Commercial Hire/Equipment Purchase
Commercial Hire and Equipment Purchase is a common form of commercial finance for small businesses who cannot meet the initial buying costs of new vehicles or equipment needed for expansion. The financier purchases the equipment on behalf of the business and gives it full usage rights. This allows the business to claim interest, depreciation and all running costs as an expense. Once the final payment has been made the borrower becomes the owner and the bank’s interest is discharged.
Most commercial hire purchase arrangements will have a term of 5 years, though this can be extended by some lenders and shortened by all. Hire purchase arrangements can also have a residual “balloon payment” value, which is essentially a lump sum payment at the end of the term. This can be used as a strategy to increase cash flow, or if the equipment is to be sold at the end of the contract, may represent the anticipated residual value.
Chattel mortgages are similar to hire purchases but the client owns the asset from the beginning of the transaction.