Leasing & hire purchase

Leasing & hire purchase

Three key considerations:

  1. Leasing and hire purchase are both forms of asset finance that can be used to acquire assets for the business.
  2. This a low-risk form of debt finance that is often used if the business requires new equipment, which would otherwise be unaffordable due to cash-flow constraints.
  3. Leasing and hire purchase can be useful to businesses at any stage. Both forms of debt are secured against the new assets, so available to both start-ups and large, established organisations.

What are leasing and hire purchase?

Leasing and hire purchase are types of finance used by businesses to obtain a wide range of assets – everything from office equipment to vehicles.

Leasing and hire purchase could be the perfect solution if you need new equipment which would otherwise be unaffordable because of cash-flow constraints.

Because leases and hire-purchase agreements are secured wholly or largely on the asset being financed, the need for additional collateral is much reduced. There is more security for the user because the finance cannot be recalled during the life of the agreement, provided the business keeps up with payments.

Leasing

A leasing company buys and owns the equipment, which the business then rents for a predetermined period. The business also has the option to replace or update the equipment at the end of the lease period. Typically, the lease will have a set interest rate, which fixes the outgoings on that asset.

Hire purchase

If a business wants to own the equipment at the end of the agreement, but avoid the cash flow impact of buying outright, then hire purchase is an option. A finance company buys the equipment and the business repays the cash price plus interest through regular repayments. These agreements are also normally at fixed interest rates. At the end of the agreement, there is usually a nominal fee to acquire title to the equipment.

Leasing and hire purchase are available directly from specialist providers, or indirectly through equipment suppliers or finance brokers.

Next steps

 

Finance and Leasing Association

Find out more by visiting the Finance & Leasing Association (FLA) website.

To explore the other finance options for your business, go back to the Finance Journey tool.

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