Signing a finance agreement is a significant commitment. Whether it's a hire purchase for a piece of machinery or a five-year loan for business expansion, the terms you agree to today will affect your cash flow and flexibility for years to come. Before you sign, these are the five questions every business owner should ask.
1. What is the total cost of the finance?
The monthly repayment figure is only part of the story. You need to understand the total amount repayable over the full term — that's the sum of all your monthly payments, plus any fees, balloon payments, or option-to-purchase charges at the end.
A good broker or lender will provide you with a full cost illustration upfront. If they don't, ask for one.
2. Is the rate fixed or variable?
Fixed-rate finance means your monthly payment stays the same throughout the term, which makes budgeting straightforward. Variable-rate products (common with some revolving facilities and certain bank loans) can change with market rates — great when rates fall, painful when they rise.
For most business asset purchases, fixed-rate hire purchase or finance lease is the cleaner option. For working capital facilities, a variable rate may be acceptable if the rate is competitive.
3. What are the early settlement terms?
Business circumstances change. What happens if you want to pay off the finance early — perhaps because you've sold the asset, the business has been acquired, or you simply have surplus cash? Some agreements include early repayment charges; others allow settlement at any time. Know before you sign.
4. Who owns the asset?
This matters more than people realise. Under a hire purchase agreement, the finance company legally owns the asset until the final payment is made — at which point ownership transfers to you. Under an operating lease, ownership never transfers; you're effectively renting the asset for its useful life.
The ownership structure affects how the asset appears on your balance sheet, your ability to modify or sell the asset, and your tax position. Again, worth a conversation with your accountant.
5. Is there a broker fee, and who is paying it?
Finance brokers are typically paid a commission by the lender for introducing business. This is entirely normal and regulated by the FCA — but you should know about it. GDFS charges a broker fee from £150, which is disclosed upfront. We also receive a commission from lenders, and we'll tell you about that too.
What you should be wary of is a broker who claims to be completely "fee free" but doesn't disclose lender commissions, or who doesn't appear to be working with a full panel of lenders.
One final point
The cheapest monthly payment isn't always the best deal. A longer term reduces your monthly outgoing but increases the total cost of the finance. A shorter term costs more each month but you own the asset sooner and pay less overall. Getting the balance right for your cashflow is exactly what a good broker should help you do.
If you'd like a second opinion on a finance quote you've received, or you're starting from scratch, call us on 01308 480248 — we're always happy to take a look.