Benefits of a Chattel Mortgage for Business Equipment Financing

Utilising A Chattel Mortgage for Business Finance

What are the benefits of using a Chattel Mortgage for business equipment financing?

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

A Chattel Mortgage loan is a simple yet effective finance option designed for business plant and equipment purchases. Here are six rules to consider when arranging finance for your business that will ensure that you retain full control over the loan process and save money in the process.

A well constructed Chattel Mortgage loan can give you a real competitive edge! The six rules to follow when negotiating a Chattel Mortgage are set out below.

Rule #1

Understand the mechanics of a Chattel Mortgage.

Basically, the Lender takes a security over the assets to be financed. The borrower owns the assets. A Chattel mortgage loan is a very old financial instrument and is well proven and documented. If you are going to finance your house or business, it's worth-while doing the research on chattel mortgages - and finding out more about them.

The difference between a hire purchase loan and a chattel mortgage loan is . .

with a chattel mortgage, the ownership of the goods stay with the borrower ... i.e. the assets must be owned by the client.

This is similar to a property mortgage loan. The borrower owns the property and the lender registers an interest in the property by having the mortgage loan registered in the title.
with a hire purchase loan, the lender owns the asset/s until the borrower has repaid the loan with interest. The borrower has full use of the asset but does not own it. The borrower also has contractual obligations in relation to the maintenance, insurance, etc. of the asset.

Rule #2

Understand the difference between a well-constructed Chattel Mortgage and a dealer-bundled loan offering.

The best way to buy goods is to separate the purchase of the goods from the loan that finances them. Obviously not all, but many in-house loan finance deals can be very expensive - and they are not transparent.

It can be quite difficult, even if you know what you are looking for in ascertaining how much interest you are paying, to establish the true cost of the goods that you are borrowing against.

What often happens is, the loan interest rate is discounted - so it appears to offer savings ... and then the dealer margin is loaded back up into the goods ... or the other way around. Unless you can unbundle a package from the seller of the dealer be very careful of the package.

What may seem like a bargain could turn out to be very expensive when you unravel the transaction and look at the individual components.

Handling trade-ins in a dealer or sellers bundled loan solution.

It's important that you do not allow the trade-in to be put into the loan bundles solution. This is where dealers and sellers make a lot of money at your expense. If there are well established second-hand markets for the goods that are being bought (Gumtree, Ebay, etc.), then the buyer should ascertain the market value of the goods to be traded. Once this is established then you are in a position to negotiate with the trade in value. It'll help you see how much flexibility that the seller really has on price - and how the deal is being structured.

If the purchase amount is significant (if you need to finance the purchase, we'll assume it's significant) then it would be a good idea to run the numbers past your accountant. There can be some significant tax implications if the deal is not well-structured.

Better still, talk to a finance or mortgage broker. He or she will know precisiely how to structure a deal to your specific business needs.

Rule #3

Get pre-approval for the loan before you buy the stuff!.

No instructions here ... this is simple, contact a Mortgage Broker to design the right package for you - and he/she will be able to lodge an application for 'assessment'. Having the finance pre-approved will also give you a bit more control in negotiating the purchase.

Rule #4

Understand the T&Cs.

It's important that you know and understand the terms and conditions of your Chattel Mortgage loan, particlarly as they relate to your obligations under the loan contract.

The lender has a clear claim to the goods in the event of default - and has many rights as the borrower has obligations! If you are involved in a large transaction, you should seek legal advice to explain the roles and obligations on all parties t the transaction. The cost of the advice could be very cheap compared to the cost of litigation of a loan that goes bad.

The fact that a Chattel mortgage loan is registered with a Government or Financial regulator under a Bill of Sale gives some idea of the legal structure and status of a Chattel Mortgage loan.

As with Hire Purchase loans, the loan period can be negotiated - usually somewhere between 12 and 60 months. However, in larger transactions, they can be for negotiated for longer periods of time.

Rule #5

Structure your payments to suit your cash flow.

