A chattel mortgage is one of the main ways Australian businesses finance vehicles, machinery and commercial equipment while owning the asset from the day the finance settles.
Instead of paying the entire purchase price upfront, the business borrows against the equipment and repays the finance over an agreed term. The lender registers security over the asset while the loan remains outstanding.
For businesses that intend to own and use equipment for the long term, this can provide a straightforward alternative to structures where the finance provider owns the equipment during the agreement.
The Asset Finance Shop (TAFS) primarily arranges chattel mortgage finance for commercial assets. Through access to more than 80 bank and non-bank lenders, TAFS can structure finance around the asset, business, available deposit, preferred term and cash flow requirements.
This guide explains how a business chattel mortgage works, what can be financed, how tax treatment may apply and how chattel mortgage compares with hire purchase and rent to own.
A chattel mortgage is a commercial loan used to purchase a business asset.
The word chattel refers to the movable asset being financed.
This might be a:
Under a chattel mortgage:
This ownership structure is one of the main differences between a chattel mortgage and some other forms of equipment financing.
The process generally begins with the equipment your business wants to purchase.
The asset can potentially be purchased through:
Both new and used commercial equipment can be considered, subject to lender requirements.
For example:
Equipment price: $180,000
The business then decides whether it wants to:
A commercial finance broker can help structure:
For example:
Equipment price: $180,000
Deposit: $20,000
Finance amount: $160,000
Term: 5 years
A balloon may also be included where appropriate.
Once settlement occurs, the business owns the equipment.
The lender registers security over it while the finance remains outstanding.
Repayments are made over the agreed finance term.
The exact repayment depends on factors including:
Once the finance has been fully repaid, the lender removes its security interest over the asset.
The business already owns the equipment, so there is not a separate ownership transfer at the end in the same way there may be under other structures.
A chattel mortgage can be used across a broad range of industries.
TAFS can arrange finance for eligible:
This can include:
This can include:
This can include:
This can include:
Selected lenders can consider other identifiable business assets that are being purchased for commercial use.
The available finance depends on the asset and lender criteria.
The main attraction is the combination of asset ownership and structured repayments.
The business gets the equipment it needs now without necessarily removing the full purchase price from working capital.
For example, consider a contractor purchasing a:
$200,000 excavator
Paying cash means $200,000 leaves the business immediately.
Financing the excavator may allow more of that money to remain available for:
The business pays interest for using the finance, so the decision should compare the finance cost with the value of keeping cash available.
The business does.
This is one of the most important parts of the chattel mortgage definition.
Once settlement occurs:
Business = owner
Lender = secured financier
The lender does not own the equipment in the same way a provider may under a hire purchase or rent-to-own arrangement.
Instead, the lender registers security over the asset until the finance has been repaid.
The financed equipment acts as security for the loan.
For example, if a business finances an excavator:
This is why the lender assesses both:
The main difference between a chattel mortgage and traditional hire purchase is ownership.
Under a chattel mortgage:
Under a traditional hire purchase agreement:
The exact legal and financial terms depend on the specific agreement.
TAFS primarily arranges chattel mortgage finance rather than hire purchase.
Rent-to-own follows another ownership model.
The business owns the equipment from settlement.
Under a typical rent-to-own arrangement:
For businesses comparing rent to own with a chattel mortgage, the monthly payment should not be the only consideration.
Compare:
TAFS does not position rent to own as its primary equipment finance product.
|
Feature |
Chattel Mortgage |
Hire Purchase |
Rent to Own |
|
Business owns asset from settlement |
Yes |
Generally no |
Generally no |
|
Initial owner |
Business |
Finance provider |
Provider |
|
Regular payments |
Finance repayments |
Hire purchase payments |
Rental payments |
|
Ownership at end |
Business already owns asset |
Generally transfers under agreement |
May transfer under agreement |
|
Lender/provider interest |
Lender holds security |
Depends on agreement |
Provider generally owns equipment |
|
Deposit may be available |
Yes |
Depends on agreement |
Depends on agreement |
|
Balloon may be available |
Yes |
Depends on agreement |
Structure differs |
|
Main equipment finance structure arranged by TAFS |
Yes |
No |
No |
The actual legal, accounting and tax treatment depends on the specific finance agreement.
Neither product is automatically better for every business.
A chattel mortgage may suit a business that wants to:
Hire purchase follows a different ownership structure.
When comparing the two, look beyond the monthly repayment.
Consider:
Because TAFS primarily arranges chattel mortgage finance, businesses considering hire purchase should review the specific agreement and discuss tax treatment with their accountant.
It depends on what the business wants from the asset.
If the business intends to purchase equipment and own it from the beginning, a chattel mortgage provides a straightforward ownership structure.
Rent to own may suit different circumstances because ownership generally remains with the provider initially.
Consider a business purchasing a machine it expects to operate for eight years.
Owning the equipment from settlement may be important.
Another business might have different requirements around:
The strongest option should be determined by the total commercial outcome, not simply which product produces the smallest advertised repayment.
Parts of a chattel mortgage transaction may be tax deductible, but the entire finance repayment should not automatically be treated as one deduction.
