Most businesses will need to invest in some expensive capital equipment. If you can spread the cost of acquiring these assets over a given period, you will have access to what you need without it having an impact on your cash flow.
Ways to acquire without buying
A key consideration for many small businesses is how they are going to fund the initial investment in capital assets, whether this be plant & machinery, vehicles, software or IT.
It is possible for you to identify the equipment you require, and a finance company buys it on your behalf. The most common forms of finance for this level of investment are:
- Finance leasing
You rent the asset back over a fixed period in return for regular payments, but do not obtain ownership.
- Hire purchase
Once all agreed payments have been made, ownership of the equipment transfers to the business.
Who can benefit?
Because the finance is relatively low-risk with debt secured against the assets, leasing and hire purchase are relevant at all business stages, including start-ups and large corporations.
How does finance leasing work?
A finance lease is a loan of money with the asset as security, making it a viable option for small businesses. It facilitates the use of an asset without the risks of ownership, although the business will usually be responsible for the maintenance and insurance of the equipment.
At the end of the agreed period, you can either opt for an extended lease with reduced payments or you can agree to sell the equipment in return for a proportion of the proceeds.
Benefits of finance leasing
- Allows use of an asset for the period a business needs it
- No requirement for large deposits or upfront payments
- Flexible repayment structures to meet revenue
- Tax efficient
What is hire purchase?
As the name suggests, hire purchase allows you to rent a product over a given period with the option to own it, once all payments have been made.
As with leasing, your debt is secured against the asset. The finance company has the right to repossess the equipment should you default on any payments or be unable to fulfil the agreement to the end.