Hire Purchase Agreement
Hire Purchase, sometimes called Commercial Hire Purchase (CHP), is a finance option for business owners where the financier buys the asset, and you hire it from them for the agreed term. There is no actual lending or borrowing of funds involved since you are effectively hiring the equipment for business use. Similar to a lease, you can negotiate with the hirer to include a large payment at the end of the agreement however this is not mandatory.
Benefits
The main benefit of a commercial hire purchase is that your business will own the asset at the end of your agreement. Your business will benefit from not needing to purchase the asset outright, which frees up cash flow on medium-value assets such as office furniture or power tools. For this reason, hospitality businesses often use hire purchase agreements to finance commercial kitchen equipment.
CHP provides business owners the ability to buy items which they would not otherwise be able to afford. Additionally, it enables the hirer to use the equipment and generate business revenues despite not having paid for it in full.
Be Aware
The owner may repossess the equipment without compensation if you fail to meet your hire payment obligations.
Interest rates may be higher than other forms of financing, especially if your credit profile isn’t strong.
The asset and the associated liability will usually appear on your balance sheet, increasing your reported debt levels. This could affect your ability to borrow further, or your perceived financial health.
Can a Hire Purchase Facility be Terminated Early?
HP agreements often lock you into a fixed term, making it difficult or costly to exit early.
Early termination fees or penalties can apply.