A normal repayment contains two main components:
This reduces the amount originally borrowed.
This is the lender's charge for providing the finance.
Eligible business-use interest may potentially be deductible.
The asset itself may then be treated separately for:
The exact treatment depends on the business, asset and how it is used.
Speak with your accountant before making a finance decision based on tax outcomes.
Eligible interest associated with an income-producing business asset may potentially be deductible.
For example, a business may finance an excavator that is used entirely to generate business income.
The interest component of the finance may potentially form part of the business's deductible expenses.
Where an asset is partly used privately, the tax treatment may need to be adjusted according to business use.
Your accountant should confirm the appropriate claim.
Generally, no.
This is a common misunderstanding.
Imagine the business makes a:
$4,000 monthly repayment
That does not automatically mean the business claims:
$4,000 per month as a finance expense
The repayment includes principal and interest.
Principal reduces the loan balance.
Eligible interest may be treated differently.
The asset itself is considered separately.
Potentially.
A GST-registered business may be able to claim an eligible GST credit on the business-use portion of the asset purchase where the applicable requirements are satisfied.
The position can depend on factors including:
The GST treatment is separate from the loan repayment.
The seller can make a difference.
Where the seller charges GST, an eligible GST-registered business may potentially have a GST credit available.
A private seller may not charge GST.
If no GST is charged on the sale, there may be no purchase GST credit available.
The equipment can still potentially be financed.
Finance eligibility and GST treatment are separate issues.
Potentially.
Because the business owns an asset purchased under a chattel mortgage, eligible depreciation or other applicable capital allowance treatment may apply.
The outcome can depend on:
The loan term does not automatically determine how the equipment is depreciated.
A machine financed over five years does not necessarily have a five-year depreciation period.
Finance and tax accounting are separate calculations.
Not automatically.
A balloon is an amount of principal remaining at the end of the finance term.
For example:
Finance amount: $150,000
Term: 5 years
Balloon: $30,000
Regular repayments are generally lower because $30,000 remains outstanding.
But the balloon itself does not automatically create an additional tax deduction.
A larger balloon can affect:
Your accountant should advise on the tax treatment.
A balloon can be useful where the business wants to reduce regular repayments.
That can leave more monthly cash available for:
The balloon needs to make commercial sense relative to the expected future value of the equipment.
For example, leaving a very large final payment on an asset expected to have little value by the end of the finance term may create unnecessary risk.
Not in every application.
Deposit requirements depend on:
A deposit can reduce:
However, contributing a deposit also removes cash from the business.
The best structure should consider working capital as well as the repayment.
Potentially.
If the business is replacing an existing asset, available equity may contribute toward the new equipment.
For example:
Trade-in value: $90,000
Existing finance payout: $40,000
Potential equity:
$50,000
That $50,000 may be applied toward the replacement asset.
The existing lender can be paid out as part of settlement.
Potentially.
Selected applications may qualify to finance the full eligible purchase price.
The lender may assess:
The purchase price also needs to make sense relative to the lender's assessment of the asset's value.
Yes.
Sole traders can apply for a chattel mortgage for eligible business vehicles, machinery and equipment.
The lender may consider:
The asset should generally be purchased for an income-producing business purpose.
Potentially.
There is no single minimum ABN age across every commercial asset finance lender.
Selected lenders can consider newer businesses based on factors including:
A new ABN does not automatically mean the applicant is new to the industry.
For example:
ABN age: 8 months
Earthmoving experience: 12 years
Equipment: Excavator
Current work: Existing civil projects
That complete background should be included in the application.
Potentially.
Selected lenders can assess eligible low doc applications without requiring full financial statements in every case.
The lender may instead use:
Low doc does not mean no assessment.
The lender still needs to understand the business and whether it can support the proposed repayment.
Yes.
Used business equipment can be financed through selected lenders.
The lender may consider:
Older equipment can sometimes result in:
Yes, through selected lenders.
A business does not necessarily need to purchase equipment through a dealer.
Private-sale finance may require additional checks around:
An inspection or valuation may also be required.
Yes, through selected lenders.
An initial finance assessment before an auction can help establish:
Final approval remains subject to the equipment purchased.
Commercial equipment financing involves assessment of both the business and the asset.
The lender may look at:
Relevant experience can be particularly important for newer businesses.
Depending on the lender, this may be assessed using:
This can include:
The lender may consider:
This can include:
Ultimately, the lender needs to determine whether the proposed finance fits the financial position of the business.
The exact documents depend on the lender and application.
For an initial assessment, useful information may include:
Some applications may also require:
TAFS can determine which documents the selected lender actually requires.
Straightforward commercial asset finance applications can be approved in as little as 24 hours once the required information is available.
Approval may take longer where the application includes:
Approval and settlement are also separate stages.
The finance may be approved while final asset or seller checks are still being completed.
Do not compare only the advertised interest rate.
Look at the entire finance structure.
Compare:
For example, a lower repayment may simply be the result of:
That does not automatically mean the finance is cheaper.
There is no single rate available to every Australian business.
