If you are trying to grow your small business, chances are you may need a small business loan at some point. New equipment, new machinery and a new cash injection for taxes and payroll purposes are just a few things that go a long way in growing a business.
If you have a small business or you run a start-up, prices for many of the assets you'll likely need will have you wondering how other companies ever manage to afford such high prices.
This is where you can assess your small business loan options to help.
Packages such as hire purchase and leasing allow you to get access to what you need to get your business going with payment terms conveniently based on your cash flow. Look below at a couple of these loan-type options for your consideration process.
A small business loan is a way of borrowing money to grow and improve your business in the short term, which you can pay back over a more extended period.
Typically, business loans are paid back over several years, ranging from 1-5 years, although the terms are negotiated on a contract-by-contract basis.
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"Business loans are paid back over several years, ranging from 1-5 years"
Small business loans come in many shapes and sizes, which is why we wrote this article: to cover a few of the most popular options and help you - a small business owner, director or manager - to help to choose the correct option.
If you'd prefer to speak with one of our advisors to have a chat about small business loans and ask any finance-related questions you may have, please feel free to get in touch.
Otherwise, below we have listed some of the most common business loans, detailing what each entails and the benefits.
Leasing is an agreement that grants you the use of an asset without giving you ownership of it. No actual deposit is required for a lease as payments are made similarly to rent payments. This means all that is usually required upfront is the first month’s payment. The lease is set in stone for the established period, so you must understand that you are tied for that time.
Monthly payments help you avoid finding a large sum, and as you pay for use instead of ownership, it allows you more flexibility.
Leasing has several advantages, which include:
"Leasing allows you to upgrade as needed when the lease for an older version ends."
Hire purchase is an asset financing agreement that grants you access to assets with convenient payment terms like leases do. The difference, however, lies in the fact that there is usually intended to own the asset once all payments in the agreement have been made. Once this takes place, ownership is transferred to you.
A deposit is usually required for hire purchase, and it is usually 10-20% of the asset’s value. This amount is required upfront and is non-negotiable. You should note that though you get to pay with convenient terms, hire purchase agreements result in your paying more for the asset than its value. This can be as much as 25% more than the worth of the investment.
Hire purchase also has advantages for a small business, and these include:
Beginning with leasing, there are no hidden costs with a lease. No deposit or processing dee is required, and the price usually boils down to the agreed monthly payment. This makes accounting calculations fixed and ready to manage.
As stated before, a hire purchase does have a deposit, which can be as much as 20% of the asset. There is also interest charged on the item's value that is calculated at the beginning of the agreement and spread throughout your monthly payments.
There is no single answer about which of these agreement types is better for you. It depends on your unique situation and what you need.
For example, if you are interested in owning an asset to resell it possibly, you may want to purchase a hire. The payments in such an agreement are finite, and when they end, the support is yours to use or sell as you see fit. You do not own an asset you lease unless you are offered the chance to purchase it when its lease ends.
If you are more concerned with just using an asset and you want to have the flexibility to swap it or not have to deal with it in the future, you can elect to go for a lease as it facilitates this.
You should know a few variables that affect a lender's decision on if you are suitable for asset finance and on the terms. These are:
Ready to apply for finance? Click below to find out how much you can borrow.
