Commercial finance glossary

A

ABN

Your Australian Business Number, the identifier that marks you as trading. Commercial asset finance is written for businesses, so lenders check that your ABN is active and how long it has been registered. You can look up an ABN through the Australian Business Register. Finance on a new ABN

Amortisation

The way a loan is paid down over its life. Each repayment covers some interest and some of the amount borrowed, so the balance shrinks across the term. A loan with a balloon amortises down to that balloon rather than to nothing.

Application

The package you submit to a lender: who is borrowing, what the asset is, and enough about the business to let the lender assess it. A clean, complete application reads as lower risk than a thin one. How an application is assessed

Asset

The thing being financed and, usually, the thing securing the loan. In this market that means trucks, trailers, earthmoving gear, farm machinery and workshop equipment.

B

Balance sheet

A snapshot of what the business owns and owes. An established operator with assets already on the books reads differently to a newer ABN, and lenders weigh the two accordingly.

Balloon

A lump sum owed at the end of the term, called a residual under a lease. Setting a balloon lowers the regular repayment, because you are not clearing the whole asset across the term. You then deal with that final amount by paying it, refinancing it, or selling the asset into it. Each of those depends on what the asset is worth by then. Balloon payments in full

Broker

An intermediary who takes a deal to a panel of lenders rather than to a single lender's own book. Brokers and lenders operate under an Australian credit licensing regime overseen by the national regulator. Questions worth asking one

C

Chattel mortgage

A common commercial structure where you own the asset from day one and the lender registers security over it until the loan is repaid. Chattel simply means a moveable item of property, which is what a truck or a machine is. Chattel mortgages in full

Credit assessment

The lender's process of deciding whether to lend and on what terms. It weighs the borrower, the asset and the structure together rather than in isolation. What a credit file shows

D

Deposit

Money you put in up front. A deposit reduces the amount financed and can strengthen an application, particularly for a newer business or an older asset. Buying without a deposit

Depreciation

The fall in an asset's value as it works and ages. Lenders care because their security is worth less each year. How depreciation is treated for tax is a question for a registered tax agent or the ATO.

Documentation

The paperwork a lender needs to assess and settle. A complete document set moves faster than one the lender has to chase. The documents checklist

Drawdown

The point at which funds are advanced, usually straight to the seller so you can take the asset.

E

End of term

What happens when the agreement finishes. Depending on the structure you may own the asset outright, owe a balloon, or have options to return, buy or refinance it. Planning for it is part of running a fleet well.

Equipment finance

The broad category covering finance for income-producing plant and gear. The equipment finance guide

F

Facility

The finance arrangement itself, or a broader limit a business can draw against for several assets. An operator running a fleet often manages more than one at a time.

Finance company

A lender that is not a bank. As a class, finance companies fund asset deals without holding the deposit base a bank does, which tends to make them more focused on the asset itself, more willing to consider particular industries or older gear, and quicker to decide on the deals that fit their appetite. They price for the risk they take. A broker panel usually includes both banks and finance companies.

Financier

Another word for the lender: the party providing the funds.

G

Guarantee

A promise by a director or related party to stand behind the debt if the business cannot pay. Common where the borrowing entity is a company, particularly a newer one. It is worth reading carefully, because it steps outside the company structure. Director guarantees in full

GST

The tax component of the asset's price. How GST is handled in a finance structure, and what you can claim, is a tax question for the ATO or a registered tax agent rather than something to read off a glossary. How GST sits in a deal

H

Hire purchase

A structure where the lender owns the asset and you hire it across the term, with ownership passing to you once the final payment is made. Less common than it once was, but still seen. Hire purchase in full

I

Interest rate

The cost of the money, expressed as a rate. What sits behind your rate is the borrower, the asset, the term and the structure. No general page can tell you your rate, which is why an actual quote on your own deal is worth more than any example. What shapes a rate

L

Lease

An arrangement where the lender owns the asset and you pay to use it across a term, often with a residual at the end. Used for commercial, income-producing equipment. Finance leases in full

Lender

Any party providing the finance, whether a bank or a finance company.

N

Net position

What the business is worth once liabilities are taken off assets. Part of how a lender sizes up an established operator.

O

Ownership structure

Whether you borrow as a sole trader, partnership, company or trust. It affects who signs, who guarantees, and how the deal is assessed. Borrowing as a sole trader

P

Payout figure

The amount needed to close out a loan early, including the remaining balance and any costs. Ask for it in writing before you refinance or sell. Paying out early

Principal

The amount actually borrowed, separate from the interest charged on it.

Private sale

Buying an asset from another business rather than a dealer. Lenders fund these, but they tend to do more checking on the asset and the seller, which can add time. The PPSR and used gear

R

Refinance

Replacing an existing facility with a new one, often to deal with a balloon, free up cash, or change the term. Refinancing in full

Residual

The lease equivalent of a balloon: the amount left owing at the end of the term.

S

Security

The asset the lender can recover if the loan is not repaid. In asset finance the thing you are buying is usually the security, which is why its age, condition and resale value affect how the deal is assessed.

Settlement

The completion of the deal, when funds move and the asset changes hands.

T

Term

The length of the agreement. A longer term lowers the regular repayment but you pay for longer. A shorter term costs more each month and clears the debt sooner. The term is often matched to how long the asset will earn.

Title

Legal ownership of the asset. Under a chattel mortgage you hold title from the start. Under a lease or hire purchase the lender holds it until the arrangement ends.

How the pieces fit together

Most of these terms describe levers on a single deal. The borrower, the asset, the deposit, the balloon, the term and the structure all move together, and pulling one changes another. A bigger deposit or a shorter term lowers what you pay over time but asks more of you up front or each month. A balloon does the reverse.

Different operators lean on different terms. A first-asset owner-driver cares most about the deposit and the guarantee. An established fleet cares about the term, the balloon and end-of-term planning across several assets at once.

Whichever you are, knowing the words is the start of reading the deal clearly.