For businesses to effectively operate and provide a premium service to their clients, they need the best equipment to do so. But affording high-end tech, eco-friendly vehicles or an essential piece of machinery doesn’t always fit the budget. This is when Hire Purchase and Lease Financing come to the rescue. But which option is right for you?
Hire Purchase and Finance Leasing are two different lending options available to businesses. They enable companies to purchase, hire or rent assets required to run or grow their operations. In this article, we break down the differences between the two. Sharing the pros and cons of each one to help you understand and decide which financing option is most beneficial.
What’s the difference between hire purchase and finance leasing?
Ok, let’s simplify things…
Hire Purchase
Hire purchase involves a lender purchasing an asset a company requires. The company then hires or rents the use of that asset from the lender. These assets often include items businesses eventually want to own (computers, printers, cars, solar panels, etc.) but can’t afford the immediate upfront costs.
To cover the cost of your desired asset, Hire Purchase requires an initial deposit followed by monthly payments over an agreed period. At the end of the contract, the asset goes back to the Lender, or there is an option for businesses to buy and own the asset.
Pros of Hire Purchase Finance
Hire Purchase is ideal for companies investing in soft and hard assets that will enhance, streamline and scale their business. With high approval rates, you’ll also benefit from:
- Instant access to the assets you need.
- Full control over the asset.
- Keeping your business operating.
- Protecting your cash flow.
- Manageable monthly payments.
- Owning the asset at the end of the contract.
- Tax-efficient options.
Cons of Hire Purchase
- Deposits are sometimes required.
- A payment is required at the end of the contract to purchase the asset.
- If you want to buy, the asset’s value may have decreased.
- If you default on payments, the lender has the right to end usage.
- If the asset breaks, you are responsible for repair costs.
Lease Finance
There are two types of lease financing: Capital Lease and Operational Lease. Both involve a lender purchasing your required asset and then leasing it back to you over a period of time. This type of finance often suits businesses that need heavy-duty vehicles for seasonable purposes, such as farmers.
Leasing costs are split over manageable monthly payments to reduce strain on cash flow. Contracts are also fairly flexible, so businesses can use the asset for as long or as short as required. At the end of the contract, the asset returns to the lender, or you can start a new lease.
Pros of Finance Lease
Finance Leasing is aimed towards companies requiring larger or specialised equipment. Leasing removes expensive upfront costs and brings additional benefits, such as:
- Quick access to essential tools, machinery or equipment.
- Removing the strain on cash flow.
- Helping to keep business operating.
- Flexibility – rent the asset for as long as you need.
- Covering the costs to repair, upgrade or replace the asset.
- Manageable leasing costs.
- Tax-efficient options.
Cons Finance Leasing
- Deposits are sometimes required.
- A payment is required at the end of the contract to purchase the asset.
- If you want to buy, the asset’s value may have decreased.
- If you default on payments, the lender has the right to end usage.
- If the asset breaks, you are responsible for repair costs.
Is Hire Purchase or Lease Finance right for me?
Finding suitable finance for you and your business comes down to a few factors. We recommend considering the following:
- What assets do you require, and how many?
- How quickly do you require them?
- How long do you need them for?
- Do you want to own the asset at the end of your contract?
- How is your current financial and cash flow situation?
- What deposit and monthly payments can you afford?
How do I apply for Hire Purchase or Lease Finance?
Right here with Origin Finance! If you want to learn more, you can head to our dedicated Hire Purchase and Lease Finance pages. Or, if you have all the information you need, you can skip straight ahead and book a call with our friendly team. We can’t wait to support your ambitions and build your business!
