Customer expectations constantly change and it’s important for businesses to adapt, move and grow in order to meet demand. However, this can prove difficult when you only have a small amount of capital to work with, especially if new equipment or tools are required. Similarly, if you’re looking to expand your business but lack the funds needed up front, you may feel that you have to wait whilst trying to pull the finances together. Both of these situations can be eased using asset finance.
There are two main forms of asset finance available that can require little or no upfront costs:
Lease Hire and Hire Purchase
Lease Hire is where you hire an item for a specified amount of time (anything from 2 months to 2 years) and for a fixed monthly fee. The company you hire the item from still owns the equipment, however it is yours to keep and use for the duration of the contract. At no point do you own the asset.
The benefit of Lease Hire is that you do not need a deposit up front and, upon completion of the contact, you may have the option of continuing with the same item or upgrade to the latest model and continue with the lease (possibly at a high monthly figure though). Most Lease Hire contracts either include, or give you the opportunity to purchase, a service package whereby any repairs and replacement parts are included in the monthly rental fee. This can save you money and time when something goes wrong as the company you’ve rented from then has responsibility of the maintenance and upkeep of the equipment.
Hire Purchase is a slightly different form of finance; a deposit is generally required (around 10-20%) and a set amount of fixed monthly payments made. At the end of the contract, when all payments have been made, ownership of the items transfers to you. Hire Purchase enables you to spread the cost of the purchase and minimise the effect on your cash flow.
You should bear in mind is that companies will probably charge interest on the monthly payments you make, meaning you could actually end up paying as much as 25% more than the original purchase price. Providing that you’re prepared for this, and you have the required deposit available, using hire purchase negates the need to take out a loan, overdraft or raise the funds by other means. Unlike a loan, no separate security is required as the item itself is used to secure the finance, which can be a real draw for some.
Whilst you are making payments, ownership of the item remains with the seller however, at the end of the contract, the item will be yours and can either be kept for further use or sold to either raise funds for a newer model or to create an injection of cash. Although at this point in time the item will probably be worth less than you paid for it, you will at least have an asset that adds some value to your business.
If you need help sorting out what is best for you, get in contact with B2B Cashflow Solutions, experts in helping businesses with their finances.
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