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Business equipment finance: hire purchase, leasing or a loan?

Business equipment finance compared: when hire purchase, leasing, a loan or your own cash fits new machinery or kit, and what a lender will check.

Reading time 5 min read
Category Business guides
Written by The bizbritain team
Business equipment finance comes in four main forms. Hire purchase suits kit you want to own and keep. Leasing suits kit you will replace or upgrade. A business loan suits a mix of costs. Your own cash suits a smaller purchase when reserves are healthy. The right one depends on how long the kit will earn its keep.
The question is live for many small manufacturers. According to the skills charity Enginuity, nearly 80% of the engineering and manufacturing SMEs in its latest survey are under pressure to raise prices because of labour and material costs. For some, a better machine is one way to get more out of the same team.
This guide is for a business that is already trading and needs machinery, a vehicle or other kit. If you are still starting out, our guide to using a Start Up Loan for stock or equipment covers that stage.

Section 01

How does asset finance work?

Asset finance spreads the cost of equipment over the time you use it. The equipment itself backs the finance, so the lender looks hard at what you are buying as well as at your business.
There are two main types. With hire purchase, you pay a deposit and then fixed monthly payments. Once the last payment is made, the equipment is yours.
With a lease, you pay a monthly rental and the lender keeps ownership. At the end of the term you usually hand the kit back, extend the lease or move to a newer model.

Section 02

Business equipment finance options side by side

Here is how the four options compare for a trading business.

  1. Hire purchase: you own it at the end

    This suits kit with a long working life that you plan to keep, such as a lathe, a press or a van you will run for years. Your payments build towards owning it.

  2. Leasing: you use it, the lender owns it

    This suits kit that dates quickly or that you replace on a cycle, such as computers or a fleet vehicle. You avoid being left with old equipment you no longer want.

  3. A business loan: cash you can spread across costs

    A loan pays out cash, so it can cover delivery, installation and training as well as the machine itself. On most unsecured loans above £25,000, the lender will ask for a personal guarantee.

  4. Your own cash: no interest, less headroom

    Paying outright costs nothing in interest. But it takes money out of the business that you may need for wages, stock or a slow month.

Each option is treated differently for tax. Ask your accountant before you choose, because it can change which one costs least.

Section 03

What does a lender look at?

Every lender applies its own checks. Most will want to understand four things.
  • The equipment: what it is, what it costs and whether it holds its value. A standard machine is easier to finance than a one-off build.
  • Your trading record: recent accounts and bank statements. For growth finance through us, you need at least 12 months of trading.
  • The deposit: how much you can put in yourself. A larger deposit lowers the amount you borrow.
  • The payback: how the kit earns or saves money. More output, less overtime or fewer outside jobs all count.

Section 04

Match the finance to the working life

A simple rule helps. Try not to be paying for a machine after it has stopped earning for you.
So a press you will run for ten years can carry a longer term. A laptop you will replace in three should not. Our guide to financing an electric van works through the same choice for a vehicle.
Count the whole cost, not just the price tag. Delivery, installation, training and a few days of lost production can add up.
A broker can put the same purchase to several types of lender at once, from asset finance specialists to the high-street banks. If you are weighing up new kit, talk to us about business growth finance and we will look at which route fits.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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