One of the biggest mistakes when applying for loan finance and, particularly with Chattel Mortgage loans, is in not knowing the flexibility the lender can have on your specific circumstances.

Many businesses and householders are subject to seasonal, variable or contract payments. If this is you, ask your broker if the the repayments for the Chattel Loan can vary to fit around your seasonal income.

A lender can adjust the loan repayment schedule quite easily. There may or may not be an adjustment in interest on the loan ... but for the convenience of marrying your loan payment to your cash flow is something worthy of consideration.

At the first interview (with your broker and/or the lender), have evidence of your receipts on the pattern of income payments over a few years. Bank statements showing deposit and any contracts stating terms and conditions of payment will be necessary for a lender to consider.The reason for doing it at the first interview is - it sets the posture and they will be more inclined to look at it in a positive light.

Rule #6

Consider a balloon payment to keep your monthly loan payments down.

As with a Hire Purchase loan, or an equipment lease agreement, balloon (aka residual) payment options should be available. A balloon, or residual payment is the last payment in a loan that can represent a substantial portion of the original loan. Loans can be structured this way to keep your payments low. This is because you are paying off only a smaller portion of the loan in your monthly repayments.

However there are some traps:

Ensure that the sale cost of the goods at the end of the loan is likely to be at least equal to the balloon payment. This is a common mistake made by many. It can lead to you having to re-finance the goods at the end of the initial loan - when they may be only half the value of the loan. Worse still, having to financing goods that you do not own!

Always seek financial and taxation advise when entering into a legal agreement. A Chattel Agreement is a legal document and you need to obtain the correct financial advice at all times.

Published: Sunday, 1st Aug 2021
Author: 150

Rate this article

0 Comments

No comments yet. Be the first to share your thoughts.

Personal Loans Articles

Small Business Loans Under $10,000: What Australian Businesses Should Know

Small business loans under $10,000 can help Australian sole traders, contractors and small business owners manage cash flow, equipment, stock or short-term operating needs. Before applying, it is important to understand how lenders assess business income, repayments, security, documentation and affordability. - read more

The Path to Financial Freedom: Effective Debt Management Tips

Financial freedom is the ability to live life without being burdened by the stress of money woes. Imagine having enough savings to cover emergencies, living comfortably without constant financial anxiety, and even planning for retirement confidently. This is the goal many Australians strive for – a peaceful and secure life that isn't dominated by worries about bills and debt. - read more

Smart Budgeting Tips to Improve Your Financial Health

Smart budgeting is one of the most vital tools in maintaining and improving your financial health. It provides a clear picture of your financial situation, helping you make informed decisions about spending, saving, and borrowing. - read more

Bad Credit? Here's How You Can Still Get a Competitive Personal Loan

In the landscape of modern finance, credit scores can often feel like gatekeepers to our goals, barring or granting access to essential funding when we need it most. The truth is, debt is as common as it is complex, threading through the lives of many with silent tenacity. Understanding its prevalence is the first step in navigating the choppy financial waters it can create. - read more

Eligibility for Small Loans Under $10,000 in Australia

Small loan eligibility in Australia is usually assessed on income, expenses, employment, credit history, existing debts and affordability. This guide explains the common factors lenders may consider before offering a loan under $10,000. - read more

How to Create a Budget That Really Works for You

Budgeting is a foundational skill in the realm of personal finance, and as crucial as setting the sails is to a captain navigating through treacherous waters. Just as steady winds propel a ship towards its destination, a well-structured budget guides individuals towards their financial goals with confidence and control. - read more

Secured vs Unsecured Loans: How to Compare Your Options in Australia

Secured and unsecured loans are two common ways Australians access personal finance. The main difference is whether the loan is backed by an asset, but that difference can affect interest rates, borrowing limits, repayment terms, eligibility and risk. - read more

Small Loan Regulations in Australia: Fees, Responsible Lending and Borrower Protections

Small and short-term loans in Australia are subject to important rules covering fees, suitability checks, disclosure, hardship and complaints. This guide explains the key borrower protections to understand before applying. - read more

