HIRE PURCHASE

Overview of Hire Purchase 

Hire purchase, commonly abbreviated HP, is a finance product that gives businesses access to assets they need, paid for by regular payments over an agreed period.

 

Hire purchase can be used to fund a huge variety of assets, from very tangible assets such as vehicles, to less tangible assets such as fit out costs and even intangible assets such as software or even Intellectual Property (IP).

 

Hire purchase is explained in more detail below.

Definitions Associated with Hire Purchase

Asset –   a resource with economic value that provides a future benefit. An asset is listed on a firm’s balance sheet. In finance an asset will be further categorised into hard and soft assets, generally speaking, a hard asset has a reasonable resale value such as a vehicle whereas a soft asset’s resale might be more difficult such as IT, refurbishment costs or telephone systems.   

 

Lessee -  a person who has the right to use the asset, if you’re reading this, you or your business will be the lessee.

 

Lessor – a person who allows someone use of an asset, in this case, one of our 30 lenders.

 

Term –  the agreed period of the arrangement,  at GSM we are able to arrange a term of as little as 12 months or as long as 60 months.


 

Interest Rate -  the price of money over time.

Hire purchase is a traditional method of acquiring an asset where the customer pays the full VAT on  signing. Once all the rental instalments are paid, title transfers automatically to the customer. The asset is shown on the balance sheet.

Hire Purchase Rates

As an owner of a small to medium business, you’ll know that your business is not like any other. UK SMEs come in all shapes and sizes, as such there is no one interest rate that fits all. The Hire Purchase interest rate that you will be quoted is dependent on a huge number of variables, these include profitability, trading history, type of asset, amongst other considerations. Our brokers, with their decades of experience, will know how to best package your proposal to a lender to achieve the best possible rate.

 

Depending on your business and the asset we have lenders that will be able to arrange finance from as low as 3%, this is indicative rate based on a minimum risk business.

 

Some businesses and their owners prudently obsess over interest rates and in some ways, they are right to do so. However, even if the interest rate is in the double digits, lessors give you an option to access assets through hire purchase that you otherwise wouldn’t be able to benefit from. If the asset you are investing in through hire purchase can generate significant revenue over the monthly repayments then you stand to benefit.

Help your business reach its ambitions with alternative funding on assets from £10,000 to £5,000,000

Benefits of Hire Purchase

  • Spread the cost over the working life of the asset
     

  • Instant access to the asset
     

  • Deploy the use of an asset and avoid the drain on working capital
     

  • Fixed rate funding allowing you to incorporate payments into cash flow forecasts
     

  • Tax efficient as you can offset your Hire Purchase interest and charges against pre-tax profits
     

  • Highly accessible to all UK SMEs who may otherwise not be able to raise funds 
     

  • Payments can be spread monthly, quarterly or even seasonally and can be tailored to your businesses needs.
     

  • Reclaim the VAT

If your business needs equipment which would otherwise be unaffordable Hire Purchase could be the perfect solution.

Tax Associated with Hire Purchase 

  • With Hire Purchase, the total VAT payable on the asset is due upfront. If your asset is £10,000, at the stand rate of VAT of 20%, £2,000 would be due.
     

  • All Interest payments on a Hire Purchase deal are tax deductible.
     

  • Depreciation of the asset can be written off against taxable profits.

All Interest is tax deductible and 25% writing down allowance can be claimed  - sometimes more can be claimed when the Chancellor has special incentives.

 Time Frame and Process

 Time Frame and Process

Clients who come to GSM benefit from access to funding in as little as 24 hours.​
 

  1. Fill out our online Quote form found here.
     

  2. One of our brokers will telephone you to discuss your Hire Purchase needs and find out more about your business and its plans.
     

  3. Email over required documents that we need to take to our lenders, this usually is management accounts, end of year accounts and a Statement of Assets and Liabilities.     
     

  4. Our finance brokers get hard to work finding the right lender for your business, tailoring it to your needs, desired term and payment structure.
     

  5. Your dedicated finance broker proposes a hire purchase agreement, providing you with the monthly repayments for your asset.  
     

