Asset Finance 101: Equipment, Plant & Machinery Loans
Investing in the right tools is crucial for running a business. This could be construction machinery, commercial vehicles, or specialised equipment. These assets are the backbone of many Australian industries. But buying them outright can be expensive, which is why many business owners use asset finance to support growth.
This article explains what asset finance is, the pros and cons of equipment, plant, and machinery loans, and when it can be a smart choice for your business.
Important points to note
- Asset finance lets you acquire essential business tools without paying the full cost upfront.
- You can structure repayments to suit cash flow and claim potential tax deductions.
- The main risks include repossession if repayments aren’t met and the possibility of negative equity.
At Flow Financial Services, we help businesses access customised equipment loans with competitive rates and flexible terms.
What is asset finance?
Asset finance refers to using a loan or lease to acquire business equipment, plant, or machinery. Instead of draining your capital reserves, you spread the cost across regular repayments. The asset itself typically serves as security for the loan.
Imagine you’re a builder needing an excavator for a new project or a café owner looking to upgrade kitchen equipment. With asset finance, you can access these tools immediately without waiting to save the full purchase amount.
There are different structures within asset finance such as chattel mortgages, finance leases, and hire purchase agreements each suited to different business needs.
Advantages of asset finance
Preserve your cash flow
Asset finance allows businesses to avoid tying up large amounts of money in upfront purchases. This means you can maintain healthy cash reserves for other operating expenses, emergencies, or new opportunities.
Access to the latest technology
Industries like construction, manufacturing, and medical services evolve quickly. Asset finance enables you to upgrade equipment more often, helping your business stay competitive with the latest tools and technology.
Flexible repayment options
Lenders in Australia offer repayment terms that can match your business cycle—monthly, quarterly, or seasonal. For example, farmers can align repayments with harvest times.
Tax advantages
Depending on the finance structure, businesses can often claim depreciation and interest costs as deductions. Under certain schemes like the instant asset write-off (subject to ATO eligibility rules), you may even be able to immediately deduct the cost of eligible assets.
Disadvantages of asset finance
Risk of repossession
The asset is used as security. If repayments are missed, the lender can take back the equipment or machinery. For small businesses, losing key tools can disrupt daily operations.
Long-term costs
Paying in instalments makes purchases easier to manage, but the total cost (including interest) is often higher than buying outright.
Potential negative equity
If the asset loses value faster than the loan is repaid, you could end up owing more than it’s worth. This often happens with vehicles and machinery that depreciate quickly.
Asset finance vs buying outright
Here are some main points to compare:
- Upfront cost: Buying outright requires a large payment at once. Asset finance spreads the cost over time.
- Ownership: With finance, ownership usually transfers after the loan is repaid. Buying outright means immediate ownership.
- Flexibility: Asset finance offers repayment structures to match cash flow. Buying outright avoids interest and ongoing commitments.
- Tax implications: Asset finance may provide deductions on interest and depreciation, while outright purchases may qualify for instant write-off schemes (if applicable).
Practical example
