Asset finance explained: hire purchase or leasing?

Why use asset finance

Buying equipment outright drains cash that might be better used for stock, staff or growth. Asset finance spreads the cost over the working life of the asset, and because the asset itself forms the security, it is often easier to obtain than unsecured borrowing.

Hire purchase

Under hire purchase you pay a deposit and fixed monthly instalments. Once the final payment and any option-to-purchase fee are made, you own the asset. For accounting purposes the asset normally sits on your balance sheet from the start, which can affect capital allowances. Speak to your accountant about how this applies to you.

Finance lease and operating lease

With a lease you rent the asset for an agreed period and never take legal ownership. A finance lease typically covers most of the asset's value and useful life. An operating lease is shorter and suits equipment you expect to replace regularly, such as IT or vehicles on a fixed cycle.

Refinancing assets you already own

If the business owns valuable equipment outright, asset refinance can release cash against it. This is a common way to fund a growth project or smooth cash flow without taking on unsecured debt.

Questions to ask

• Do I want to own the asset at the end?
• How long will the asset remain useful to the business?
• Is there a balloon payment at the end of the term?
• Who is responsible for maintenance and insurance?