Business Hire Purchase: Weighing Up the Benefits and Drawbacks

Written by James Dutton

Is hire purchase right for your business?

Businesses looking to acquire equipment, vehicles or machinery often have a choice between several types of asset finance, and hire purchase is one of the more established routes. It's not automatically the best fit for every business, though, so it's worth weighing up what it offers against what it asks in return before committing to an agreement. For a full breakdown of how the product works, see our guide to what hire purchase is.

The benefits of hire purchase

Ownership at the end of the term: Once the final payment is made, the asset belongs outright to the business. For companies planning to keep an asset long-term, this can make more sense than a rental arrangement that never leads to ownership.

Predictable monthly costs: Payments are typically fixed for the length of the agreement, which makes budgeting and cash flow planning more straightforward than with facilities where costs can fluctuate.

No large final payment: Unlike some other asset finance structures, hire purchase doesn't end with a lump sum still owed. The asset is paid off gradually, with nothing left outstanding once the agreement concludes.

Available across a wide range of assets and values: Hire purchase can generally be arranged for both new and used equipment or vehicles, across a broad range of price points, rather than being limited to a narrow set of asset types.

Can support the business's credit profile: Meeting payments consistently over the life of an agreement can help build a track record that supports future borrowing, including larger asset finance or business loan applications.

The drawbacks of hire purchase

Deposit requirement: Most agreements require an upfront deposit, commonly a percentage of the asset's value, which adds to the initial cost of acquiring it.

Higher monthly payments than some alternatives: Because the business is paying off the full value of the asset rather than just its use, monthly costs can be higher than under a leasing arrangement.

Responsibility for maintenance: The business is generally responsible for the asset's upkeep and repairs throughout the agreement, which is a cost worth factoring in alongside the monthly payments.

Limited flexibility once agreed: Hire purchase agreements can be difficult to alter once signed, so a change in the business's needs partway through the term isn't always easy to accommodate.

Impact on borrowing capacity: A hire purchase commitment adds to the business's existing liabilities, which can affect how much additional finance it's able to secure elsewhere while the agreement is still running.

Weighing it up

The right decision generally comes down to how the business plans to use the asset and how it prioritises ownership against flexibility. A business intending to keep an asset for years, and wanting a clear route to owning it outright, may find hire purchase suits them well.

A business that expects to upgrade or change equipment more frequently, or that values flexibility over ownership, may be better served by asset finance structured differently, such as leasing.

Why speak to a broker about business hire purchase?

Terms, deposit requirements and eligibility criteria vary between lenders, and the right structure often depends on details specific to the business and the asset involved. MAF Finance Group can compare offerings from a wide range of banks and alternative funders to help find the right asset finance solution for your circumstances.

To learn more or get a quote, fill out the form below. If you'd like to speak to someone directly, call us on 0115 858 1010 and a member of our team will be happy to help.