedly through recent budgets. Always confirm the current figure on the ATO website before relying on it for a specific deal. For a practical breakdown of lease versus loan tax treatment, see our equipment finance guide.

Interest deductibility

The interest portion of each repayment is deductible as a business expense across every structure. On a chattel mortgage or hire purchase the interest is identified separately from principal in the loan schedule. On a lease, the full rental is deductible with the implicit interest 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 any deal.

WHO PROVIDES ASSET FINANCE IN AUSTRALIA

Asset finance in Australia is written across three groups.

•        Major banks (CBA, NAB, Westpac, ANZ), typically the sharpest on price for clean deals on new assets. Slowest on anything that does not fit the standard credit template.

•        Specialist non-bank asset financiers , who write the largest share of business asset finance by volume. Faster than the banks, with broader appetite on used assets, low- doc deals, and shorter trading histories. Pricing is higher than the majors but usually inside the gap.

•        Commercial finance brokers , like Finwave, do not lend. We place your deal across multiple lenders simultaneously and find the one offering the best terms for your specific asset and business profile. No multiple applications, no credit score impact from shopping around.

Finwave holds Australian Credit Licence 561258 and works with 80+ lenders. See how working with a broker compares to going direct to a bank in our finance broker vs bank guide.

HOW TO APPLY FOR ASSET FINANCE

The documents required depend on deal size and the lender's appetite for that asset type.

•        Low-doc deals up to $150,000 to $250,000: ABN, driver's licence, asset invoice or quote, sometimes a recent bank statement. Same-day settlement is possible on simple files.

•        Full-doc deals above that threshold: Add the last two years of business financials and tax returns, a recent BAS, and an application form covering the use of the asset.

•        Specialist or non-standard deals: Newer ABN, lower credit score, complex structure, or custom-built asset. Expect additional supporting information and longer assessment times.

Lenders assess three things: the asset (what it is, 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). Finwave brokers present your file to the lenders most likely to approve it. See all business finance options or go straight to equipment loans if you have a specific asset in mind.

FREQUENTLY ASKED QUESTIONS

What is the difference between a chattel mortgage and hire purchase?

With a chattel mortgage the business owns the asset from day one and the lender takes a mortgage over it as security. With hire purchase the lender owns the asset for the term and the borrower hires it, with title passing on the final payment. Since 2012 both structures allow the GST credit to be claimed upfront. Most lenders default to chattel mortgage today because it is simpler.

Is asset finance tax deductible in Australia?

Yes, across every structure. On a chattel mortgage or hire purchase the business claims depreciation on the asset and deducts the interest portion of each repayment. On a finance lease or operating lease the full rental payment is deductible as a business expense. Eligible small business assets may also qualify for the instant asset write-off, subject to current ATO thresholds. Always confirm treatment with your accountant.

Can sole traders use asset finance?

Yes. Sole traders are among the most common users of asset finance in Australia, particularly tradies financing vehicles and tools of trade. Low-doc asset finance is built for this segment. Lenders will typically write deals up to $150,000 to $250,000 on the strength of an ABN, driver's licence, and asset invoice. The asset itself is the security, so no real-property collateral is required.

How quickly can asset finance settle in Australia?

A clean low-doc deal on a standard asset can settle the same day the application is lodged, provided the supplier invoice and ID are in order. Full-doc deals above the low-doc threshold typically settle in three to ten business days. Larger or specialist deals can take two to three weeks. Asset finance settles considerably faster than a property-secured business loan in every case.

What is a balloon payment in asset finance?

A balloon payment is a lump sum due at the end of the loan term, set as a percentage of the original loan amount, typically 20 to 50 per cent on a vehicle, lower on plant and equipment. It lowers monthly repayments by pushing some principal to the end. At term-end the balloon is paid in cash, refinanced, or covered by the resale of the asset.

Does asset finance affect my business borrowing capacity?

Yes, but generally less than a property-secured loan of the same size. Asset finance appears on the credit file as a secured liability, and future lenders will count the repayments toward serviceability. A single facility rarely changes whether a separate loan is approved. Multiple facilities accumulated in a short timeframe will affect capacity, which is worth flagging if a property loan is in the pipeline.

Can I refinance existing asset finance?

Yes. Existing asset finance can be refinanced to a different lender on better terms, consolidated with other facilities, or restructured into a sale-and-leaseback to release equity from an owned asset. The new lender pays out the existing financier and takes security over the asset. Check for early payout fees on the existing facility before assuming a rate saving will offset the cost of switching.

Can I use asset finance to buy a used vehicle or second-hand equipment?

Yes, although terms differ from new asset deals. Lenders typically cap the age of the asset at the end of the loan term. Older or specialist assets attract higher rates because the secondary market is thinner. Private-sale purchases are fundable but generally require an independent inspection and may carry tighter age caps than dealer-sourced assets.

Talk to Finwave about asset finance options

Call 1300 346 928 or visit finwave.com.au/contact to compare asset finance options across 80+ lenders.

General advice disclaimer

This article is general in nature and does not constitute financial advice. It does not take into account your personal objectives, financial situation, or needs. All rate figures in this article are indicative only and subject to change. Tax treatment information is general guidance only. Confirm with your accountant before making any financial decision. Before acting on any information in this article, consider whether it is appropriate for your circumstances. Finwave Finance Pty Ltd holds Australian Credit Licence 561258. Credit is subject to approval and lending criteria.