A business needs financing now and again – if, for instance, you would like your enterprise to stay alive in this competitive market, it needs to grow and expand. Unfortunately, growth and expansion often require financing that is not always readily available. However, there are various options out there that may perfectly fit your business model and growth plans. One of them is a hire purchase agreement, and the other is a leasing agreement – both allow easy payments, although they are not the same in principle. What exactly is a hire purchase agreement, and how does it differ from a leasing agreement? And, the bigger question is, how can they benefit you? Here is a quick summary of the facts.
The hire purchase agreement
It’s hard to buy equipment or a car outright – often, the funds simply aren’t available. The good news is that a hire purchase agreement allows you to purchase the asset by putting down a deposit and then paying the balance over a set period of time, usually with monthly installments. You actually ‘hire’ the asset until the end of the agreed period, at which point you own it.
Its major advantages
- The monthly payments are usually fixed, which means you can plan ahead and make provisions in your own business cashflow.
- There’s no need to get a loan from the bank or from other institutions, so your credit rating is not affected.
- You can determine the period of the agreement in collaboration with the service; the longer the period, the lower the monthly payments tend to be.
- You own the asset at the end of the term.
The leasing agreement
A leasing agreement is different from a hire purchase agreement – with a leasing agreement, there is no down payment (there may be a deposit as warranty, but no sale down payment), and you never actually own the asset. It’s similar to renting an asset, only for a longer term.
Its major advantages
- Although you never own the asset, it may be possible to change your asset for a newer asset at a certain point in the term.
- Certain expenses, such as maintenance and insurance, could be included within the contract.
Both the hire purchase agreement and the leasing agreement (which fall under asset finance services) are viable options for the business manager or business owner who needs to acquire or use some assets – both agreements are designed to promote healthy cashflow and allow for convenient monthly payments. However, before making a decision, it pays to think carefully about how often you really need to use the equipment, and whether or not you’d like to own it at the end of the term.