How Equipment Finance Decisions Are Assessed

Equipment finance decisions in Australia are assessed using asset-based lending logic, supported by borrower cash flow, entity structure, and the underlying risk of the asset itself. While equipment finance relies on the same core credit principles used in other lending, the presence of a discrete, depreciating asset materially changes how risk is evaluated.

This section explains how lenders assess equipment finance — how assets are valued, how repayments are supported, and why outcomes differ over time. It does not recommend products or suggest particular structures.

Applying the credit framework to equipment finance

Lenders apply the shared assessment framework described in How Lending Is Assessed, with additional emphasis on:

  • Asset value and resale risk
  • Alignment between asset life and loan term
  • Borrower cash-flow support
  • Entity and ownership structure
  • Recovery and enforcement pathways
  • Policy settings for specific asset classes

Unlike home lending, the asset itself actively contributes to risk mitigation, rather than the borrower alone.

What lenders are really testing

In equipment finance, the question is not only whether repayments can be made.

Lenders are effectively asking:

If something goes wrong, do the asset, structure, and cash flow together sufficiently limit downside risk?

To answer this, they assess:

  • Asset type, age, and market liquidity
  • Expected depreciation and resale value
  • Loan term relative to useful asset life
  • Strength and stability of borrower cash flow
  • Entity structure and ownership alignment
  • Industry and usage risk
  • Current lender policy settings

Each factor contributes to the overall risk profile of the facility.

Asset risk and resale considerations

Equipment finance places significant weight on how easily an asset could be realised if recovery were required.

Lenders typically consider:

  • Asset class and level of standardisation
  • Whether the equipment is new or used
  • Depth of the secondary market
  • Risk of technological or functional obsolescence
  • Degree of specialisation or modification

This is why:

  • Standard vehicles are financed more readily than specialised equipment
  • Older assets often require shorter terms or higher deposits
  • Highly specialised assets face tighter lending policies

Asset risk directly influences approval likelihood, structure, and pricing.

Loan term alignment and depreciation

A core test in equipment finance is whether the loan term aligns with the useful life of the asset.

Lenders review:

  • Expected depreciation profile
  • Residual value assumptions (where relevant)
  • Balloon or residual exposure
  • End-of-term exit pathways

Misalignment increases risk.

As a result:

  • Longer terms are restricted for fast-depreciating assets
  • Residual values are set conservatively
  • End-of-term planning becomes important

Borrower cash-flow support

Even where the asset provides security, repayments must still be supported by cash flow.

Assessment generally considers:

  • Stability of business or personal income
  • Existing debt commitments
  • Industry volatility
  • Dependence on the asset to generate revenue

Strong cash flow can reduce overall risk, but rarely overrides asset concerns entirely.

Entity structure and ownership mechanics

Outcomes in equipment finance are influenced by who owns the asset and who services the debt.

Lenders examine:

  • Trading entity versus asset-holding entity
  • Use of companies, trusts, or individuals
  • GST registration and tax position
  • Alignment between asset ownership and usage

Structure affects:

  • Approval pathways
  • Documentation requirements
  • Enforcement rights

Policy settings and asset eligibility

Equipment finance policies vary between lenders and change over time.

Policy may influence:

  • Acceptable asset classes
  • Maximum asset age
  • Deposit requirements
  • Industry-specific restrictions

This explains why:

  • One lender may accept an asset another declines
  • Policy changes can alter outcomes without borrower changes
  • Results differ across lenders at the same point in time

Common equipment and asset-finance scenarios

While the framework is consistent, its application varies by asset type and use.

Scenario explainers explore assessment logic across:

  • Vehicles and fleets
  • Machinery and plant
  • Medical and professional equipment
  • Construction equipment
  • Technology and fit-outs
  • Specialist high-value assets

Each scenario explains how assessment works, not what should be selected.

Core equipment-finance mechanics

Some concepts apply broadly across asset finance and sit outside individual scenarios, including:

  • Chattel mortgages and leasing structures
  • High-level tax-treatment mechanics
  • Upgrade, refinance, and end-of-term cycles

These pages describe structure and mechanics only, not suitability.

How to use this section

This section:

  • Sits beneath How Lending Is Assessed
  • Explains why equipment finance behaves differently from other lending
  • Supports interpretation of lender decisions
  • Can be read in any order

It is designed as a reference layer, not an application guide.

Important information

This material provides general information about how equipment-finance assessments operate.

It does not consider personal circumstances and does not constitute credit or financial advice.

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