Asset finance is a type of lending that gives you access to business assets such as equipment, machinery and vehicles, or enables you to release cash from the value in assets you already own.
Hire purchase is simply the means to purchase an asset and spread the cost over a certain period of time. You can pay by instalments, so that it appears on your balance sheet, and because you own the asset you will be responsible for additional costs, but after the term ends, you will have full ownership of the item.
A lender can buy the equipment you need and rent it to you on a lease. Meaning that you can have it straight away, and only need a small amount up front. Usually, you need to pay the first month’s rent, and spread the VAT over that period. Towards the end of the lease, you can decide to continue leasing the item, buy it at an agreed price, upgrade to a new piece of equipment on a new lease, or just return it.
Businesses often find leasing a good option, because as well as spreading the payments over time, you can be flexible to your company’s situation.
A Finance or Capital Lease, is a mixture of both a Hire Purchase and Equipment Leasing. It's a long-term lease created for most of the asset's life.
You get full use of the asset and pay for the full amount over time, however you do not actually own it, so it will not appear on your balance sheet. That means it would be possible to offset any rental costs against profit and claim VAT, which could be tax-efficient depending on your circumstances.
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