The cash position after settlement can be as important as the purchase price.
Finance education
Cash vs Chattel Mortgage
Compare buying business equipment or a vehicle with cash against financing it through a chattel mortgage.
Under a chattel mortgage, the business generally owns the asset from the start while the lender takes security over it until the finance is repaid. This can preserve cash and align repayments with the asset’s useful life, but the total cost is higher than the cash price.
Cash flowFunding structureInteractive toolAustralian business
Consider interest, fees, flexibility, security, term and final obligations.
Stress test the facility against a weaker trading period.
Tax, GST and lender suitability depend on the individual circumstances.
Overview
Start with the business outcome.
Under a chattel mortgage, the business generally owns the asset from the start while the lender takes security over it until the finance is repaid. This can preserve cash and align repayments with the asset’s useful life, but the total cost is higher than the cash price.
General information only: The material and tools do not constitute a quote, approval, tax advice or a recommendation to borrow. Credit is subject to lender assessment, eligibility, terms, fees and security. Speak with an accountant about tax and GST consequences.
Comparison
Potential advantages and trade-offs.
Why a business may consider finance
- Business ownership of the asset from the beginning
- Preserve operating cash by financing part of the purchase
- Structure deposit, term and possible balloon around cash flow
- Match payments to the period the asset is used to generate income
What the business gives up
- Interest and fees increase the total cost
- The asset is normally used as security
- A balloon reduces monthly repayments but leaves a final amount
- Tax and GST outcomes depend on the business and should be confirmed with an accountant
Interactive tool
Model the decision.
Adjust the assumptions to see how the structure changes liquidity, repayment pressure or estimated cost. The output is educational and intentionally conservative.
Illustrative repayment only. Fees, tax and GST treatment are excluded. A balloon remains payable at the end.
Practical example
Put the structure into context.
Illustrative scenario
A transport business buying a $160,000 vehicle can compare the immediate loss of liquidity from a cash purchase with the repayment and balloon profile of a chattel mortgage.
Balanced decision
When cash or finance may fit.
A blended structure can also be considered—for example, contributing a deposit from surplus cash while financing the long-lived asset and retaining an operating buffer.
FAQs
Frequently asked questions.
Who owns the asset under a chattel mortgage?
Business.gov.au describes a chattel mortgage as borrowing money to own an item, with the business owning the asset from the start.
Can a balloon be included?
Many structures may include a balloon, subject to lender policy and asset type.
Is tax treatment automatic?
No. Business use, GST registration, asset type and current tax rules all matter. Obtain accounting advice.
Further reading
Official Australian information.
These sources provide general government and regulatory information. They do not replace individual credit, legal or accounting advice.
Business.gov.au — Choose your fundingGovernment overview of debt, equity and common funding structures, including chattel mortgages.Business.gov.au — Apply for a business loanGeneral information on secured loans, asset-backed borrowing, invoice finance and trade finance.Business.gov.au — Leasing or buying vehicles and equipmentGeneral considerations when deciding how to acquire business assets.Australian Taxation Office — Claiming GST creditsOfficial guidance. Eligibility depends on the acquisition, business use, GST registration and tax rules.ASIC — Credit advertising guidanceGuidance on clear and non-misleading promotion of financial products and credit services.