Asset Loan vs Equipment Finance: Complete Comparison Guide Australia

By the Loan Phone team Reviewed by Anthony Moncada, M.App.Fin, Cert IV Finance & Mortgage Broking

Asset loans and equipment finance are often used interchangeably, but they represent different financing approaches in Australia. Asset loans (chattel mortgages) typically offer ownership from day one with rates from 6-12% p.a., while equipment finance encompasses multiple structures including leases where ownership may transfer later. Both typically allow loan amounts from $10,000-$5M+ over 1-7 year terms. Modern comparison platforms can help businesses evaluate both options efficiently, with settlements possible within days for straightforward applications (subject to lender and circumstances). Most traditional lenders require minimum 12 months trading history, though specialist lenders may consider newer businesses.

Rates are indicative examples only. Actual rates depend on individual circumstances and lender assessment.

Understanding the Terminology

The terms “asset loan” and “equipment finance” often create confusion because they’re frequently used interchangeably in Australian business finance conversations. Understanding the distinction helps businesses make better financing decisions.

Asset Loan typically refers specifically to a chattel mortgage structure where you own the asset from day one, with the lender holding security over it until the loan is fully repaid. This is the most common form of asset-secured business lending in Australia.

Equipment Finance is a broader umbrella term encompassing multiple structures including chattel mortgages, finance leases, hire purchase agreements, and operating leases. Each structure offers different ownership arrangements, tax treatments, and cost implications.

Both options allow businesses to acquire essential equipment without depleting working capital, but the structure you choose significantly impacts your cash flow, tax position, and long-term flexibility.

Asset Loans Explained

An asset loan, commonly structured as a chattel mortgage, allows your business to purchase equipment outright using funds provided by a lender. Your business owns the asset from the moment of purchase, but the lender registers security interest over it via the Personal Property Securities Register (PPSR).

How Asset Loans Work

You select equipment from any supplier, and the lender provides funds to purchase it (typically covering 100% of the cost plus GST). Your business makes regular repayments covering principal and interest over the agreed term, usually 1-7 years depending on the asset type.

Once the loan is fully repaid, the lender removes their registered interest, giving your business clear title to the asset. If you default on repayments, the lender may repossess the equipment to recover their funds.

Key Features of Asset Loans

Ownership structure: Immediate ownership means complete control over the asset’s use, subject to maintaining loan repayments. You’re responsible for all maintenance, insurance, and operating costs from day one.

Depreciation benefits: Since your business owns the asset, you can claim depreciation deductions according to ATO guidelines, which provides significant tax advantages for businesses in the 25-30% tax bracket.

Flexibility: Asset loans typically offer flexibility in repayment structures, including options for seasonal payment schedules or balloon payments to reduce monthly repayments (though this increases total interest costs).

Security requirements: The asset itself serves as security, making these loans more accessible than unsecured business finance. Lenders may also require personal guarantees from directors, particularly for newer businesses or higher-risk industries.

Equipment Finance Structures

Equipment finance encompasses several distinct structures beyond basic asset loans, each designed for different business needs and circumstances.

Finance Lease

With a finance lease, the lender purchases the equipment and leases it to your business for an agreed term. You make fixed monthly payments but don’t own the asset during the lease period.

At the end of the term, you typically have three options: purchase the equipment for its residual value, refinance the residual to continue using it, or return it to the lender. Finance leases often appear on your balance sheet as both an asset and liability.

Hire Purchase

Hire purchase arrangements see the lender purchase equipment on your behalf, which you then “hire” through regular payments. Unlike finance leases, hire purchase agreements typically include a commitment to eventual ownership—once all payments are made (including any residual), ownership automatically transfers to your business.

This structure suits businesses wanting eventual ownership but preferring to spread payments over time without immediate ownership responsibilities.

Operating Lease

Operating leases are rental arrangements where the lender retains ownership throughout and after the lease term. These shorter-term agreements (usually 1-3 years) suit businesses needing equipment temporarily or preferring to upgrade regularly without ownership commitment.

Lease payments are typically considered operational expenses rather than capital expenditure, which can offer different tax treatment advantages. See our guide on equipment finance options for detailed comparison.

Key Differences Comparison

Understanding the fundamental differences between asset loans and various equipment finance structures helps businesses choose appropriately.

Ownership Timeline

Asset loans provide immediate ownership from day one, giving you complete control and responsibility. Equipment leases delay ownership until the end of the term (or never, in the case of operating leases), with the lender maintaining legal ownership during the finance period.

