Chattel Mortgage
The Assistance Business Owners Need
This is a scheme that requires the submission of property collateral before obtaining loans to ease the burden of bad credit. It is quite similar to a traditional loan, as they share identical elements but are far apart in their distinctions. A chattel mortgage is a kind of loan that uses an item of a moveable personal property as loan security.
In a chattel mortgage, a borrower typically purchases a vehicle, modular or manufactured home, or piece of heavy equipment with the loan, and that item purchased in itself serves as the loan security. The item purchased guarantees the loan, and the borrower holds a lien over the property till the loan is repaid. Often, the interest rate is lower than traditional loans because of the collateral. In the case of default, the lender can recover the loaned amount by possessing ownership of the property. The lender could then take possession of the property or sell it to get back money lost.
This mortgage has a very flexible payment structure and as a result. Sometimes, it is used to finance something exclusively for profit which means that the asset will be used for commercial purposes most of the time).
There are also certain specific rules that apply to chattel mortgages. Chattel home mortgages, for instance, must be registered with a public registry so that third parties are fully aware of the status prior to entering into a financial contract with a prospective borrower who wishes to use the same property as collateral for another loan.
Equipment Chattel Mortgage
Many business owners just starting may find it hard to purchase heavy equipment necessary for the business at a go, so they go for a more flexible financial arrangement, and in this case, a financial institution. This kind of chattel mortgage gives the borrower the money needed to purchase the equipment, and the payment is spread across several months (the length depends on the contract).
It is typically easier and faster to get an equipment chattel mortgage because of the security. This typically means that the equipment financed is the surety of the loans and thus can be claimed by the lender in the case of loan default. This is a crucial feature of this mortgage because the security is moveable and, therefore, can quickly be sold off.
Due to the fact that these goods have a long lifespan, the seller can spread the cost over time, which in turn results in affordable prices for the customers.
Features of Equipment Chattel Mortgage
A vital feature of this mortgage is that the business owner takes possession of the property from inception. This means that it becomes an asset of the business and can be filed under the business’ assets, thus increasing the valuation of such a company. Also, the business gets 100% funding for the equipment. This way, the business owner does not have to worry about capital as payment for the equipment does not come from the capital, and thus, more money can be diverted into other business areas that need it.
Sometimes, the funding could go beyond 100% as there could be additional funding support for insurance and scheduled maintenance. The duration of the payment could be extended beyond the timeframe stipulated by the agreement, and the payment can equally be shortened.
Balloon payments are also acceptable in equipment chattel mortgage. Balloon payment refers to a lump sum of money paid for the mortgage at the end of the contract. The payment is usually higher than the regular monthly payments. This is done so that the monthly repayments are lower than normal, and most of the payment is made as a balloon payment at the end of the contract.
This is supposed to make life easier as monthly repayments are lower; however, it can also be a bad idea. If the balloon payment cannot be paid at the end of the contract, the equipment is lost. Hence, why it is advisable to be sure you can pay the balloon payment at the end before acquiring it.
Benefits of Equipment Chattel Mortgage
Duration:
A huge benefit that chattel mortgage has over other traditional loans is that the period is usually shorter. This could range from twelve (12) to eighty-four (84) months.
Tax benefits:
In a chattel mortgage, there may be tax deductions available to you, especially when the equipment is used for commercial purposes. Further, you can claim GST in some instances. In order to collect the GST, a new vehicle is purchased. You can claim GST credits on vehicles and other goods and services used in a commercial capacity. If your business is registered for GST, you can claim the GST paid when you purchase the car as an input tax credit on your Bank Activity Statement (BAS).
Balloon payment:
With a chattel mortgage, you have the option of opting for balloon payment plans which reduces your monthly payment amount for a lump sum at the end of the contract.
Lower interest fee:
A chattel mortgage typically has cheaper interest rates. This is due to the fact that the item purchased also acts as security and can be claimed in the unlikely event of a default.
Flexible of fixed payment structure:
The payments structure of a chattel mortgage is flexible and can be tailored to your cash flow. This way, you’re not paying, monthly, above your income. Also, the payment structure could be fixed; hence, you know exactly how much you’re paying, and you can work towards meeting it.
Ownership of asset:
The business owner already owns the asset as soon as it is purchased thus can be put down in the finance books of the company, invariably increasing the business’ valuation.
No deposit required:
To get a chattel mortgage, you don’t have to pay any deposit, and the purchase of the equipment is financed 100%, and sometimes a little more than that in order to cover for insurance payment and scheduled repair and maintenance.