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What is hire purchase?
Hire purchase is a form of asset finance which provides a way for your business to buy new assets and spread the cost over a period of time, typically the useful economic life of the asset you are purchasing. Hire purchase agreements are appropriate for financing a variety of assets which means they can be used in most industries and sectors.
This financing solution is similar to finance leasing but at the end of the hire purchase agreement, you would own the asset and you don’t have to give it back. This allows you to pay what you can afford whilst making sure the assets are looked after and maintained.
We understand that whatever your business, to develop and grow, you are likely to require the purchase of new assets along the way. Hire purchase agreements allow businesses of all sizes to buy assets whilst preserving cash flow; they are also beneficial to those looking to purchase more expensive assets which can be paid off in instalments.
How will hire purchase work for my business?
A hire purchase agreement involves your business paying an initial deposit and then paying the remaining balance in instalments – usually monthly – gaining full ownership of the asset once final payment has been made.
The use of a hire purchase agreement allows your business to acquire the new assets you need to grow and develop, or just replace faulty items, without suffering a significant dent in your cash flow which can damage your ability to meet liabilities and can halt growth aspirations.
Why should I consider hire purchase for my business?
Hire purchase is designed to work for businesses of varying sizes and we will work hard to find you a lender who will be able to offer your business:
- A cost-effective solution – The financing solution provides a cost-effective way to purchase business assets.
- Cash flow preservation – Spreading the cost of the asset over a period of time, rather than paying for it all at once, means you can avoid the sudden drop in working capital if you were to purchase a fixed asset using up cash which could potentially cause problems for trade.
- Access to superior equipment – Using hire purchase to fund the acquisition of business assets can provide you with the opportunity to access more expensive equipment than if you were paying outright.
- Security – The assets purchased using a hire purchase agreement appear on your business’ balance sheet immediately, although technically title of the goods is only transferred after you have paid the final instalment. This may make them eligible for use as security against a loan or other means of finance, as well as increasing your business’ value, making it more attractive to lenders.
- Simpler forecasting – Hire purchase instalments will be fixed and spread out over a set period of time which allows for simple budgeting and easier cash flow forecasting.
- Potential tax benefits – In the eyes of the tax authorities, assets bought through a hire purchase agreement belong to you from the beginning of the process. This means you may be eligible for certain tax relief, such as capital allowances, on these assets.
Are there any risks associated with hire purchase?
- Non-payments can affect your credit rating – Not meeting your instalments on time or at all, can have an effect on your business’ credit rating which can affect borrowing in the future. Another consequence is that on default the asset can be repossessed.
- Not legal owner until last payment has been made – Until you have made the last payment to your lender, you will not be the legal owner of the asset.
- Interest rate usually reflects risk level to lender – The riskier your sector or if you have a poor credit rating, you are likely to have a higher rate of interest than a business which is perceived to be safer.
- Early cancellation and sub-letting – If the asset is no longer required but it is not fully paid for, you may be stuck with it until you finish your agreement term. This is because many lenders include early cancellation fees and restrictions for sub-letting within their contracts.
So if you are looking to spread the cost of an asset purchase to protect your cash flow, hire purchase could be the right option for you. Call us now for further information or to get your free, no obligation quote.
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Why choose us?
WF Financial Solutions is an independent broker of invoice, asset and trade financing solutions with links to lenders of all sizes and specialties. WF Financial Solutions has helped many clients through a range of lenders and their varying services and we are proud to offer advisory and introductory services to finance providers that suit your needs.
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