Operating Lease vs. Chattel Mortgage: What’s Right for Your Business?

When financing equipment or vehicles, one of the first decisions you'll face is whether to lease or buy. For many businesses, this comes down to choosing between an operating lease and a chattel mortgage.

Each option has its advantages, and the right choice depends on your cash flow, tax position, and long-term plans for the asset.

Here’s a breakdown to help you make a more informed decision.

What is an Operating Lease?

An operating lease is a rental agreement where the asset remains the property of the lender or finance company. You make regular payments to use the asset for an agreed term, typically with the option to upgrade or return it at the end of the lease.

Key features:

• The asset doesn’t appear on your balance sheet.
• Payments are generally fully tax-deductible as an operating expense.
• Ideal for businesses that prefer to update equipment regularly or don’t want to tie up capital in ownership.

Best suited for:
Businesses that value flexibility, especially in industries where technology or equipment updates quickly.

What is a Chattel Mortgage?

A chattel mortgage is a finance arrangement where your business takes ownership of the asset from day one, while the lender holds a mortgage over it until the loan is repaid.

Key features:

• You own the asset, and it appears on your balance sheet.
• Depreciation and interest may be tax-deductible.
• You may be eligible to claim the asset under the instant asset write-off (if available).

Best suited for:
Businesses that want full ownership, expect to use the asset long-term, or are looking to build equity.

How to Choose Between Them

Here are a few questions to help guide the decision:

1. How long will you use the asset?
   If it’s for a short-term project or frequent upgrades are likely, leasing may be better.
2. Do you want ownership?
   If asset control and eventual resale matter, a chattel mortgage may suit you more.
3. What’s your tax strategy?
   Leases are treated as operating expenses. Chattel mortgages allow for depreciation and interest deductions. Your accountant can help you weigh the benefits based on your structure.
4. What’s your cash flow like?
   Leases can offer lower monthly payments and reduce upfront costs. Chattel mortgages may require a deposit but give you asset value over time.

Final Thoughts

Choosing between an operating lease and a chattel mortgage isn’t just about payments - it’s about aligning your finance solution with how your business runs.

Not sure what’s right for you? We help businesses every day navigate these decisions and structure finance in a way that supports both short-term needs and long-term goals.

Get in touch if you’re considering new equipment or vehicles. We’ll walk you through your options and help you secure a solution that works for your business.