What are leasing and hire purchase?

Leasing and hire purchase are low-risk forms of debt finance that can be used to acquire assets for a business. Such finance options are available directly from specialist providers, or indirectly through equipment suppliers or finance brokers.

Leasing and hire purchase could be the perfect solution if your business needs 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.

This means leasing and hire purchase can be useful to businesses at any stage. from start-ups to large, established organisations.

Leasing

A leasing company buys and owns the equipment, which the business then rents for a predetermined period.

Typically, the lease will have a set interest rate, which fixes the outgoings on that asset. The business also has the option to replace or update the equipment at the end of the lease period.

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.

Further support

• Could leasing and hire purchase help your business?

Next steps

• To find out more, visit the Finance & Leasing Association (FLA) website.
• How to find the right financial advice