Should you get a chattel mortgage for your business?
What is a chattel mortgage?
When looking to finance a vehicle or equipment for your business, you have a few options to choose from – one of these being a chattel mortgage. A chattel mortgage guarantees you, or your business, the property of the asset upon purchase. As a security measure, the lender places a mortgage on the asset to assure themselves that you will pay the loan back. If the borrower fails to repay, the finance-provider may be able to repossess your car or equipment. This makes for a security-backed loan, which lowers the risk for the lender. This lowered risk for the lender generally lowers the interest of the loan, being one of the benefits of choosing a chattel mortgage.
How does it work?
Like most other finance options, a chattel mortgage is payed back in instalments on either a weekly, fortnightly, monthly, or otherwise arranged basis. When choosing your payment plan, you can also decide what way you want to repay the mortgage, whether that be with a balloon payment or not. A balloon payment is a deferred payment on the loan due at the end of the term. We use balloon payments to reduce the repayment thus protecting your cashflow. However, a large balloon payment will increase the risk for the lender and the borrower due to the unpredictable nature of the value of the asset in the future.
Why choose a chattel mortgage for your business?
One of the main advantages that come with chattel mortgages is that businesses can finance 100% of the vehicle(s) or equipment(s) purchase price, and even exceed the 100% with spreading costs of financing premium insurance or scheduled services. Another feature of chattel mortgage is the flexibility of the payment plan. Depending on the lender/financier, the range of payment plans can stretch from 12 months to 5 years. Additionally, by being able to claim the asset as your property, there are some tax implications that can benefit you and your business.
Is a chattel mortgage the right thing for your business?
Chattel mortgages come with a couple of benefits including the ability to finance 100% of an asset through a business, which means you do not have to empty your cash reserves on a new investment – alleviating much of the risk associated with making large investments.
We advise you talk to your accountant or a finance-professional about the full range of tax benefits that come with the different financing options. Depending on your circumstances and business-strategy, you may be better off with another option.
Contact us today and talk to our experts about what finance option you should choose.