Asset finance and equipment finance are often used interchangeably, by lenders, brokers, and business owners alike. But there are real distinctions between these products, and choosing the wrong structure can affect your tax position, balance sheet, and flexibility. This article clarifies what each term actually means and when to use one versus the other.
What Is Asset Finance?
Asset finance is a broad category covering any lending that uses a business asset as security. It includes:
- Chattel mortgage, you own the asset from day one; the lender holds a charge over it until the loan is repaid
- Finance lease, the lender owns the asset; you lease it for an agreed term and return or purchase at the end
- Operating lease, similar to a finance lease, but structured as an off-balance-sheet arrangement; common for assets that depreciate quickly
- Commercial hire purchase, the lender buys the asset and hires it to you; ownership transfers once all payments are made
Asset finance applies to a wide range of assets: vehicles, machinery, technology, fit-outs, and more. The "asset" in question is simply whatever secures the lending.
What Is Equipment Finance?
Equipment finance is a subset of asset finance specifically applied to productive business equipment, machinery, manufacturing plant, medical equipment, agricultural equipment, and similar. The term is most commonly used in manufacturing, construction, healthcare, and agriculture where the equipment has a direct productive function in the business.
In practice, most lenders who offer "equipment finance" are providing the same product structures as asset finance (chattel mortgage, finance lease, hire purchase), just marketed toward a specific industry or asset type.
Why the Distinction Matters
Tax Treatment
The structure you choose affects when and how you can claim tax deductions:
- Chattel mortgage: You own the asset immediately, so you can claim depreciation and the GST upfront (on the next BAS). Interest is deductible.
- Finance lease: The lessor owns the asset, so you can't claim depreciation, but lease payments are fully deductible as operating expenses.
- Operating lease: Payments are typically deductible as operating expenses. Depending on structure, the asset may stay off your balance sheet.
Talk to your accountant about which structure suits your tax position before settling on a product. The cash flow implications can differ significantly across a 3–5 year term.
Balance Sheet Impact
Depending on your business and any reporting obligations, keeping assets (and corresponding liabilities) off your balance sheet may be important. Finance leases and operating leases can provide this, chattel mortgages and hire purchase arrangements generally do not.
Ownership and End-of-Term Options
If you want to own the asset outright at the end of the term, a chattel mortgage or commercial hire purchase is typically appropriate. If you anticipate wanting to upgrade or return the asset, a lease structure may suit better.
What Lenders Actually Assess
Regardless of the label, asset finance or equipment finance, lenders typically assess:
- Business financials: Trading history, revenue, profit, and cash flow
- Asset type: Age, condition, and residual value of the asset being financed
- Loan-to-value ratio: How much you're borrowing relative to the asset's value
- Director credit history: Particularly for smaller businesses without strong financials
Some lenders have appetite for specific asset classes (e.g. yellow goods, medical, agricultural) and will price and structure accordingly. Working with a broker who understands lender appetite across a panel means you get matched to the right lender for your asset type, not just the nearest bank.
A Note on "Low Doc" Equipment Finance
Many lenders offer low-documentation equipment finance for smaller transactions (typically under $150,000–$250,000 depending on the lender). These products reduce the paperwork burden but often carry higher rates or shorter maximum terms. If your business has clean financials, a fully documented application will generally get you a better rate.
The Bottom Line
"Asset finance" and "equipment finance" often refer to the same underlying products. What matters more than the label is the structure, chattel mortgage, lease, or hire purchase, and which structure aligns with your tax position, balance sheet requirements, and plans for the asset at the end of the term.
If you're looking to acquire business assets and aren't sure which structure suits your situation, a conversation with a broker who understands commercial lending across multiple lenders is a good starting point.
JB Fremy is an FBAA and MFAA accredited finance broker and the founder of JBF Solutions. Book a no-obligation strategy call to discuss your business finance needs.
JB Fremy is the founder of JBF Solutions with 20+ years of experience in finance, technology and business operations. All articles are written by JB and reflect practical, experience-based insights.