On top of that, a residual payment or balloon payment may be used at the end of the term, which can reduce monthly repayments and improve cash flow along the way. Alternatively, the debt can also be fully paid down over the length of the loan term.

The chattel mortgage also offers a number of tax benefits for businesses, such as the ability to claim the asset’s depreciation and the interest paid on the loan as an expense. Additionally, businesses can claim the entire upfront GST cost of the asset as an imputation taxation credit (ITC) on their next BAS submission, provided the asset is for business use. This makes a chattel mortgage ideal for smaller businesses under the simplified tax system (STS) with less than $10 million in turnover.

A chattel mortgage provides businesses with up to 100% financing (including GST if desired) and businesses take full ownership of the equipment. The payments and interest are fixed for the life of the loan, which provides businesses with predictability. A chattel mortgage is available for new or used equipment, including private sales.

If the business is unable to make the repayments, this means the lender could repossess the equipment. Additionally, chattel mortgages typically have higher interest rates than traditional bank loans or finance leases, which can make them more expensive in the long run.

It’s also worth noting that the residual payment or balloon payment at the end of the term can be a disadvantage for some businesses. While this payment can help reduce monthly repayments, it also means that businesses may need to refinance the equipment or pay the remaining balance in a lump sum. Additionally, the finance term is usually up to 5 years, which may not be sufficient for businesses that require longer financing durations.