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Updated: Feb 15

Business hire purchase is a flexible and convenient way to finance assets that can help your business to operate and grow. In this guide we'll explore how business hire purchase works, discuss the pros and cons, and advise businesses on important considerations to take.

Learn more below or get in touch to discuss the different finance options for your business.

hire purchase

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What is business hire purchase?

Business hire purchase (HP) is a type of asset finance agreement which enables businesses to spread the costs of paying for an asset over an agreed period of time, with monthly instalments. During the term of the contract the business doesn't own the asset but hires it, hence the name. Full ownership of the asset is obtained only after all of the payments have been made, typically with a small fee at the end too to secure it.

How does business hire purchase work?

Now that you know what business hire purchase is, let's take a look at how it works in practice:

Step 1 - Find a finance provider 

First, you’ll need to find the right finance provider. An asset finance broker can help you to find the most suitable provider and deal for your circumstances.

Step 2 - Put down your deposit 

Once you’ve found a provider and agreed a deal, you'll need to put down a deposit to secure the funding and the asset. This is usually 10% of the total value.

 Step 3 - Monthly Instalments

For the duration of the contract you will pay regular and affordable monthly instalments. This is typically over a period of 1-5 years. 

Step 4 - Pay the final fee

In some agreements, there will be a final fee to pay to complete the purchase of the asset. Then it is legally yours.

What are the advantages of business hire purchase?

As a business, there are several ways that you can benefit from using a hire purchase agreement to purchase much needed assets. Here some of the key benefits:

  1. Asset Acquisition Without Upfront Payment: One of the primary advantages of hire purchase is that it allows businesses to acquire assets, such as machinery or vehicles, without making a large upfront payment. This is particularly beneficial for businesses with limited capital or cash flow constraints.

  2. Spread Costs over Time: Hire purchase enables businesses to spread the cost of the asset over a fixed period, typically through monthly instalments. This helps in better financial planning and budgeting, as businesses can anticipate and manage their cash flow more effectively.

  3. Preservation of Working Capital: By opting for a hire purchase agreement, businesses can preserve their working capital for other operational needs. This is crucial for maintaining day-to-day operations, covering unexpected expenses, and seizing opportunities that may arise.

  4. Ownership at the End of the Agreement: Unlike contract hire, at the end of a hire purchase agreement, the business becomes the outright owner of the asset. This ownership provides the business with the flexibility to continue using the asset, sell it, or trade it in for a newer model.

  5. Tax Benefits: In certain cases, businesses may be able to claim tax benefits on the interest paid on the Hire Purchase agreement. Businesses need to consult with financial advisors to understand the specific tax implications based on their situation.

  6. Flexible Terms and Repayment Options: Hire purchase agreements often offer flexibility in terms of repayment options and contract terms. This allows businesses to tailor the agreement to their specific needs and financial circumstances.

  7. Suitable for a Range of Assets: Hire purchase can be used for a variety of assets, including vehicles, machinery, equipment, and technology. This versatility makes it a suitable financing option for businesses in different industries.

  8. Fixed Interest Rates: Many hire purchase agreements come with fixed interest rates. This means that businesses can plan their budgets more accurately, as the interest payments remain consistent throughout the term of the agreement.

Are there any disadvantages to business hire purchase?

Like any financial option, there are some potential drawbacks that you'll need to factor in when weighing up whether hire purchase is right for your business. These include:

  1. Gradual Ownership Until the contract concludes, full ownership of the asset is a gradual process. You'll be able to use the asset as much as you like, but you won't be able to sell or modify it since you won't legally own it yet.

  2. Credit and Asset Security If you don't keep up with your monthly payments, the financer will be able to reclaim the asset - even if you've already paid some of it off. This encourages businesses to maintain a consistent payment record.

  3. Repayment rates In some instances, your monthly repayments and interest rates could be higher than for other types of loans.

Business Hire Purchase Considerations

How long do you want the agreement to be?

Hire Purchase agreements offer different duration options based on what suits the buyer (business) and the asset. So you'll need to consider the length of time that you'd prefer to pay off the asset. Here are some simplified options:

  • Short-Term (12-36 months): Quick ownership and repayment, suitable for assets with a short lifespan.

  • Medium-Term (36-60 months): Common for assets with a moderate lifespan like commercial vehicles or machinery.

  • Long-Term (Beyond 60 months) Extended duration, suitable for assets with a longer lifespan such as large machinery or real estate.

  • Flexible Terms: Some agreements offer flexibility, allowing businesses to choose terms that match their needs and financial situation.

  • Customised Durations: Businesses can sometimes negotiate personalised durations based on their financial situation and the nature of the asset.

When deciding whether this is the right type of finance for your business consider your financial capacity, the expected asset lifespan, and your long-term goals. Longer terms may have lower monthly payments but higher overall costs, while shorter terms may have higher monthly payments but lower total costs. Consulting with asset finance brokers can help you to make an informed decision.

Is the asset likely to depreciate?

If the asset isn't likely to hold its value, you might wish to consider leasing it instead.

Hire Purchase Alternatives

Not sure if business hire purchase is the right option for you? There are several other asset finance options available such as Equipment Finance, Finance Lease and Business Car Finance. Each have their own benefits and considerations to take into account, so the most suitable form of finance for you will depend on your unique requirements.

Approved can match you up with various different business finance options which can be tailored to your needs. Products such as Business Loans, Equipment Finance, Invoice Finance, and Asset Refinance, offer a range of options to meet the diverse needs of businesses across the country.

How to Apply For Business Hire Purchase

Our approach to business finance is straightforward and transparent, devoid of hidden fees or surprises. We aim to simplify the process, ensuring that obtaining financing is easy and accessible. Rest assured, our no-obligation application won't have any impact on your credit score. To kickstart your financial journey, we simply require your name, business name, some basic business details, and the specific funding amount you are seeking.

The process of applying with Approved is quick and straightforward:

Fast Application

You'll share basic information about you, your business and finance requirements. Either apply online by filling out our check your eligibility form or call us on 01908 429888 to speak to a member of our team.

Receive Your Free Quote

We'll get some more information regarding your business allowing us to tailor a solution that precisely aligns with your unique needs. By understanding the intricacies of your business operations and financial goals, we can craft the most suitable financing package for you.

Get Your Funds Fast

Once approved, our streamlined process ensures the swift transfer of funds directly to your preferred business bank account. Alternatively, if you have identified a specific supplier, we can facilitate direct payments on your behalf, ensuring a seamless and efficient financial transaction.



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