Hire purchase is a way to buy assets by paying in instalments over time. With hire purchase, you legally own the item once all the installments have been paid, but in certain agreements it will appear on your balance sheet at the start of the term.Get working capital
Hire purchase is a way to buy assets by paying in instalments over time. With hire purchase, you legally own the item once all the installments have been paid, but in certain agreements it will appear on your balance sheet at the start of the term.
Hire purchase is a type of asset finance. It's similar to equipment leasing, but simpler (and perhaps less flexible) overall.
Rather than renting an asset, hire purchase is like making a purchase and paying in instalments, like a private customer might do for a car. Normally a 10% deposit and all the VAT is paid upfront.
Unlike leasing, with hire purchase your business owns the item, but that means there are a few other things you need to consider:
First, will your business need the item for the foreseeable future? If the answer is yes, hire purchase could be a good fit. But if you only need it for a short time or you’re not sure, leasing might be a less risky route to take.
Second, will the asset hold its value? Depreciating items are usually leased rather than purchased — but relating to the first point above, if your business needs it for the long term that could be less important.
Finally, you should assess whether there will be an updated version of the asset in the near future. For example, in manufacturing, having state-of-the-art equipment is a significant advantage — while having the latest model of van might not be so crucial to your business.
If you need equipment finance, hire purchase isn't your only option. You might also look into a finance lease, which is a similar long-term commitment but you won't own the item at the end of term. On the other hand, for more flexibility, operating leases are a popular choice, because you can often get regular upgrades and maintenance included.
Asset Lending & Property Team Lead
Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.
Disclaimer: Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. We are also able to make insurance introductions. Funding Options may receive a commission or finder’s fee for effecting such finance and insurance introductions.
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