When it comes to purchasing new assets such as cars, trucks and equipment, businesses have a choice of several types of business finance – Lease, Hire Purchase or Commercial Hire Purchase, Rent-to-Buy and Chattel Mortgage. The decision around which loan type to select will involve considering the features and benefits of each in the context of the structure and goals of the individual operation. As broker-lenders our role is to source and negotiate the loan while the business’ accountant is best placed to offer guidance in finance product selection.
While we do not take on the role of advising businesses which finance product to select, we are regularly asked for information on what is the most popular loan type or which one do most other businesses select. For that we can provide a response. Chattel Mortgage is a highly popular form of business finance as it suits many businesses and is ideally suited for those wanting to utilise temporary full expensing.
While always a widely-used form of finance, there has been an increase in interest and requests for quotes for Chattel Mortgage since the introduction of Instant Asset Write-Off and temporary full expensing. We detail why this form of business finance represents such an effective finance option for a wide range of businesses and the acquisition of many types of business equipment.
Chattel Mortgage Features
Compared with some of the other loan types, Chattel Mortgage may have an unusual name. But in reality it has a very straightforward and easily understood format. For your information, the chattel refers to the goods being finance and the mortgage is the loan itself. To assist in understanding this type of finance, there are banks and lenders that simply refer to this finance product as Truck or Equipment Loan or Business Vehicle Loan.
Chattel Mortgage is highly versatile and suits the purchase of all types vehicles to be used in a business including cars, utes, vans and others; trucks; and an extensive range of equipment required by business in all industry sectors.
It suits businesses that use a cash accounting method – a widely-used accounting method by Australian businesses of all sizes.
The format is straightforward in that the goods are used as security for the finance. The lender accepts the goods as guarantee. Repayments are set-up in equal, fixed monthly amounts over the fixed finance term. The finance term will be dependent on the goods being acquired and your Jade Finance consultant negotiates the most appropriate loan term possible.
A balloon is an option with Chattel Mortgage. This is a percentage of the acquisition price of the goods which is due to be paid at the end of the finance term. Balloon amounts can be used extremely effectively to achieve target finance repayments. Your Jade consultant will handle negotiations around the balloon for you but you can see how it works by using our finance calculator.
Ownership of the goods immediately is transferred to the business and the goods are entered on the balance sheet of that business. With the asset in the balance sheet, the business can depreciate the goods in line with the relevant ATO rulings. The finance repayments are not a tax deduction, just the interest portion is. The business receives the major deduction in its tax return through asset depreciation.
The GST on the purchase can be claimed in its entirety on the BAS following purchase.
Chattel Mortgage Interest Rate
Interest rates are at historic lows across the lending sector as the RBA has held the cash rate at the lowest ever 0.1% rate since November 2020. But interest rates on business finance products and for different types of equipment are different. Chattel Mortgage attracts the lowest rate compared with other forms of finance.
The low interest rate applied to Chattel Mortgage is certainly a factor which attracts a lot of attention for this finance product.
Attractive Taxation Measures
As mentioned at the outset, the introduction of accelerated asset depreciation measures such as temporary full expensing, has certainly increased the interest in Chattel Mortgage as a form of finance. Under this measure, businesses that meet the eligibility criteria can claim the full purchase price of the eligible business goods being acquired in the year they were purchased.
This is a massive advantage as it allows the business to claim a significant tax deduction in one year. Compare this to normal depreciation rulings which allow only a percentage of the value of the goods to be deducted as a business expense each year.
Businesses and the assets being acquired must meet the temporary full expensing criteria in order to be eligible to claim the deduction. Temporary full expensing is in place until June 2023.
Sourcing Chattel Mortgage Finance
Jade Finance provides Chattel Mortgage at better interest rates to finance cars, business vehicles, trucks and equipment. It is available for all types of businesses – SMEs, large corporations, partnerships, sole traders and others. Even new businesses and start-ups can apply for Chattel Mortgage for their equipment as we provide Low Docs and No Docs Loans with this type of finance.
There are many reasons why businesses choose Chattel Mortgage to finance their acquisitions. For a quote for your upcoming purchase, contact Jade Finance to discuss your requirements.
Contact Jade Finance 1300 000 008 to request a Chattel Mortgage quote for your impending business equipment acquisition.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.