Hire Purchase Singapore

Hire purchase allows your business to purchase equipment without initial capital outlay. A hire purchase plan usually starts with an initial down payment, followed by monthly payments for a fixed period. After all payment terms are fulfilled, you have the option to own the asset.

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What is Hire Purchase?

Many companies in Singapore need access to expensive equipment in order for their businesses operations to run smoothly. However, purchasing equipment in Singapore can be a daunting, not to mention pricey affair. Other options include leasing the equipment you need or acquiring it through hire purchase-but what does that entail?

If you are looking for a long term and cost-effective solution for your business needs, leasing and hire purchase are some great alternatives to consider While both provide you with long-term usage of essential equipment for your business, they have very different implications on your finances and needs.

Hire Purchase is a business financing solution where your business agrees to acquire an asset by paying an initial instalment and repays outstanding balance price of the asset with interest over a stipulated period of time. Usually, an inital downpayment is required followed by monthly payments for the fixed period. After all repayment terms are fulfilled at end of the rental period, the hirer has the option to take over ownership of the asset. We further expond on the benefits of Hire Purchase below.

Benefits of Hire Purchase

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Improve Liquidity

The key benefit of hire purchase is low initial down payment. This is beneficial if your business needs to obtain expensive equipment but may not have the necessary capital. This is also recommended if you do not want to increase your debt burden by borrowing money.

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Ownership of Asset

Hire Purchase is the ideal solution if your business has the intent of owning the equipment in the long run. This allows your business immediate access to the use of the equipment, with the asset ownership at the end of the agreement.

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Repayment Terms

The agreed repayment terms allow you to do business financial planning. At ETHOZ, we offer a flexible frequency of instalment payment terms to make budgeting easier for you. The payment terms may be monthly, quarterly, half-yearly, or annually, as per the terms of the agreement.

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Improve Liquidity

As a business owner, cash flow distribution is an important concern. To acquire equipment for your business needs, making a large sum purchase may not be the wisest option. With a low initial down payment, leasing is a more cost-effective option that allows you to acquire equipment. This frees up cash flow for other areas of priority such as business expansion.

Free Up Line of Credit

A benefit of equipment leasing is freeing up your lines of credit. From office automation to industrial machines, equipment is essential for many businesses. There are a number of financing arrangements that allow a business to acquire equipment, such as term loans. However, using a term loan to purchase equipment may take up a sizeable proportion of your loan and reduces your line of credit. Equipment leasing frees up your line of credit to obtain additional financing. In addition, equipment leasing uses the equipment itself as collateral. Therefore, any other collateral your business owns can be used to secure additional financing.

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Flexibility to Upgrade

For some industries, businesses are at a big disadvantage if your equipment becomes obsolete. Apart from the technical competitive edge, equipment is also an extension of your brand and contributes to your customer brand perception. While it is impractical to purchase new equipment every year or two, leasing allows you to constantly equip your company with cutting edge equipment.

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Financing Example

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Company A is an architecture company that deals with design development. Their existing PC and laptops specification can no longer meet most of the latest software requirement and struggle to handle heavy-duty graphic rendering – basically reaching the end of their useful life. They are looking at acquiring 50 brand new laptops for its employees in bid to improve their productivity as well as gaining the additional competitive edge.
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The price of forklift is $35,000, while the storage rackings would demand a hefty price of $0.5 million. In order to expand their warehouse without affecting their cash flow, they approached ETHOZ Capital for equipment financing advice in Singapore.

They were recommended to acquire their equipment through hire purchase over a period of 3 years. Full ownership of the equipment will be transferred to Company B upon completing payments at the end of the Hire Purchase agreement. The owner of Company B found the overall process of equipment financing very satisfying with easy application, fast approval and personalised service.

ETHOZ has offered Company B the following terms:
Interest Rate : 4% flat per annum
Monthly Repayment : $16,644.44 x 36 months
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In this example, Company B does not have to fork out $0.535 million straight up to expand its warehouse facilities. Instead, Company B only pays $16,644.44 per month through a Hire Purchase agreement and this helps them to generate revenue in tandem to the hire purchase payment.

* Disclaimer: Example above is merely shown for illustration purpose to better allow readers to understand the uses of each financing solution. Figures and interest rates listed above are not representative; it may differ based on each company’s requirements and management’s approval. Additional terms and conditions may also apply based on the credit assessment and evaluation conducted during application. ETHOZ Capital Ltd and its employees make no representation or warranty, whether expressed or implied, and accept no responsibility for the completeness or accuracy of the computation.

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