Running a business often means balancing growth with cash flow. One key decision many businesses face is how to fund assets or expansion. Choosing between leasing, hire purchase, or a business loan can be confusing. This guide explains the pros and cons of each option to help you make an informed decision.
1. Lease Finance
What it is: Leasing allows your business to use an asset (like vehicles, machinery, or IT equipment) without owning it outright. You make regular payments for a set term and may return the asset at the end of the lease.
Pros:
- Lower upfront costs
- Flexible terms to match your business needs
- Upgrades and replacements easier at the end of the lease
- May be off-balance-sheet depending on structure
- Fixed interest rates
Cons:
- You don’t own the asset at the end
- Total cost may be higher than purchasing outright over long terms
- Limited flexibility if you want to sell the asset early
2. Hire Purchase (HP)
What it is: Hire Purchase lets your business pay for an asset in monthly instalments, eventually owning it once all payments are complete.
Pros:
- You own the asset at the end
- Fixed monthly payments make budgeting easier
- Can be structured to benefit from capital allowances for tax purposes
- Early termination often cheaper than a lease
- Can fix or be a variable rate of interest
- Bespoke payment profiles to account for any seasonality
Cons:
- Can be higher initial deposit than a lease
- Asset is on your balance sheet
- You’re responsible for the condition and future value of the equipment
3. Business Loan
What it is: A loan provides a lump sum to purchase an asset or fund expansion, repaid with interest over a set term.
Pros:
- Flexibility, use funds for any legal business need. Including, stock purchases, paying off a bill or bridging the purchase of an asset.
- If it is used to buy an asset you own it outright from day one
- May allow negotiation of better deals when purchasing
- Low early payment penalties
Cons:
- Interest rates may be higher than structured HP or lease deals
- Typically large upfront fees added to loans
- Typically requires a home-owning director to provide a personal guarantee
How to Decide
- Consider cash flow: If preserving cash is crucial, leasing or hire purchase can spread costs.
- Think about ownership: If owning the asset matters, hire purchase or a loan is better.
- Tax implications: Some leases and HP agreements offer tax advantages, such as capital allowances or the ability to offset rental payments. Talk to us about what might work best for you.
- Flexibility needs: Leasing often allows easier upgrades or replacements. Loans often offer 100% rebates of future interest.
Get Expert Advice
Choosing the right business finance option can have long-term impacts on cash flow, tax efficiency, and growth. At Causon Business Finance, we work with a panel of lenders to find the most suitable solution for your business, whether it’s lease, hire purchase, or a loan.
Call 01455 250 690 or email info@causonbusinessfinance.co.uk to discuss your options today.
