Small Loans Australia :: Articles

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

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

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!
  • 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.
Compare Business Finance Rates & Options
If you are looking to grow your enterprise with a business loan, we can help you find the best Plant & Equipment loans, Cash Flow Funding, Commercial Property loans, Business Acquisition funding as well as Business Refinance and Consolidation Loans. No charge, no obligation.


Finance Articles

How to Buy a House with Bad Credit How to Buy a House with Bad Credit
Most people would expect that a bad credit rating would make it impossible to get a mortgage to buy a home - but it's not as simple as that. Can you buy a house with bad credit? The short answer is YES, but it is not all that easy. - read more
When should I use a personal loan? When should I use a personal loan?
Unsecured personal loans can really help in a pinch. If your savings are low and your car breaks down, for example, such a loan can patch up your life. Or maybe you're buying a big-ticket item and you need backup money to cover a short-term hole in your bank account. - read more
Choosing the Right Bank Choosing the Right Bank
Financial institutions are located all around the world. If you are looking to open a bank account, whether that bank account is a transactional account or a savings account, you have a number of banking options. - read more
Why Payday Lending Enhances Consumer Welfare Why Payday Lending Enhances Consumer Welfare
Today, We’ll defy the critics and demonstrate why consumer welfare is enhanced within a competitive payday-lending environment. - read more
Knowing these loan finance options will make borrowing easier and save you money Knowing these loan finance options will make borrowing easier and save you money
Knowing these 6 types of loan finance options will make it easier for you do deal with brokers and lenders. Once you go from asking for a loan to asking for a "novated lease with a 45% balloon payment" you will be in a far better position to negotiate your loan with confidence. - read more
Co-Signing Loans - Risky Business Co-Signing Loans - Risky Business
There may come a time in your life when you are asked to co-sign for a loan or credit card. If this is the case, there are several things to consider before making a final decision. Technically, you are putting yourself at risk of damaging your own credit in the event that the loan goes unpaid. - read more
How Credit Card Balance Transfers Can Damage Your Credit Rating How Credit Card Balance Transfers Can Damage Your Credit Rating
Since the banks and finance providers have been castigated for the way they seemingly indiscriminately awarded credit to people who could ill afford it, the chances of being accepted for loans and credit cards have decreased. Concurrently, there is a greater focus on individual's being aware of how credit works and what their financial behaviors means in terms of a credit score and history. - read more
7 things you need to know about a Hire Purchase loan 7 things you need to know about a Hire Purchase loan
There are seven things you should know before you ever think of getting a Hire Purchase loan. Knowing these things will give you control and power in the loan process. Power and control will will save you money - read more
Business Loans: Managing interest rate risks Business Loans: Managing interest rate risks
"I want the protection in the current low interest rate environment but I don't want to be locked in for too long a period" - a commonly heard requirement from business borrowers. - read more

Finance News

Personal Loans to help Australians in need: FSO
Oct 29 :: As Australia prepares to clean up following devastating fires and floods, Financial Services Online CEO, Andrew Clark, has announced... read more

Small business loans to help Aussie businesses through tough times
Nov 27 :: Financial Services Online has today announced a new credit facility for Australian business customers who are seeking loans for... read more

Police issue warning about bank scam
Nov 20 :: Melbourne police are warning people about a scam in which fraudsters pose as bankers and ask for money.They say they... read more

ANZ nets solid profit despite wealth management
Oct 26 :: ANZ banking group has reported a solid full-year result with net profit attributable to shareholders up 6 per cent to nearly... read more

Millions lack access to basic financial services
Jun 01 :: Nearly 3 million Australians do not have access to basic financial products such as a credit card, car insurance or even a bank... read more

Reserve Bank leaves interest rates steady
Apr 04 :: The board of the Reserve Bank of Australia has left interest rates unchanged at 4.25 per cent at its monthly meeting today, as... read more

Big banks not too profitable: RBA
Feb 25 :: The governor of the Reserve Bank says the Australian banking sector is not too profitable.Appearing before the House... read more

Commonwealth Bank changes ads following ASIC concern
Jan 16 :: The Commonwealth Bank of Australia has agreed to change some of its advertised loan comparison rates after concerns were... read more

Inflation fall strengthens case for rate cuts
Dec 06 :: A leading unofficial measure of inflation eased last month due to falling food and fuel prices, strengthening the case for interest... read more


Need Help Finding a Loan?
Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check!
All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase
Debt Consolidation:
Taking advantage of lower interest rates that may be available by the grouping of multiple loans into one, lower interest rate loan.


Quick Links: | Small Loans | Student Loans | Finance Australia | Quick Finance | No Credit Check | Payday Loan | $5000 Loans