Sale and leaseback of equipment is a financial option available to businesses that is something…
Chattel Mortgage or Finance Lease?
How a Chattel Mortgage is different from a Finance Lease
The main way a Chattel Mortgage differs from a Finance Lease is ownership of the asset.
With a Chattel Mortgage, the lender advances the borrower the money to buy the asset and registers a “mortgage” over the asset as security for the loan.
When the loan is fully repaid, the charge is removed, and the client has clear title to the asset.
How a Finance Lease is different from a Chattel Mortgage
With a Finance Lease, it is the Financier who owns the asset.
The client then “leases” or “hires” the asset from the Financier for a fixed monthly payment over a set period of time.
At the end of the contract the client usually has the option to purchase the asset for an agreed price.
Whilst at face value the products are similar, there are differences:
Ownership & GST are the main considerations
As stated previously, the main difference between these two financing options is ownership of the asset and the tax implications flowing from that.
Choosing the wrong product can be expensive!
At face value, the two products may seem similar, however it is important the right product and structure are chosen as they can be expensive to unwind!
Also, how financiers quote can vary widely. A great headline interest rate may mask a higher overall cost of finance! It is critical to ensure you are comparing “apples with apples”
If you would like guidance to choose the right product (and get a great quote with “no smoke & mirrors”) don’t hesitate to give me a call!