Selling a Business With Vehicles and Equipment Still on Finance
Selling a business with vehicles or equipment on finance? How chattel mortgages are paid out at settlement, when a buyer can take over, and GST basics.
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Selling a Business · Equipment Finance · Payout at Settlement
A buyer cannot simply take over your chattel mortgage at settlement. In most sales the finance on the utes, trucks and machines is paid out and the buyer arranges their own, so the order you do things in matters more than the loan itself.
Quick Answer
When you sell a business, vehicles and equipment on a chattel mortgage are usually paid out from the sale proceeds at settlement and the lender's PPSR registration is removed, because a buyer can rarely take over the loan. Order a payout figure for every financed asset well before the settlement date, and expect the buyer to search the PPSR for anything you have not disclosed.
Also called: selling a business with finance owing, transferring equipment finance to a buyer, novating a chattel mortgage. Novation means the lender agrees to swap borrowers; it is uncommon and needs the lender's consent and a full credit check on the buyer.
What happens to chattel mortgages when you sell a business?
When you sell a business, each chattel mortgage is usually paid out from the sale proceeds at settlement, and the lender releases its security so the buyer takes the goods clear. Under a chattel mortgage your business owns the ute, truck or machine from the day it is bought, but the lender holds a security interest over it, recorded on the PPSR, until the loan is repaid.
A buyer's solicitor will not let the purchase complete with that interest still attached, because the lender could later enforce it against goods the buyer has paid for. So the usual route is plain: work out what is owed on every financed asset, clear it from the proceeds, and hand the goods over free of the lender's interest. How the product itself works, from deposit to balloon, sits in our chattel mortgage guide; this insight covers only the sale.
Does a share sale change what happens to the finance?
A share sale changes the picture because the company that signed the chattel mortgage stays the borrower; only its owners change. Many finance contracts treat a change in control as something the lender must approve, or as a default, and the wording varies by lender, so the contract needs reading before the share sale agreement is signed. The bigger issue for most sellers is the director's guarantee: it does not end when you sell your shares unless the lender releases you in writing.
Can a buyer take over your chattel mortgage?
A buyer can take over a chattel mortgage only if the lender agrees to novate it, and that is uncommon because the lender has to approve a new borrower from scratch. Novation replaces you with the buyer under a new or amended contract, and it needs the lender's consent in writing.
From the underwriter's seat, there is little reason to say yes. The existing deal was priced on your trading history, your financials and your guarantee. The buyer is often a new entity with no trading history of its own yet, buying a business it has not run. Where a lender is willing to look at it, the buyer is typically assessed like a fresh application, with fees and new documents on top; both vary by lender.
In most sales it is quicker and cleaner for the buyer to arrange their own chattel mortgage for the vehicles and equipment, or a business loan for the purchase as a whole, while you pay out yours. How a chattel mortgage compares with a lease, where the asset can sometimes be handed back instead, is covered in our chattel mortgage vs lease vs hire purchase guide.
Pay out at settlement
- Payout figures ordered for every financed asset
- Finance cleared from the sale proceeds
- Lender's registration removed from the PPSR
- Buyer takes the goods free of security
- Your guarantee of that loan ends once it is repaid, unless it also covers other debts with that lender
Buyer takes it on
- Needs the lender's written consent
- Buyer assessed as a new borrower
- Typically adds weeks to the timeline
- Fees and new documents, which vary by lender
- Your guarantee stays until released in writing
How is the finance paid out at settlement?
The finance is paid out at settlement by ordering a payout figure from each lender, paying that amount straight from the sale proceeds, and having each lender remove its registration. The steps below are the sequence that keeps it off the critical path.
- List every financed asset. Each vehicle, trailer, machine and item of plant, with its serial number or VIN, the lender and the contract number. Include anything on finance in a related entity that the business uses.
- Order payout figures before settlement. A payout figure is valid to a stated date and typically includes the remaining principal, any balloon and any early termination costs; what is included varies by lender. Early payout costs are covered in our chattel mortgage guide.
- Give the figures to your solicitor or conveyancer. The sale contract normally requires the assets to be delivered free of encumbrances at settlement, so each payout becomes a line on the settlement statement.
- Pay each lender from the proceeds. The payout is directed to the lender at settlement, not to you first, so the buyer can see the security being cleared.
- Confirm the release in writing. Each lender removes its PPSR registration once paid. Keep the confirmation; the buyer will ask for it.
Settlement dates move, so ask for figures valid a few days past the planned date, or order fresh ones if it slips. If any asset carries a balloon, the balloon is part of the payout; how balloons and residuals are calculated sits in our balloon payments and residual values guide.
| What changes | Pay out at settlement | Buyer takes over (novation) |
|---|---|---|
| Lender consent | Not needed; the lender is paid in full | Needed in writing, and the lender can decline |
| Buyer credit check | Only for any new finance the buyer arranges | Full assessment of the buyer as a new borrower, typically |
| PPSR | Lender's registration removed after payout | Lender's registration amended or replaced to show the buyer as grantor |
| Timing | Fits the settlement date when figures are ordered early | Usually adds weeks and can hold up settlement |
| Cost | The payout figure, including any early termination costs, which vary by lender | Lender fees and new documents, which vary by lender |
| Who is liable after settlement | Nobody; the loan is closed | The buyer, once the lender releases you; any guarantee stays until released in writing |
What will the buyer check on the PPSR?
