Newsagency Finance

Chattel Mortgage finance is a means of raising finance to acquire and asset usually for business purposes. It is effectively a secured loan where the lender takes security over the goods being financed. The goods being financed are referred to as the Chattel or Chattels and the lender takes a mortgage over the chattels as security for the loan. The loan is therefore called a Chattel Mortgage loan.

These loans have become popular since the introduction of the Goods and Services Tax (GST) as it allows a GST registered purchaser who accounts on the cash method (usually with turnover less than $1,000,000), to claim back the GST in the asset cost in a lump sum rather than over the term of the contract. With Commercial Hire Purchase finance, if the purchaser accounts on the cash method they can only recoup the GST in the purchase price over the term of the loan.

Clearly, this can be very important as highlighted in the case of a $100,000 truck purchase with a GST component of $9,091. Being able to recoup the $9,091 into the business cash flow can certainly help with the acquisition expenses such as insurance & related costs.

For smaller amounts however, the cost of registration for a Chattel Mortgage Agreement of $350.00 can more than offset the benefit of recouping the GST upfront. As general advice therefore we recommend that for smaller amounts financed, say under $25,000, Commercial Hire Purchase makes more sense than Chattel Mortgage Finance.

The interest rates charged for Chattel Mortgage finance are the same as for Commercial Hire Purchase (CHP). The main difference is in the related costs and stamp duty. Lenders usually charge an up front documentation fee of approximately $350. This is because the documentation is somewhat more involved than for lease and CHP finance. Secondly, the stamp duty charged on the contract is payable up front in a lump sump and is based on the amount financed. For example, if an asset is financed for $100,000, the up front stamp duty in NSW is charged at $5 for the first $16,000 plus $4 per thousand thereafter. Total stamp duty is therefore approximately $341. If you financed the $100,000 on CHP over 60 months with a 20% balloon at the end at a rate of 7%, total stamp duty over the term of the contract would be $761. Clearly in this instance Chattel Mortgage stamp duty is cheaper, but it must be paid up front. Most lenders however will allow borrowers to include the documentation fee and the stamp duty in the amount financed so that these amounts don't need to be paid up front by the borrower. The overall cost therefore of financing an asset on Chattel Mortgage is similar to Commercial Hire Purchase.