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A chattel mortgage is a type of financing that can be used to buy new or used equipment, machinery, furniture, and other business assets. Chattel mortgages are typically secured by the items being financed, which means the lender has priority on these assets in case of borrower default. One of the frequently asked Chattel Mortgage Questions is how worth are they compared to the traditional bank loans? Why would one opt for this financing? This article will highlight five benefits of using this type of finance option for your business.
1) Chattel Mortgage Loans Have Quicker Application and Approval Processes
Chattel mortgage loans’ application process is generally quicker than traditional bank financing. Since you are borrowing against assets that can be used as collateral, these types of loans typically do not require extensive credit checks or lengthy underwriting periods to approve the loan amounts requested by borrowers. The loan terms are also more flexible, so borrowers can pick loan amounts that suit their immediate needs. Chattel mortgages loans can be approved very quickly and with relatively few hoops for borrowers to jump through when compared to other types of business financing options.
2) Chattel Mortgage Loans Have a Lower Interest Rate
Another great benefit of chattel mortgages is that they have a lower interest rate than traditional bank loans. This can be helpful in saving your money on your overall financing costs, which can be beneficial for businesses looking to expand their operations. Combining the lower interest rate with the other benefits that chattel mortgages offer makes it easy to see why this type of financing is so popular among business owners.
3) Chattel Mortgage Offers Better Asset Protection
It offers better asset protection than traditional bank loans because they are secured by the assets being financed. This means that in case of borrower default, the lender has priority on these assets and can seize them to help cover any money owed on the loan balance. For example, if you had a chattel mortgage on a piece of equipment and the balance became due, the lender could seize that asset to help cover what you owe. This is especially beneficial because it enables lenders to offer better loan terms than they otherwise would have if these assets were not being used as collateral for financing purposes. When offered better loan terms, this means you, as the business owner, will be able to borrow more money at a lower rate.
4 Chattel Mortgage Provides Flexibility
Chattel mortgages provide business owners with a lot of flexibility because the same rules do not bind them to traditional bank loans. For example, chattel mortgage terms don’t typically require debt service coverage or any financial ratio requirements like what you would most find in a typical loan agreement. This means you can use the funds from a chattel mortgage to invest back into your business at your own discretion without having to worry about what you are allowed or not allowed to do. This flexibility allows you as a business owner to have greater control over how and when these financing proceeds will be used, which means that there is no third party telling you how to run your business.
5 Chattel Mortgage Provides Liquidity
Chattel mortgages provide businesses with a simple, effective way to obtain liquidity. This is important because most business owners typically have cash tied up in equipment and other assets. The chattel mortgage allows you to quickly access that money so it can be used for operational expenses without having to sell the asset first or wait for a traditional bank loan to come through. This can be particularly very helpful when you need cash quickly. Chattel mortgage rates can vary depending on your situation, but they tend to be lower than traditional home loans or equipment leases/financing that require collateral. There is no time to wait on the approval process of other financing methods, such as an equipment leasing agreement or business line of credit. This is because chattel mortgages contain very few variables in their terms, which means they are typically approved much more quickly than other types of loans. If your business needs a quick influx of cash, a chattel mortgage could be the perfect solution
