Hire purchase

Quick facts

Amount

From £1,000 to £10m depending on provider (who may also set limits per asset or per business)

Term

1-5 years typically

Cost

Monthly instalments vary according to the asset, your credit rating and your provider – you usually pay a deposit (e.g. 10%) and all the VAT upfront

Speed

Within days

Purpose of finance

Equipment leasing

Suitable for

Businesses wanting equipment without the upfront costs (including startups)

What is hire purchase?

Asset finance is a type of lending that gives you access to additional business assets (e.g. equipment). There are two main types of asset finance: equipment leasing and hire purchase.

Hire purchase is a way for you to buy an asset by paying in instalments over a period of time, rather than paying upfront. With hire purchase, you legally own the asset after all the instalments have been paid, but in most agreements it will appear on your balance sheet from the start.

Why choose hire purchase?

Hire purchase is a type of asset finance. It’s similar to equipment leasing, but simpler (and arguably less flexible).

Hire purchase is a bit like making a purchase and paying in regular instalments, like you might do for a new kitchen or furniture for your home.

During the leasing period the provider owns the asset – and is therefore responsible for maintenance and insurance.

Your business legally takes ownership of the asset after all the instalments have been paid, but in most agreements the asset will appear on your balance sheet from the start of the agreement. You usually pay a 10% deposit and all the VAT upfront.

Is it suitable for an SME?

If you need access to equipment, you might want to look at other options. A finance lease is a similar long-term commitment but you won’t own the item at the end of term and the asset never appears on your balance sheet. You are however responsible for maintenance and insurance.

Another option is an operating lease – An operating lease is a type of equipment lease where your business (the lessee) rents an asset for only a fraction of the item’s useful life. Contract hire is a specialised form of operating lease. It refers exclusively to the leasing of vehicles and is therefore often called vehicle asset finance.

Have you also considered?

If you are facing a large one-off payment to access equipment, machinery or vehicles, you might want to consider asset finance as an alternative to traditional bank loans or overdrafts.

The two main types of asset finance are:

equipment leasing (including finance leases, operating lease and contact hire) – Equipment leasing allows your business to rent equipment from either a vendor or a leasing company, for a set period of time. It’s a type of asset finance. At the end of the lease, you must give back the equipment, buy it or renew the lease. Equipment leasing includes finance leases (also known as capital leases), operating leases and contract hire.

You might also consider asset refinance, which allows you release cash from the value in your existing assets.