The short answer
Asset finance is borrowing to buy, or get the use of, something your business needs to earn money: a vehicle, a truck, machinery, tools, technology or equipment. Instead of paying the whole price upfront, you spread the cost over time, ideally while the asset pays its way.
In most asset finance, the asset itself is the security. If the loan is not repaid, the lender can take the asset back. That is why asset finance is usually easier to get, and often cheaper, than an unsecured business loan for the same amount.
How asset finance works
- You choose the asset and get a quote or invoice from the seller.
- The lender assesses the asset, your business and your ability to make the payments.
- The lender pays the seller, and you take delivery and start using the asset.
- The lender registers its interest on the Personal Property Securities Register (PPSR), New Zealand's public register of security interests over things like vehicles, equipment and machinery.
- You repay in instalments over an agreed term, sometimes with a larger "balloon" payment at the end.
The main types of asset finance in New Zealand
- Hire purchase: you get the asset straight away and pay for it in instalments. You own it once the final payment is made.
- Equipment or vehicle loan: you own the asset from the start, and the lender takes a security interest over it until the loan is repaid.
- Finance lease: the lender owns the asset and you use it for most of its working life, often with an option or obligation to buy it at the end. For income tax, a finance lease is generally treated as if the asset had been sold to you.
- Operating lease or rental: you pay to use the asset for part of its life and hand it back at the end. Common for vehicles, technology and equipment that dates quickly. Maintenance is sometimes included.
- Property-secured loan used for assets: a business loan secured against property, not the asset, used to buy equipment or vehicles. This is how HomeSec lends.
The benefits of asset finance
- Cash stays in the business. You keep working capital for wages, stock and tax rather than tying it up in a machine.
- The asset can pay for itself. A new truck, excavator or oven can earn while you pay it off.
- Payments are predictable, which makes budgeting easier.
- Security is built in, so approval can be simpler than for an unsecured loan.
- Possible tax and GST advantages, depending on the structure (see below).
The drawbacks
- You may pay more in total than buying outright, once interest and fees are added.
- You are locked in. Ending a lease or loan early can carry costs.
- Balloon payments lower the instalments but leave a large sum due at the end.
- Not every asset qualifies. Equipment lenders prefer new, standard assets from dealers with a strong resale market. Older, specialist and privately sold assets, software, installation and fit-out costs are often declined or only partly funded.
- Your business has to qualify too. Many equipment lenders want a trading history and clean credit.
GST and tax: check the structure first
The structure you choose changes when you can claim GST and how the asset is treated for income tax, so talk to your accountant before you sign.
Under a hire purchase agreement, a GST-registered business can generally claim the GST on the full price in the period it enters into the agreement, to the extent the asset is used to make taxable supplies, rather than waiting for each instalment. Under most finance leases, GST is spread across the lease payments instead. Operating lease and rental payments are generally an ongoing business expense.
What lenders look at
- The asset: its age, type, resale value and who is selling it.
- Your business: how long it has traded, its cash flow, and its tax and credit record.
- Your deposit: some lenders want one, especially for used or specialist assets.
- The term: lenders match the term to the asset's working life, so you are not still paying for a machine that has worn out.
- Guarantees: directors are often asked to guarantee a company's asset finance personally.
Before you sign: a checklist
- Get the full installed cost, including delivery, installation, software and training.
- Compare the total cost over the whole term, not only the weekly or monthly payment.
- Ask what happens if you want to pay off early, and what any balloon payment will be.
- Check who owns the asset during the term and at the end.
- Confirm the insurance the lender requires.
- If the asset is used, search the PPSR first to check no one else holds a security interest over it.
- Ask your accountant which structure suits your GST and tax position.
- Read the contract and get independent legal advice. A loan for business purposes is generally not a consumer credit contract, so many consumer protections will not apply.
If an equipment lender says no
Equipment lenders decline for predictable reasons: the asset is too old, too specialised or sold privately; much of the cost is installation or fit-out; the business is new; or there is a credit or IRD problem. Your options then include a bigger deposit, a different asset, your bank, or a loan secured against property instead of the asset.
A property-secured loan looks at the property, the business purpose and how you will repay, not mainly the asset's resale value. It can fund several assets at once, the installation and fit-out costs, or the deposit that lets another lender do the rest. It usually costs more than standard equipment finance for a new asset, so use it where it solves a problem equipment finance cannot.
Where HomeSec fits
HomeSec is a direct private lender, not a broker or an equipment financier. We lend $20,000 to $1,000,000 for genuine business purposes, including vehicles, machinery, equipment and fit-outs, secured by a first or second mortgage over suitable residential or commercial property almost anywhere in New Zealand. There are no valuations or cashflow records needed to start, and no minimum trading period.
Our loans are open term, so there is no fixed end date, and you can repay early at any time. Funding may be possible in as little as 24 hours once assessment, documents, security, legal work and settlement line up, and approved facilities may offer up to six months with no scheduled payments, which can give a new machine time to start earning. Interest still accrues during that time, and approval is never guaranteed. See asset finance secured by property.
Common questions
Is asset finance a loan?
Some forms are, such as hire purchase and equipment loans. Leases are different: the lender owns the asset and you pay to use it. All of them commit your business to regular payments, so treat them like debt when you plan cash flow.
What is the difference between asset finance and a business loan?
Asset finance is tied to a specific asset, which usually secures it. A business loan can be used for many purposes and is secured by other property, by the business's assets generally, or not at all.
Can I get asset finance for used equipment?
Often, but many equipment lenders limit the age and type of used assets and may want a deposit. A property-secured loan does not depend on the asset's age, so it can fund used, specialist and privately sold equipment.
Can a new business get asset finance?
It is harder, because many equipment lenders want a trading history. Options include a larger deposit, a personal guarantee, or a loan secured against property, which does not require a minimum trading period.
Can I get asset finance with bad credit?
Some lenders will consider it, especially with a deposit or other security. Read our guide on getting a business loan with bad credit.