This difference significantly impacts your ability to modify, upgrade, or dispose of equipment during the finance term.

Balance Sheet Treatment

Asset loans typically appear on your balance sheet as both an asset (the equipment) and a liability (the loan). This increases both sides of your balance sheet, which may affect financial ratios that lenders consider for future borrowing.

Operating leases, conversely, may remain off-balance-sheet depending on the lease term and structure, though accounting standards (AASB 16) have tightened these requirements in recent years.

Tax Implications

With asset loans, your business can claim depreciation deductions on the equipment plus interest deductions on the loan. Total annual deductions may be substantial but depend on the asset’s depreciation schedule.

Lease payments under equipment finance structures are typically fully deductible as business expenses, potentially offering simpler tax treatment. However, you cannot claim depreciation on leased assets since you don’t own them during the lease term.

Tax treatment depends entirely on your individual business structure and circumstances—this information does not constitute tax advice. Always consult your accountant before making financing decisions.

End-of-Term Options

Asset loans conclude with full ownership and a clear asset that can continue contributing to business operations, be traded in, or sold. Equipment leases offer more flexibility at term end: upgrade to newer equipment, purchase for residual value, or walk away (operating leases).

This flexibility comes at a cost—equipment finance typically carries slightly higher effective interest rates than equivalent asset loans.

Cost Comparison Analysis

The true cost difference between asset loans and equipment finance extends beyond nominal interest rates to include tax benefits, residual values, and total cost of ownership.

In 2025, Australian asset finance rates typically range from 6.5% for prime borrowers with strong trading history to 12%+ for higher-risk profiles or specialist equipment. Equipment leases may carry rates 0.5-2% higher due to the additional flexibility and administrative costs involved.

These examples are for illustrative purposes only. Actual rates, terms, and repayments depend on lender assessment, your individual circumstances, and current market conditions.

The asset loan shows higher monthly repayments but lower total cost. The lease offers lower monthly payments but higher total cost when including the residual. Your optimal choice depends on cash flow priorities, tax position, and whether you want the equipment long-term.

Tax Treatment Differences

Tax treatment significantly impacts the effective cost of both asset loans and equipment finance, making it essential to understand these differences when comparing options.

Asset Loan Tax Benefits

With immediate ownership under asset loans, your business can claim:

Depreciation deductions: Based on the asset’s effective life as determined by ATO guidelines. High-value equipment may qualify for instant asset write-off provisions (subject to eligibility thresholds and legislation).

Interest deductions: The interest portion of each repayment is typically tax-deductible as a business expense.

GST treatment: Businesses registered for GST can claim input tax credits on the GST component of equipment purchases, improving initial cash flow.

Equipment Finance Tax Benefits

Lease structures offer different tax advantages:

Lease payment deductions: The entire lease payment (excluding GST) is typically deductible as an operating expense, simplifying tax calculations.

No depreciation claims: Since you don’t own the asset during the lease term, depreciation deductions aren’t available. However, full lease payment deductibility may provide similar or greater total deductions depending on circumstances.

Off-balance-sheet benefits: Operating leases may improve certain financial ratios since the asset and corresponding liability don’t appear on your balance sheet (subject to AASB 16 requirements).

Important: Tax benefits depend entirely on your specific business structure, tax position, and how you use the asset. The information above is general in nature only. Always seek independent advice from a qualified tax professional or accountant before making financing decisions.

Which Option Suits Your Business?

Choosing between asset loans and equipment finance depends on multiple factors specific to your business circumstances, equipment type, and long-term plans.

Consider Asset Loans When:

• Long-term equipment needs: If you need the equipment for its entire useful life and beyond, immediate ownership through an asset loan typically offers better value.
• Tax position supports depreciation: Businesses with strong profitability benefit most from depreciation deductions, particularly for high-value equipment with accelerated depreciation schedules.
• Equipment modifications planned: Owning assets immediately allows modifications, upgrades, or customization without lender approval.
• Lower total cost priority: Asset loans typically offer lower total costs compared to lease structures, though monthly repayments may be higher.

Consider Equipment Finance When:

• Shorter-term needs: If you need equipment for a specific project or period, lease structures avoid long-term ownership commitment.
• Technology refresh requirements: IT equipment, office technology, or equipment prone to obsolescence suits lease structures with easy upgrade paths.
• Cash flow management: Lower monthly payments under lease structures free up working capital for other business priorities, even if total costs are higher.
• Balance sheet considerations: Operating leases may improve certain financial metrics relevant for future borrowing or business valuations.
• Trial periods desired: Leasing allows businesses to trial equipment before committing to ownership, particularly useful for new processes or unproven technologies.