The buyer runs their own PPSR search against your business and against serial-numbered goods such as vehicles, so anything still carrying a lender's interest shows up before they pay. A search against the business as grantor lists every registration against it, including any general security agreement a bank holds over all present and after-acquired property, not just the chattel mortgages.
Every registration that appears has to be explained: either it is being paid out at settlement, or it relates to finance already repaid and should have been removed. Old registrations from loans cleared years ago are a common surprise, and the secured party has to be asked to remove them, which takes time. Run the same search on your own business before you list it for sale, so there is nothing in it you cannot account for.
What a buyer checks when buying a single vehicle or machine is covered in our PPSR checks for asset and vehicle finance insight.
How do GST and a going concern sale treat financed assets?
A business sold as a going concern is generally GST-free as a whole, financed vehicles and equipment included: there is no GST on a going concern if the conditions are met. The ATO's sale of a going concern guidance sets those conditions out, including that the buyer is registered or required to be registered for GST, both parties agree in writing that the sale is of a going concern, and the seller supplies everything needed to keep the business running.
Paying out the finance does not change what is being sold. The goods still pass to the buyer as part of the business; they simply pass free of the lender's interest. Where it can matter is an asset you keep back, such as a ute you want to hold on to, because leaving out something the business needs to operate can affect whether the going concern conditions are met.
Capital gains tax may apply to goodwill and other assets, and vehicles and plant that have been depreciated have their own rules on sale. How the price is split across goodwill, equipment and stock affects all of this, and that split is a decision to make with your accountant before the contract is signed, not after.
What if the sale price does not cover the finance?
If the sale price does not cover what is owed, the difference still has to be paid to each lender before it releases its security, whether by you, the business or a guarantor. It usually happens when equipment was financed with a large balloon, bought near the top of the market, or when the business sells for little more than its assets.
- Put cash in at settlement. The simplest route if it is available, and it keeps the sale on time.
- Refinance the gap. A separate business loan can clear the difference, secured or unsecured depending on what you still own; terms vary by lender.
- Rework the price allocation. If the equipment is worth more to the buyer than the goodwill, the contract may be able to reflect that, with your accountant's input.
- Look at vendor finance carefully. Vendor finance lets the buyer pay part of the price over time, but your lenders still want paying at settlement, so it does not clear a chattel mortgage unless you fund the gap. How it works on a business sale is covered in our vendor finance for a business sale insight.
When a seller asks to refinance a gap, the first thing a lender asks is what security is left once the business has gone, and how the seller will repay without that business's income. A property, a new job or a new business helps; nothing at all makes it hard. Raise it early, while you still own the business and can show its trading.
What if you are restructuring, not selling?
If you are moving the business into your own company or trust rather than selling it to someone else, that is a restructure, and the finance is handled differently. Moving financed vehicles and equipment from a sole trader to a company or trust, and how lenders treat the new entity's trading history, is covered in our changed business structure guide. On the tax side, the ATO's small business restructure roll-over may let depreciating assets move across without an immediate tax hit when the restructure is genuine and the ultimate owners do not change; whether it applies to you is your accountant's call.
More guides on buying, selling and restructuring sit in the Business Owners Hub.
Selling a business with vehicles and equipment on finance is mostly a sequencing job. A buyer rarely takes over a chattel mortgage, so the finance is paid out from the sale proceeds at settlement, each lender removes its PPSR registration, and the buyer arranges their own funding. Order payout figures before settlement, search the PPSR on your own business before the buyer does, sort the going concern and price split with your accountant, and have a plan for any gap between the price and what is owed.
Key takeaway: list every financed asset and order payout figures before settlement, so the finance is a line on the settlement statement rather than the reason the sale stalls.Frequently Asked Questions
When you sell a business, the chattel mortgages over its vehicles and equipment are usually paid out from the sale proceeds at settlement, and each lender then removes its PPSR registration. The buyer takes the goods free of the lender's security and arranges their own finance if they need it. How the product works is covered in our chattel mortgage guide.
A buyer can take over your chattel mortgage only if the lender agrees to novate it, which means approving the buyer as a new borrower. Lenders rarely agree, and when they do the buyer is typically assessed like a fresh application. Most buyers arrange their own chattel mortgage instead.
A chattel mortgage is paid out at business settlement by ordering a payout figure from the lender, paying that amount from the sale proceeds on the settlement statement, and getting written confirmation that the lender's PPSR registration has been removed. Ask for figures valid past the planned settlement date in case it moves.
You should expect to disclose equipment finance when selling your business, because the buyer's PPSR search will show it and the sale contract normally requires the assets to be delivered free of encumbrances. Listing every financed asset and its lender early avoids a dispute late in the sale. The exact disclosure wording in your contract is a question for your solicitor.
You can sell one financed asset before you sell the business, but the lender has to be paid out or agree first, because its security stays on the goods until the loan is cleared. How selling a single asset mid-term works, including any balloon still owing, is covered in our balloon payments and residual values guide.
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