What is a chattel mortgage over machinery, plant and equipment?

In Shakespeare’s The Taming of the Shrew, Kate is described by Petruchio as “my goods, my chattels”. These days, thanks to the Married Women’s Property Acts (1870, 1882 and 1893) women are no longer regarded as property, but how can this archaic word assist business people in the 21st century. We find out more about chattel mortgages.

What is a chattel?

Chattels are defined as items of personal property which are movable and are distinct from items such as land or buildings. In a business context, this definition might include goods, furniture and other items which are capable of being moved, as well as fixtures, plant, equipment and trade machinery.

What is a chattel mortgage?

Chattel mortgages are loans which are secured by the goods themselves rather than by property, as in a traditional mortgage. In a chattel mortgage, the lender holds a ‘lien’ which enshrines their legal right to sell the items if the debtor defaults. The lien holder is the organisation which provides the loan and, at the end of the loan period, when the amount is paid in full, the lien is released.

Businesses may make use of chattel mortgages to take out a loan, for example on new machinery or commercial properties, using other chattels as security. This would allow the business owner to use the machinery or property without the added burden of a lien.

For the lender, a chattel mortgage is advantageous because, in the case of the loanee defaulting, the goods under the lien may be seized and used to pay off the debt.

Why consider a chattel mortgage?

Chattel mortgages may be considered a business transaction and, therefore, depreciation and other tax efficiencies may be claimed by taking one out. In addition, the interest rate may be lower than on an unsecured loan, saving your business money and assisting with cash flow.

If you’d like more information about a chattel mortgage and whether one is suitable for your business, talk to a member of our team. Our experts can offer you advice and information about what the best course of action is for you.

Written by: Tony Hirst on Tuesday 26/07/2016