Looking to buy a vehicle, machinery or equipment for your business? Then a Chattel Mortgage could be worth considering.
Also known as a form of equipment finance, a Chattel Mortgage is one of the most popular funding structures among small to medium business owners.
So why is it so popular?
Because this type of business funding gives you ownership of the asset from day one. There are also flexible repayment options available and, depending on your circumstances, potential tax benefits.
We know what you’re thinking though — “mortgage” usually applies to a home, not a work vehicle or piece of equipment.
While the name sounds similar to a home loan, a Chattel Mortgage simply refers to the structure of the finance arrangement. The lender uses the asset itself as security while ownership remains with your business.
Okay, so how can a Chattel Mortgage benefit you?
First of all, Chattel Mortgages are generally designed for business-use assets.
As a rule, the asset being financed usually needs to be used predominantly for business purposes — generally more than 50% business use.
That means they can commonly be used for:
- Business vehicles
- Trucks
- Machinery and heavy equipment
- Plant and specialised business equipment
With that in mind, a Chattel Mortgage allows you to own the funded asset immediately rather than waiting until the end of the loan term.
Unlike structures such as Hire Purchase or Finance Lease arrangements, the asset appears on your balance sheet as both an asset and a liability.
Interest rates can also be lower than some unsecured lending options because the asset acts as security for the loan.
What about tax benefits?
One of the reasons Chattel Mortgages are popular with businesses is because there can be potential tax advantages.
Depending on your circumstances, you may be able to:
- Claim GST input tax credits on the purchase price
- Claim interest expenses
- Claim depreciation on the asset
Tax treatment will vary depending on your business structure and circumstances, so it’s important to seek advice from your accountant.
Flexible repayments and balloon payments
Chattel Mortgages can also provide flexibility around repayments.
You can choose to include a balloon payment at the end of the loan term, which can reduce your regular repayments throughout the life of the loan.
This can help improve cash flow and preserve working capital for other areas of your business.
However, it’s important to remember that the balloon amount still needs to be repaid or refinanced at the end of the term.
Need help choosing the right structure?
Choosing between a Chattel Mortgage, lease or other funding structure isn’t always straightforward.
A QPF Broker can help compare options and identify the right solution for your business needs.
Whether you’re funding a business vehicle, truck or equipment purchase, get in touch with our team today.
