Evaluating Business Chattel Mortgage Finance: 6 Essential Rules

A Chattel Mortgage for Business Finance - Six rules of evaluation and selection.

What rules should I follow for a business chattel mortgage loan?

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 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 . .

Business Plant & Equipment Finance

Looking for the best way to finance your business plant & equipment? Well, you need look no further! Simply submit our 2-minute business loan enquiry form ... and we'll help get you qualified for the best rate Plant & Equipment loan available from our national panel of independent business finance brokers. We also have access to the best rates & options for Business Cashflow finance. So, why not give us a go ... no charge, no obligation!

... get a business loan quote ...

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: Saturday, 11th Jul 2020
Author: Paige Estritori

Business Loans Articles

The Role of Refinancing in Sustaining Business Growth

Loan refinancing is a financial strategy where existing debts are replaced with new ones, usually with different terms and conditions. While it might seem like just swapping one loan for another, the nuances can be game-changers for businesses. Refinancing often provides a chance to improve borrowing conditions, such as reducing interest rates, altering loan durations, or switching to a more favourable lender. - read more

Customized Leasing Solutions: Finding the Right Terms for Your Business Needs

Equipment leasing presents a strategic financial opportunity for Australian businesses seeking to maximize operational efficiency without the hefty price tag of purchasing. As many companies strive to stay competitive and agile in a bustling economic landscape, the importance of flexible asset acquisition cannot be understated. - read more

Business Loans in Australia: Tips for Finding the Perfect Fit

Funding is crucial for startups and small businesses looking to grow and succeed. In Australia, there are multiple financing options available, each catering to different business needs. These options range from traditional bank loans to more flexible lines of credit, helping entrepreneurs find the best fit for their specific requirements. - read more

A Growth Blueprint: Crafting a Financial Plan for Expanding Enterprises

Financial planning plays a crucial role when businesses are poised for growth. As enterprises expand, a well-crafted financial plan acts as a guiding framework to navigate the complexities that come with scaling operations. This plan helps in ensuring that resources are meticulously allocated and potential financial hurdles are effectively managed. - read more

Secured vs Unsecured Business Loans: Which is Right for You?

In Australia, business loans are a crucial tool for companies looking to grow, expand, or manage cash flow. From small enterprises to large corporations, securing funding can mean the difference between success and failure. The financial landscape is diverse, offering various loan options tailored to different needs and business models. - read more

Financing Options to Boost Your Business Liquidity

Liquidity is a vital aspect of any successful business, representing the ability to meet short-term obligations and to manage cash flow effectively. High liquidity indicates that a company can swiftly convert assets into cash to cover its liabilities. This financial agility enables businesses to navigate unpredictability, seize opportunities, and maintain operational stability. - read more

Unlocking Cash Flow: How Equipment Leasing Can Benefit Your Australian Business

In the ever-evolving landscape of Australian business, equipment leasing has emerged as a pivotal financial tool for companies across the spectrum. Whether you're a small start-up or a well-established corporation, the agility to pivot and adapt to market changes is critical. This introduction seeks to shed light on the concept of equipment leasing and its significance in bolstering the operational efficiency of Australian businesses. - read more

Finance News

ASX Adjusts Dividend Policy Following ASIC's $150 Million Capital Charge

16 Dec 2025: Paige Estritori

The Australian Securities Exchange (ASX) has announced a reduction in its dividend payout ratio to 75–85% of underlying net profit after tax. This decision follows the Australian Securities and Investments Commission's (ASIC) imposition of an additional A$150 million capital charge on the exchange operator. The regulatory action stems from an inquiry into ASX's operational shortcomings, including a failed software upgrade and recurring trade-processing issues. - read more

Hanwha's Investment in Austal Expands Amidst Regulatory Oversight

16 Dec 2025: Paige Estritori

The Australian government has approved South Korean conglomerate Hanwha's proposal to increase its shareholding in Australian shipbuilder Austal from 9.9% to 19.9%. This approval comes with stringent conditions concerning security and data access to safeguard Australia's strategic and national security interests. - read more

November Sees Softening in Australian Business Conditions Amidst Capacity Challenges

16 Dec 2025: Paige Estritori

In November, Australian business conditions experienced a decline, as reported by the National Australia Bank (NAB) survey. The business conditions index fell by 3 points to +7, indicating a softening in sales and profits after a period of strong performance. The business confidence index also dropped by 5 points to +1, suggesting a potential cooling in consumer demand following October's strength. - read more

RBA Holds Cash Rate at 3.60%, Forecasts Extended Stability

08 Dec 2025: Paige Estritori

The Reserve Bank of Australia (RBA) has announced its decision to maintain the official cash rate at 3.60% during its December meeting, signaling a potential extended period of stability through 2026. This move reflects the central bank's response to higher-than-expected inflation and a robust economic environment. - read more

October Sees Significant Rise in Australian Household Spending

08 Dec 2025: Paige Estritori

In October 2025, Australian household spending experienced a notable increase of 1.3%, reaching A$78.4 billion. This marks the most substantial monthly rise in nearly two years, driven primarily by year-end sales events and heightened consumer confidence. - read more

Australia's Economy Achieves 2.1% Annual Growth in Q3 2025

08 Dec 2025: Paige Estritori

Australia's economy has demonstrated remarkable resilience, recording a 2.1% year-on-year growth in the third quarter of 2025. This marks the fastest annual expansion in two years, driven by robust business investments and consumer spending. - read more

APRA's New Cap on High DTI Home Loans: What It Means for Borrowers

30 Nov 2025: Paige Estritori

The Australian Prudential Regulation Authority (APRA) has announced a significant policy change aimed at mitigating risks in the housing market. Effective February 2026, APRA will implement a cap restricting banks from issuing more than 20% of new home loans to borrowers with debt-to-income (DTI) ratios of six times or higher. This measure applies to both owner-occupier and investor loans, excluding new housing developments. - 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

Volatility:
A statistical measure of the dispersion of returns for a given security or market index. Higher volatility indicates higher risk.