What is hire purchase?

Hire purchase agreements enable businesses to purchase an asset through a series of instalments to an asset lender, maintaining the business’ cash flow whilst avoiding the need to pay for the asset in full immediately.

The hire purchase company buys the equipment on your behalf before leasing it back to you for hire. Your business will then own the asset once the contract is over, although you will be responsible for its maintenance throughout the hire purchase agreement.

What are the benefits of hire purchase?

  • Hire purchase reduces the impact of an investment on your cash flow by avoiding purchasing the asset outright, instead allowing you to pay the hire purchase company for the equipment in manageable instalments.
  • The interest on a hire purchase agreement is typically lower than the interest accompanying a bank overdraft or a business loan.
  • The combination of these two factors allows instant access to equipment carrying a higher specification through hire purchase.
  • Because you are treated as the asset’s owner, it is possible to claim capital allowances against tax on commencement of the hire purchase agreement.

Hire purchase keeps your business’ working capital free to reinvest into its growth through the likes of mergers and acquisitions or MBO/MBI activity.

Is hire purchase right for my business?

Whichever asset finance solution best suits your business, Finance WM (Finance West Midlands) has access to the right asset finance companies on the market, allowing us to identify the tailored hire purchase agreement that will meet the business’ cash flow and asset growth needs.