Asset Finance Fundamentals for Self Employed Owners

Your working capital keeps the business running, so spending $80,000 on an excavator or $150,000 on medical equipment can put pressure on cashflow that you'd rather avoid.

Asset finance lets you acquire what you need while spreading the cost across months or years. The equipment itself acts as security, which means lenders focus on the asset's value rather than your tax returns or bank statements alone. For self employed business owners, this approach often makes funding accessible when traditional lending creates hurdles.

What Asset Finance Actually Covers

Asset finance applies to anything tangible that your business uses to generate income. That includes commercial vehicles like utes and vans, construction equipment such as excavators and cranes, factory machinery, office equipment, and specialised items like medical or hospitality gear. The asset must hold value that a lender can recover if repayments stop, which is why you can fund a truck but not software subscriptions.

Consider a plumber who needs three work vehicles for a growing team. A vehicle finance arrangement spreads the $120,000 purchase across 60 months at around $2,400 per month. The vehicles generate revenue immediately through billable jobs, while the business preserves $120,000 in the bank for wages, materials, and unexpected costs.

Chattel Mortgage vs Hire Purchase

A chattel mortgage suits self employed owners who want to own the asset from day one and claim GST upfront. You borrow the purchase price, own the equipment immediately, and repay the loan amount plus interest. The lender holds a mortgage over the asset until you've cleared the debt. You can claim depreciation and interest as tax deductions, and the GST on the purchase price is often claimable in your next Business Activity Statement.

Hire purchase works differently. The lender buys the equipment and you hire it with an option to own at the end. You don't claim the GST upfront, and ownership transfers only after the final payment. Monthly repayments are often higher because they include both principal and interest without the GST benefit. This structure can work if you're not registered for GST or prefer to defer ownership until the debt is cleared.

How Fixed Monthly Repayments Shape Cashflow

Most asset finance arrangements lock in fixed monthly repayments for the life of the lease or loan term. You know exactly what leaves the account each month, which makes budgeting predictable. The interest rate is set at the start, so rate rises during the term don't affect your repayment.

A landscaping business financing a $95,000 tractor over five years might commit to $1,850 per month. That figure doesn't change whether the Reserve Bank lifts rates three times or drops them. This certainty helps when you're quoting jobs and projecting profit months ahead.

Balloon Payments and How They Work

A balloon payment is a lump sum due at the end of the term, often 20% to 40% of the original loan amount. Lower monthly repayments during the term make cashflow easier, but you need a plan to cover the balloon when it arrives. You can refinance it, trade in the asset, sell it privately, or pay it from savings.

A builder might finance a $200,000 excavator with a 30% balloon, reducing monthly costs by around $600. After five years, they owe $60,000. If the excavator is still worth $80,000, they can trade it in and cover the balloon with $20,000 left over. If the business has grown, they might refinance the balloon and keep the machine another few years.

Tax Benefits and Depreciation Claims

Under a chattel mortgage, you own the asset and can claim depreciation each year based on the Australian Taxation Office's effective life guidelines. A $50,000 piece of manufacturing equipment with a five-year effective life generates $10,000 in depreciation annually, reducing your taxable income. You also claim the interest portion of each repayment as a business expense.

Instant asset write-off thresholds change regularly, but when they apply, you can deduct the full cost of eligible equipment in the year you purchase it. A cafe owner buying a $25,000 coffee machine might claim the entire amount if the threshold sits above that figure, creating a significant tax saving in one financial year instead of spreading it across several.

Leasing Options: Finance Lease vs Operating Lease

A finance lease keeps the asset off your balance sheet while you use it. You make regular payments, claim them as a tax deduction, and either return the equipment, buy it for a pre-agreed residual, or extend the lease. This suits businesses that upgrade equipment frequently, like technology firms replacing computers every three years.

An operating lease works like a rental. You pay for the right to use the equipment without any intention to own it. At the end, you hand it back. Monthly costs are often lower because you're only covering the depreciation during your usage period, not the full value. Hospitality businesses replacing kitchen equipment on a regular upgrade cycle might prefer this approach, swapping out ovens or fridges every few years without worrying about resale.

What Lenders Look for in Self Employed Applicants

Lenders want to see that the equipment will generate income and that your business can manage repayments. They'll ask for recent tax returns, bank statements showing regular turnover, and proof that the asset fits your business activity. A builder financing an excavator makes sense; a graphic designer financing the same machine raises questions.

Your ABN history, GST registration, and time in business all matter. Most lenders prefer at least two years of trading history, though some equipment finance providers work with newer businesses if the deposit is larger or the asset type is common. Find my Loan can access asset finance options from banks and lenders across Australia, which means you're not limited to a single appetite for self employed borrowers.

Vendor Finance and Dealer Finance Explained

Vendor finance comes from the company selling you the equipment. A truck dealer might offer you a loan directly, often with faster approval because they're motivated to close the sale. Rates can be higher than market, but convenience and speed sometimes outweigh the extra cost.

Dealer finance is similar but arranged through a third-party lender with whom the dealer has a relationship. You buy the truck and trailer from the dealer, and they connect you with a finance provider who approves the loan on the spot. You drive away the same day, but you should still compare that rate and structure against what a broker can find. We regularly see dealer rates sitting 2% to 3% above what's available through a wider panel.

Call one of our team or book an appointment at a time that works for you. We'll compare options across our lender panel and structure the finance to suit how your business actually operates.

Frequently Asked Questions