Hire purchase remains one of the best financing options for businesses looking to finance assets. By choosing hire purchase, a company can acquire new assets and thus enhance productivity. In this article, we will discuss how hire business hire purchase works and the benefits and drawbacks of using it to expand your business.
What Is Business Hire Purchase?
Business hire purchase is a payment agreement where a business acquires an asset without paying the full amount upfront. The business makes a down payment, and it can be as low as 10 or 15% of the total cost. The business utilizes the asset while making payments in the form of monthly installments. This is a good option for a business looking to acquire an asset quickly. While the business acquires and uses the assets, legal ownership is only transferred when the total cost is paid to the dealer.
What Are the Pros of Using Hire Purchase for Business Expansion
As a business, the decision to acquire new assets through a hire purchase agreement has some benefits. Here are some of the benefits.
1. Acquire Assets Without Upfront Payment
One of the biggest advantages of using a hire purchase agreement is that it allows you to acquire assets without paying a large upfront payment. Acquiring assets such as vehicles, electronics, and furniture in a cash payment can cause a strain on your cash flow. Businesses with limited capital or cash flow constraints will benefit greatly from a hire purchase arrangement.
2. Spread the cost
Payment of assets in a hire purchase agreement is done in installments. Spreading the costs not only helps you manage the cash flow more effectively but also helps you make better financial planning and budgeting.
3. Ownership at the end of the agreement
Hire purchase allows a business to retain assets at the end of the agreement by transferring title from the seller. Leasing is an alternative to hire purchase deals. However, in a lease agreement, the ownership of the asset remains with the dealer even at the end of the agreement. In a hire purchase deal, the hirer ends up owning the assets after the final payment.
4. Flexible terms and repayment options
With a hire purchase agreement, a business has the chance to tailor the deal to suit their specific needs as well as financial circumstances.
Cons Of Using Hire Purchase for Business Expansion
The only downside of using hire purchase for business expansion is that the total costs is higher than in the case of a cash purchase. However, the many benefits of this financing option overshadow this drawback.
Check more hire purchase articles here. Follow Kenya Credit Traders.
