Leasing and hire purchase
Finance that allows businesses to buy equipment, machinery and vehicles they might otherwise be unable to afford.
Leasing allows your business to use an asset in exchange for rental payments, which may include an advanced rental, over a set period.
A lease works as a rental agreement. You agree to rent an asset for a period with a fixed or minimum term and make regular rental payments for as long as the lease contract runs. At the end of the contract, you may have an option to continue renting, or to return or possibly replace the equipment.
Different types of leasing options
You’re responsible for paying for most of the item’s cost over the period of its life, and you’re responsible for maintaining the asset as if you own it.
You won’t pay for the full cost of the asset as effectively you’re renting it for a period shorter than its economic life. As a result, the lease provider retains the risk and reward of ownership, while you remain responsible for keeping the asset in good working order during the agreement period.
Hire purchase is when you agree to buy an asset from the lender over a specified period. You own the item at the end of the contract. Usually, there is a small fee to secure title to the asset.
Like lease agreements, hire purchase allows you to acquire vital equipment and machinery without large upfront costs that can put a strain on your cashflow and working capital.
Hire purchase contracts usually involve a deposit and fixed payments over an agreed term.
You can apply for a lease or hire purchase agreement:
- with a finance provider
- from an equipment provider or manufacturer
- through a broker
With leasing and hire purchase, there are few restrictions on:
- who or what type of business can apply
- the type of business assets you can fund
The biggest factor in getting approval for this finance is proving that you're able to make the rental payments. And even then, you don’t necessarily need to be profitable, just cash positive.
Providers can also consider the revenues that the asset investment may generate for your business and the impact that it will have on your ability to service the rentals.
Another important factor is your credit rating. A poor credit rating could make approval more difficult but it’s not always a barrier.
Good rates of approval
Success rates are high for leasing and hire purchase applications.
Leasing and hire purchase deals are generally speedy. For standard pieces of equipment, such as a vehicle, it could take just a few days.
You can access leasing and hire purchase regardless of your sector, your location, or the size or age of your business.
A hire purchase agreement allows you to own the asset at the end of the contract. With a finance lease, you rent the asset for as long as you need it, then return it.
And there aren’t many assets you can’t acquire through leasing or hire purchase.
Could affect your credit report
Leasing and hire purchase providers will conduct credit checks when you apply for finance. This may have an impact on your credit report.
If you want to secure the asset at the end of the contract, you may have to pay a fee to do so.
Losing the asset
If you default on your payments, the lender may recover the asset. This could harm your credit rating.
Here are some important questions you'll need to consider before proceeding with leasing or hire purchase:
- What are the fixed payments?
- How long is the contract?
- What happens at the end of the contract?
- Are there options for a secondary rental period?
- Is this the best option for my business?
- Can I afford the monthly repayments/rentals or does the contract put too much stress on my working capital?
- Do I have a good credit rating?
- Do I want to own the asset at the end of the contract? If so, will I have to pay a fee?
- Am I responsible for maintaining the asset, or is the lease provider?
- Are there tax benefits I or the finance provider could make use of when acquiring the asset?
Other finance options
|Purpose of financessss
|Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth
|Amount of finance
|£2m-£20m (depending on % shareholding acquired and value of company)
|Duration of finance
|Cost of finance
|Due diligence and legal fees will apply. If you appoint an advisor, they will expect a retainer fee
|Time of finance
|Minimum of 3 months but can be up to a year
|Post-revenue, profitable and growing
|Established with assets and a trading history
|Established with a trading history
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Securing funds and controlling debt
Funding can be critical to keeping a business afloat and positioning it for long-term success, especially in uncertain financial times.
But, knowing the right place to turn to for guidance can be a challenge.
With tips on everything from debt and equity financing to accessing Community Development Finance Institutions, our Guide to Building Business Resilience could help your business prepare for the future.