Pricing can depend on:
The goal should be to find a competitive finance structure from a lender whose criteria suit the application.
Applying directly to one lender means the business is assessed against that lender's policy.
A specialised asset finance broker can compare the application against multiple lender criteria.
For example:
May suit established businesses with full financials.
May provide a low doc pathway.
May consider a newer ABN with strong industry experience.
May be more comfortable financing older used equipment.
May accept private-sale machinery.
The business has not changed between those lenders.
Their policies have.
TAFS has access to more than 80 bank and non-bank lenders.
TAFS assesses:
TAFS looks at:
TAFS starts with a soft credit check before the formal lender application.
The internal credit team pre-vets the application against lender requirements.
TAFS compares the application against suitable options from its panel of more than 80 bank and non-bank lenders.
This can include:
Once an appropriate lender and structure are selected, the formal application is submitted.
TAFS coordinates the remaining lender, supplier and settlement requirements.
Before applying, prepare information around:
|
Area |
Information |
|
Business |
ABN and business structure |
|
Identity |
Driver's licence |
|
Trading history |
Time in business |
|
Banking |
Recent business bank statements |
|
Experience |
Relevant industry background |
|
Existing finance |
Vehicle, equipment and business loans |
|
Asset |
Make, model, year and description |
|
Purchase |
Price and seller |
|
Deposit |
Cash contribution if applicable |
|
Trade-in |
Value and finance payout |
|
Settlement |
Invoice and asset identification |
Not every lender requires every item.
A chattel mortgage is a commercial loan used to purchase a business asset.
The business owns the asset from settlement while the lender registers security over it until the finance has been repaid.
Chattel refers to the movable asset being financed.
This can include a vehicle, truck, machine or other commercial equipment.
The business owns the asset from settlement.
The lender holds security over it while the loan remains outstanding.
Yes.
Chattel mortgage equipment financing can be used for eligible commercial vehicles, machinery and business equipment.
Parts of the transaction may potentially be deductible.
Eligible business-use interest may be deductible, while depreciation and GST are treated separately.
The complete finance repayment should not automatically be treated as one deduction.
Eligible interest relating to business use may potentially be deductible.
Speak with your accountant about your specific circumstances.
Potentially.
An eligible GST-registered business may be able to claim a GST credit on the business-use portion of the purchase where the relevant requirements are satisfied.
Potentially.
Because the business owns the asset, eligible depreciation or other applicable capital allowance treatment may apply.
The main difference is ownership.
Under a chattel mortgage, the business owns the asset from settlement.
Under traditional hire purchase, the finance provider generally owns the asset during the agreement and ownership generally transfers later according to the contract.
With a chattel mortgage, the business owns the equipment from settlement.
Under a typical rent-to-own arrangement, the provider generally retains ownership initially, with ownership potentially transferring later.
It depends on the business.
A chattel mortgage may suit businesses that want immediate ownership and intend to retain the equipment.
Compare the full commercial and tax outcome rather than only repayments.
It depends on the required ownership structure, total cost, cash flow and long-term plans for the asset.
TAFS primarily arranges chattel mortgage finance.
Yes.
Sole traders can apply for chattel mortgage finance for eligible business assets, subject to lender approval.
Potentially.
Selected lenders consider newer businesses based on industry experience, current work, financial position, credit history and the asset.
Potentially.
Selected lenders can assess eligible applications using recent bank statements and other current business information instead of full financial statements.
Yes.
Used commercial equipment can be financed through selected lenders, subject to age, condition and value requirements.
Yes, through selected lenders.
Additional seller and equipment checks may be required.
Potentially.
Selected lenders finance eligible auction purchases, and an initial assessment can be completed before bidding.
Not always.
Deposit requirements depend on the business, asset and lender.
Potentially.
Selected applicants may qualify for finance covering the full eligible purchase price.
Potentially.
A balloon can reduce regular repayments but leaves a larger amount outstanding at the end of the finance term.
Not automatically.
A balloon changes how principal is repaid and does not itself create an additional deduction.
TAFS primarily arranges chattel mortgage finance for eligible commercial vehicles, machinery and equipment.
Hire purchase and rent to own are discussed here so businesses can understand the differences between common equipment financing structures.
TAFS has access to more than 80 bank and non-bank lenders.
No.
TAFS assesses the business and asset first, compares relevant lender criteria and then submits the formal application to the selected lender.
A chattel mortgage can give an Australian business immediate ownership of the commercial vehicle, machinery or equipment it needs while spreading the purchase cost over an agreed finance term.
The right structure should consider more than the monthly repayment.
Purchase price, deposit, trade-in equity, finance term, balloon, working capital, total finance cost and the expected working life of the equipment should all form part of the decision.
TAFS can review your business, asset and available documentation before comparing suitable chattel mortgage options through access to more than 80 bank and non-bank lenders.
The Asset Finance Shop (TAFS) is a commercial asset finance brokerage based in Sydney.
Information on this page is general in nature and doesn't take your personal circumstances into account. Speak to a TAFS broker for options tailored to your business, and to your accountant regarding tax treatment.