  6. If you accept our offer, we will arrange with the lessor to pay your supplier, who will deliver the asset to you.
     

  7. You have immediate use of the asset and you pay back the lessor on the agreed terms.
     

  8. We are here to help throughout your agreement with the lessor and here for any help you may need afterwards.

Clients who come to GSM benefit from access to funding in as little as 24 hours.​
 

  1. Fill out our online Quote form found here.
     

  2. One of our brokers will telephone you to discuss your Hire Purchase needs and find out more about your business and its plans.
     

  3. Email over required documents that we need to take to our lenders, this usually is management accounts, end of year accounts and a Statement of Assets and Liabilities.     
     

  4. Our finance brokers get hard to work finding the right lender for your business, tailoring it to your needs, desired term and payment structure.
     

  5. Your dedicated finance broker proposes a hire purchase agreement, providing you with the monthly repayments for your asset.  
     

  6. If you accept our offer, we will arrange with the lessor to pay your supplier, who will deliver the asset to you.
     

  7. You have immediate use of the asset and you pay back the lessor on the agreed terms.
     

  8. We are here to help throughout your agreement with the lessor and here for any help you may need afterwards.

Hire Purchase and Lease Comparison

When should you use leasing instead of hire purchase

Sometimes a lease may be preferable to hire purchase when you are looking to take out asset finance. Two major obvious benefits of lease over hire purchase are VAT payments and flexibility. With hire purchase you are required to pay the entirety of the VAT due on the asset up front, with VAT at 20%, even on a £100,000 asset, the business needs to allocate £20,000 of cash flow which may not always be feasible.
 

Since with a lease you are effectively renting the asset over a defined period you can factor this into your cash flow forecasts and only rent the asset over the period that it provides your business with its benefit and return it at the end of the agreement. With hire purchase, you are spreading the cost of the asset over a fixed period.   

 
 

The other consideration is the tax implication of each with its different advantages, depending on your business aims and position. Your accountant or finance director can best advise which is  preferable for your business

When should you use a loan

At GSM Finance we are also able to secure a business loan for your SME. Sometimes your business just needs additional cash to cover various things. A straight business loan gives you greater flexibility over what you spend your loan on. It can cover things such as salary, rent and stock or even an asset if needs be. Asset finance generally covers spends over £10,000, so if you’re looking at an asset less than this a business loan may be better suited. Although loans are generally harder to secure than hire purchase or leasing, even if your bank has turned your application down, we have lenders who will be happy to support your business's growth.  

Why use an asset finance broker for your hire purchase?

Anything we buy today whether it be internet or holiday insurance, we endlessly compare what the market has to offer. In the insurance and internet industries, their offering has limited variables and is comparatively straight forward and so easily comparable using comparison websites. However, comparing hire purchase or asset finance isn’t as straight forward, no small to medium business is the same and so a one size fits all never applies. A hire purchase deal is dependent on a huge range of factors, from the obvious such as the price of the asset to your turnover to your forecasts. Lots of different factors influence a hire purchase deal.

 
 

When looking for hire purchase you could go directly to a lender, fill out all the required paper work and then start the process of toing and froing to hammer out the finer details. If you repeat this process with three or four other lenders, you may then have a few deals to compare. However, you may find that some lenders may not offer you a hire purchase deal. You may see huge differences in the hire purchase rates that lenders offer and question why or how that can be. You then might be tempted to take your proposition to yet another lender, while at the same time your business to do list lengthens.

 
 

At GSM Finance, we have a book of 30 lenders, and put deals together day in day out. We have specialist knowledge of the market and decades of hire purchase experience. This allows us to take your business proposition and package it to not only ensure your hire purchase gets approval but also to get the best rate from that lender. Knowledge of the market allows us to take your offering to the right lenders, some lenders favour retail while others favour IT, some are comfortably doing hire purchase on soft assets whilst others won’t. This will help explain if you tried to do it yourself why you got such varied rates.

 

When you come to GSM Finance, our brokers take the time to fully understand your business upfront, we then take care of all the leg work. Our brokers will save you time and hassle while at the same time getting your business the funding it requires to grow.  

If you want to find out more about hire purchase or would like an indicative quote give us a call on

020 8874 9994.

Talk to us.

For the assets your business needs to secure its future, for a loan to secure its present or for equity from assets secured in the past. We can help.  Contact the team today on:

020 8874 9994

Please fill out the short form below if you require funding for any asset type, unsecured loan or refinance of already purchased assets from £10k to £5m

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