Understanding the Key Differences Between Secured and Unsecured Loans

In simple terms, a loan is an amount of money you borrow from a lender and agree to pay back over time, often with interest. Loans come in various forms and can be tailored to suit different needs, such as buying a home, financing a car, or consolidating debt. - read more

Finance News

What the RBA Rate Hold Means for Small Loan Borrowers

12 Aug 2026: Paige Estritori

Australia�s latest interest rate pause gives borrowers a little breathing space, but it should not be mistaken for a drop in loan costs. After months of pressure from inflation, rents, insurance, groceries and utilities, the Reserve Bank�s decision to keep the cash rate steady leaves many households and small business owners still managing repayments shaped by earlier increases. - read more

Fast Cash Pressure Is Creating New Loan Scam Risks

04 Aug 2026: Paige Estritori

Australians searching for quick finance are being urged to slow down before responding to online loan offers, as scam activity continues to target people under cost-of-living pressure. The warning is especially relevant for borrowers who need urgent money for bills, car repairs, medical costs, rent gaps or short-term business cash flow. - read more

What ASIC’s Hardship Focus Means for Everyday Borrowers

28 Jul 2026: Paige Estritori

Australia’s credit regulator has kept the spotlight on how lenders respond when borrowers fall into financial hardship, a theme that matters directly to households and small business operators using small loans to manage short-term pressure. The message is simple: hardship support should be accessible, practical and clearly explained, not buried behind confusing processes or repeated requests for the same information. - read more

What ASIC’s Private Credit Alarm Means for Small Borrowers

21 Jul 2026: Paige Estritori

Australia’s corporate regulator has renewed attention on private credit, warning that a fast-growing part of the lending market is now facing a tougher test. Private credit generally refers to loans arranged outside the traditional banking system, often through funds, investment managers or specialist lenders. While this may sound distant from everyday small loans, the health of non-bank credit can still influence how finance is priced, assessed and made available. - read more

Car Finance Fees Under Scrutiny as ASIC Flags Borrower Risks

07 Jul 2026: Paige Estritori

ASIC’s latest review of the motor vehicle finance sector is a timely reminder that the true cost of borrowing can sit well beyond the advertised interest rate. While the review focused on car loans, the lessons apply to many Australians considering small personal loans, short term finance or any borrowing arranged through a third party. - read more

Payday Super Set to Test Small Business Cash Flow

23 Jun 2026: Paige Estritori

Australian small business owners have a tight deadline ahead as Payday Super begins on 1 July 2026, shifting superannuation from a quarterly obligation to a payment made alongside wages. The reform is designed to improve transparency for employees and reduce unpaid super, but it also changes the cash flow rhythm many employers have relied on for years. - read more

High-Risk SMEs Intensify Credit Applications Amid Economic Challenges

16 Jun 2026: Paige Estritori

Recent data from Equifax's Business Market Pulse for Q1 2026 reveals a concerning trend: high-risk small and medium-sized enterprises (SMEs) are significantly increasing their credit applications, even as overall SME credit demand declines. This pattern suggests that financially vulnerable businesses are seeking additional funding to navigate tightening economic conditions. - read more

Record High Personal Loan Borrowing Amidst Rising Living Costs in Australia

09 Jun 2026: Paige Estritori

In the first quarter of 2026, Australians have borrowed a record $5.1 billion in personal loans, as reported by the Australian Bureau of Statistics. This significant increase reflects the mounting financial pressures faced by individuals due to escalating living costs. - read more

Latitude Financial Penalised for Breaching Australian Spam Regulations

09 Jun 2026: Paige Estritori

Latitude Financial, Australia's largest non-bank consumer finance company, has been fined $3.96 million by the Australian Communications and Media Authority (ACMA) for violating spam laws. The company sent over 2.3 million marketing messages between March 2024 and April 2025 without accurate contact information, and nearly 345,000 of these lacked a functional unsubscribe option. - read more

Click for more Finance News

Need Help Finding a Loan?

All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase

Negative Amortization:
A situation in which the loan payment for any period is less than the interest charged over that period, causing the loan balance to increase.