Compare various equipment finance options to understand which structure best fits your needs.

Application Requirements

Both asset loans and equipment finance share similar basic requirements, though specific criteria vary by lender and structure.

Standard Requirements

Most traditional lenders require:

• Trading history: Minimum 12 months for established lenders, though specialist providers may consider newer businesses with strong applications.
• Financial documentation: Recent financial statements, tax returns, and business activity statements demonstrating capacity to service repayments.
• Asset details: Supplier quotes, equipment specifications, and asset identification (particularly serial numbers for registration).
• Business verification: Current ABN/ACN registration, GST registration (for claiming input tax credits), and evidence of ongoing business activity.

Eligibility criteria may vary by industry—specialist lenders apply different standards based on equipment type, business sector, and loan amount. Specific requirements vary by loan amount, asset type, and industry.

Documentation Variations

Asset loans typically require standard secured lending documentation including:

• Loan agreements
• Security agreements registered via PPSR
• Personal guarantees from directors (common for newer businesses)

Equipment finance may require additional documentation:

• Lease agreements with specific terms about equipment use
• Maintenance obligations and insurance requirements
• End-of-term option specifications

For businesses with limited documentation, consider exploring low-doc business equipment loans designed for self-employed and newer businesses.

Common Scenarios

Real-world scenarios help illustrate when different structures suit different circumstances.

Scenario 1: Construction Company Vehicle Fleet

A Melbourne construction company needs four work vehicles valued at $200,000 total. They plan to use these vehicles for 7-10 years until they require major repairs or replacement.

Recommended approach: Asset loan (chattel mortgage) provides immediate ownership, allowing full depreciation claims over the vehicles’ useful lives. The business can claim instant asset write-off if eligible, plus ongoing interest deductions. Lower total cost justifies higher monthly repayments.

Scenario 2: Medical Practice Technology Upgrade

A Brisbane medical practice needs diagnostic equipment valued at $150,000, expecting technology improvements will make current equipment obsolete within 3-5 years.

Recommended approach: Equipment finance (finance or operating lease) allows the practice to upgrade to newer technology at term end without the complexity of selling obsolete equipment. Lower monthly payments preserve working capital for other practice expenses.

Scenario 3: Manufacturing Business Expansion

A Sydney manufacturer needs $500,000 in production equipment to fulfil a major 3-year contract, after which production volume will return to normal levels.

Recommended approach: Finance lease with 3-year term aligns equipment availability with contract duration. At term end, the manufacturer can return equipment, purchase it at residual value if permanent expansion materializes, or upgrade to different equipment matching post-contract needs.

For specialized equipment scenarios, see our guides on forklift finance and IT equipment finance.

Frequently Asked Questions

Is equipment finance the same as an asset loan? Equipment finance is a broader category that includes asset loans (chattel mortgages) plus various lease structures. Asset loans provide immediate ownership with the lender holding security, while other equipment finance structures may delay ownership until term end or provide rental-only arrangements.

Which option offers better tax benefits? It depends on your specific circumstances. Asset loans allow depreciation plus interest deductions, while leases provide full payment deductibility. Businesses with strong profitability often benefit more from depreciation under asset loans, while those preferring simpler tax treatment may prefer lease deductions. Consult your accountant for advice specific to your situation.

Can I upgrade equipment before the finance term ends? With asset loans, you own the equipment but must repay the remaining loan balance (plus any early exit fees) before upgrading. Equipment leases typically offer more flexibility for early upgrades, though terms vary by lender and may involve additional costs.

What happens if I default on repayments? Both structures allow lenders to repossess equipment to recover their funds. Asset loans involve selling the asset and applying proceeds to the outstanding loan balance. Lease defaults may result in equipment return plus liability for remaining lease payments, depending on agreement terms.

Are interest rates higher for leases than loans? Equipment finance leases typically carry rates 0.5-2% higher than equivalent asset loans due to the additional flexibility and administrative requirements. However, total cost comparisons should consider tax benefits, residual values, and term-end options rather than just nominal rates.

Can I claim GST back on equipment purchases? Businesses registered for GST can typically claim input tax credits on equipment purchases under both asset loans and finance purchases. Operating leases may have different GST treatment since you’re paying for equipment use rather than purchase. Confirm GST treatment with your accountant based on your specific structure.

Speak with Specialists

Need expert guidance on your equipment finance application? Email: loans@loanphone.com.au Website: www.loanphone.com.au

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Last updated: 2025-11-07