Common Mistakes With Asset Finance and Asset Ownership

The way you structure business asset finance decides who owns the asset, and that matters more than most people expect.

It is easy to focus on the repayment and leave ownership as an afterthought. It is worth sorting out first, because it affects what you can sell, trade in or refinance later. Here are the common slip-ups and how to dodge them.

Who Owns the Asset Under Each Type of Asset Finance?

Ownership depends on the product. With a chattel mortgage you generally own the asset from day one and the lender takes security over it. With a finance lease the lender owns it, and with hire purchase ownership generally passes to you after the final payment.

The contract is what counts, so check the wording before you sign. A broker can walk you through how each lender structures these products. Tax treatment also differs between them, so ask your accountant how each one would suit your situation. Nothing about the tax outcome is certain until they have reviewed your numbers.

Common Mistake: Choosing on the Monthly Repayment Alone

A low repayment is often just a balloon in disguise. A balloon (or residual) is a lump sum due at the end of the term, and it keeps repayments down while pushing cost into the future.

Here is an illustrative example at 6.75% p.a. over five years, which is not a current offer. Consider an owner-operator financing a $100,000 prime mover or trailer. With no balloon, repayments come to roughly $1,968 a month. Add a 20% balloon of $20,000 and the repayment drops to roughly $1,687 a month. The owner-operator likes the lower figure, but in year five a $20,000 bill arrives.

This is a hypothetical. If the owner-operator plans for the balloon, the lower repayment could suit cash flow. Running the numbers through an asset finance calculator and talking it over with a broker before signing would help show whether it fits.

The trade-off is that a balloon leaves you owing more for longer, and the asset's value at the end may not cover it. A calculator gives you a rough guide only. A lender's actual quote will depend on your deposit, the asset and your business profile.

Leasing vs Buying: What to Settle Before You Sign

Leasing vs buying comes down to whether you want to own the asset at the end or simply use it for a set period. Buying through a chattel mortgage or hire purchase builds ownership, while a lease can suit equipment you expect to replace.

A few questions help decide it:

• Will the asset still be useful when the loan ends?
• Do you want to keep it, sell it or upgrade?
• How would a lump sum at the end affect your cash flow?

The trade-off with leasing is that you may not own anything at the end, and some leases carry conditions on usage or condition of the asset. Buying gives you the asset, but you carry the risk if its resale value falls.

Does Ownership Matter for Trucks, Planes and IT Equipment?

Yes, and the match between loan term and asset life is the main thing to check. A long loan on something that wears out or dates quickly can leave you owing more than the asset is worth.

For heavy vehicle finance and truck and big rig loans, assets tend to be long-lived and can be kept for years, so owning them often makes sense. Trailer finance and other commercial vehicle finance work the same way. If you run earthmoving gear, the construction and earthmoving loans page covers that side.

Aircraft finance is a more specialised area. Lenders look closely at the aircraft, how it is used and how it is held, so it helps to get advice early. Our aviation loans page explains what is involved.

Financing IT equipment is the opposite case. Computers and similar gear can date quickly, so a short term or a lease that lets you upgrade may suit better than a five-year loan on something you will replace in three.

Refinancing a Business Asset Loan Without Losing Ownership Flexibility

You can refinance a business loan to change the term, lender or repayment structure, but check what you will pay to exit the old loan first. Early payout fees and any remaining balloon can eat into the saving.

Consider this before you act. Check whether the lender holds security over the asset, what the payout figure is and whether the new loan has its own fees. Our business refinance loans page covers how this works. A new lender will usually want to value the asset, and a longer term can lower repayments while increasing what you owe overall.

Talk to a Broker Before You Pick a Structure

Call one of our team or book an appointment at a time that works for you. We will compare options across our lender panel, run your numbers and explain who owns what under each structure. When you are ready, you can start on our application page.

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