If you need to buy a car for your business and your cash flow situation isn’t as great as you’d like, it leaves you in a bind.
How can you drive up business, literally, without a car – but how can you afford the car without more business?
One solution is a loan product specifically designed for businesses – the chattel mortgage.
What is a chattel mortgage?
A chattel mortgage is much the same as car loan with one critical difference – a chattel mortgage is directly tied to the vehicle you’re purchasing.
That means if you default on the loan, the bank or lender has the right to repossess the car. However, this has an upside.
The fact banks secure your loan against your vehicle means you get lower-than- average interest rates in return.
How does a chattel mortgage help my business with cash flow?
The primary way a chattel mortgage helps your business with cash flow is the flexibility chattel mortgages have over consumer car loans.
Many businesses structure their chattel mortgage to optimise it for cash flow.
For example, if you are a seasonal business, many banks and lenders will structure repayments around peak periods.
One of the more common features of chattel mortgages is variable term lengths and balloon payments.
You can set up a chattel mortgage from 12 months to as long as seven years.
You can also opt for balloon payments due at the end of the loan, which reduces your monthly repayment.
Not only that, a business can take out a loan exceeding the value of the car.
That means you can purchase a car without any initial outlay, and you can pay off other necessities such as insurance, registration and other on road costs in your monthly repayments.
Since chattel mortgages are a type of business loan, your finance team or accountant can claim GST paid on the purchase price, interest on repayments and depreciation.
Your business can also claim the fuel input tax credit.
Best of all, you may be able to claim all of these as tax deductions on your next business activity statement.
As always, you should seek the advice of a financial professional before settling on a chattel mortgage.