Equipment Rent Vs Chattel Mortgage

​Equipment Rent Vs Chattel Mortgage
 
Last month we had an enquiry from Bob* a tradesman to finance some equipment for his business. Not your run of the mill car or truck, but some specialized equipment for completing the job to benchmark levels. This is not considered a straightforward asset so it requires specialist finance and rate shopping.
 
Bob had already found the exact piece of equipment he wanted, and was keen to use it on the job asap. The supplier had in house finance available and had already pre-approved him for the buy! Bob’s business partner however wanted a second opinion. Everything was moving too fast and he wanted to ensure it was a good deal so wrote to us to check it out and sent us a copy of the contract.
 
Upon review of the offer we noted that it was a ‘Rental Schedule’ which means that you return the goods at the end of the lease. Jess immediately rang Bob to discuss it “Bob, do you realise that after four years, you have to return this equipment? Has anybody spoken to you about this? I’m just trying to compare this quote to us but at the end of our finance, you will own the equipment, and I just want to be sure we are comparing apples to apples”. Bob pondered “Nobody told me this Jess, let me ring and find out”.
 
Later that day Bob rang Jess back “Ok, they have told me I can have the equipment for $1, at the end of the rental schedule, so now you can compare, what can you do for me?”. Jess thought about this, something didn’t sound right, as nowhere in the contract did it say $1 “Bob, I’d like you to request that they put that in writing, just to be sure that you know the contract terms are only $1”. “Fair enough” said Bob, and went back to the suppliers.
 
The following day Bob rang with news “Jess, they have put it in writing but they have now told me that the buy back will actually be $1,980 for the equipment after the 48 months! I’m really shocked that the original quote was so much lower!”. Now that he had asked for it in writing, the figure had changed!! “Bob that’s ok, now that we have the true figure we can compare costs” Jess explained.
 
Jess was able to provide Bob with a competitive quote, and compare the 48 payments PLUS the $1980 to her quote for 48 payments with no balloon or costs later. Jess also structured the finance as a Chattel Mortgage “Bob, by having this as a Chattel Mortgage, and being a GST registered business, you can claim the GST on the purchased goods as a GST credit in this quarters BAS, that’s close to $2k in GST!”. Bob was thrilled with the idea, and proceeded with the purchase via a Chattel Mortgage that Jess arranged.
 
The importance of speaking with finance brokers who are specialists in equipment can be the difference between thousands of dollars in your back pocket or falling into the trap of not understanding all the fine print in the contract. We will always seek to compare the terms of other contracts with ours, and help you find ways to save money.
 
Bob now has his equipment on site and is enjoying working much faster, and is assured that he will not have to hand it back at the end of term!
 
*names and quotes have been changed to hide identity of the real client. This is based on a true story that occurred in January 2018