Asset Finance is the third most commonly used form of finance in the UK after Business Loans and Overdrafts. Around one in three businesses that have external borrowings use Asset Finance. A sure sign that it should be considered when purchasing equipment, machinery, vehicles or fitout.

Generally speaking there are two types of Asset finance solutions – Hire Purchase and Leasing. A third, slightly less common type of agreement is known as refinance.

Hire Purchase agreements are simple. A business makes a purchase (equipment, machinery, vehicles, fitout etc) and then spreads the cost, typically between one and seven years with added interest. Normally the VAT associated with the purchase is paid upfront – there are however options to defer the VAT for up to three months. Hire Purchase the business owns the purchased item, and it will appear on the businesses balance sheet.

A leasing agreement can be an effective way to access items that a business needs to thrive. Businesses can spread the cost of a purchase between one and seven years. VAT is paid on the monthly lease repayments as opposed to upfront, an advantage for cashflow. Leasing is also tax beneficial – leasing repayments are tax deductible and can be offset against business profits. At the end of a primary lease period a business can usually; continue leasing (often with cheaper repayments) purchase the assets (usually for a small fee) or return the asset to the lessor.

For many businesses, choosing between a Hire Purchase or Lease agreement comes down to financials and accounting. Carefully consider your options in order to compare asset finance options, there are many different finance products available, we recommend speaking to one of our account managers and they can help you decide which finance product is most suitable.