Loan type Equipment & Asset Finance

Chattel mortgage, lease or hire purchase: what's the difference?

All three let the business use the asset from day one. The difference is who owns it, and when.

A chattel mortgage is a loan to buy the asset. The business owns it from the start, and the lender takes security over it until the loan is repaid. It's the most common structure for business vehicles and equipment.

A finance lease means the lender owns the asset and leases it to the business for a set term, usually with a residual value at the end that the business can pay out to keep it.

Commercial hire purchase sits in between. The lender buys the asset, the business hires it, and ownership passes to the business with the final payment.

Each is treated differently for tax and GST, so the right structure is a question for your accountant as much as for the lender.

The language is older than the product. "Chattel" comes from the same Old French root as "cattle": for centuries, livestock was the movable wealth that mattered most. A chattel mortgage is its modern descendant, security over something that moves rather than over land. The security can drive away, which is exactly why the register matters. In Australia, a lender's interest in business equipment is recorded on the Personal Property Securities Register, so lenders search it before they fund and register their own interest once they do.

When it helps

• New or used equipment. Buying the vehicles, plant or machinery a contract needs.
• Keeping cash in the business. Spreading the cost over the asset's working life instead of draining working capital.
• Taking on bigger work. Adding fleet, capacity or plant to win the next contract.
• Releasing capital from what you own. Refinancing equipment that's already paid for, or a sale and leaseback.
• Assets that don't fit the standard box. Specialised, imported or privately bought equipment that a mainstream product won't take.

How it works

1. Tell us the scenario. The asset, the price and the seller, how much you need and when.
2. We match it to lenders. In the first conversation we'll tell you whether it fits a lender in our group or network, and what we need to take it further.
3. The lender assesses it. They look at the asset, the business and its ability to meet repayments, and make the credit decision.
4. Funds, then repayments. The lender pays the seller, the asset goes to work, and repayments run over the agreed term, with any residual paid at the end.

What lenders look at

An equipment lender asks two questions. Can the business meet the repayments? And if it can't, what would the asset fetch?

That second question is the one people underestimate. It isn't what you paid for the asset. It's what it would sell for second-hand, and how easily. Assets with deep resale markets, like commercial vehicles, trucks and earthmoving machinery, are easier to fund than highly customised equipment that only suits one business. Age, condition and who's selling it matter too, and a private sale is assessed differently from a dealer sale.

Then the business: how long it has been trading, its cash flow, and how the asset will earn its keep. For straightforward purchases by established businesses, the paperwork can be light.

What it costs

Equipment finance is usually priced below unsecured business lending, and the reason is structural: the asset is identifiable, registered and saleable, so the lender has something real to recover. Pricing moves with how readily the asset could be resold, its age, the term, the size of any residual and the strength of the business. Specialised, older or privately bought assets cost more to fund because it's harder for a lender to recover their value.

Getting indicative terms costs you nothing, and any fees are agreed with you up front, before any work starts.

This page is general information only. It isn't financial, credit or legal advice and doesn't take into account your particular circumstances. Lending decisions are made by the lender.