LEASE
PURCHASE/HIRE PURCHASE:
Advantages of lease purchase/hire purchase
• No need to outlay the full cost of the asset up front
from your working capital or credit facilities – put your
spare capital to use in areas where your business really needs
it
• Spread the cost of the asset over a fixed period of
time that it is chosen by you (typically 3-5 years)
• Easier to forecast your cashflow as the agreement is
fixed term and the monthly amounts won’t fluctuate
• You can budget more effectively each month with no unexpected
bills, knowing what is coming out of your account to pay for
the assets you have acquired on finance
• Your tax liability will be reduced because lease rental
can be 100% offset against your pre-tax profits
• Peace of mind that you will not need an overdraft or
credit card that may be withdrawn at short notice by your bank
• Service elements, maintenance contracts and other intangible
items can sometimes be written into the lease agreement, so
you only have one payment coming out
• The funder you are using for your finance will usually
obtain better discounts on finance due to their economies of
scale, this is usually passed onto you as the customer.
• Usership not ownership – avoid heavy servicing
and repair bills for old plant, equipment and technology
• Forget depreciation costs – and forget the problems
of trying to sell old equipment at a decent price – simply
hand it back at the end of the lease
Disadvantages
of lease purchase/hire purchase:
• Leasing means that your business will be legally tied
into a finance agreement, and payments must be made on time
each month otherwise this will affect your credit rating and
your ability to secure further finance in the future.
• Leasing can sometimes be more daunting than buying outright,
due to all the paperwork required in comparison to simply purchasing
the equipment by invoice
• Businesses normally have to be VAT-registered to take
out a leasing agreement
• The asset you are leasing is not owned by your business,
the exception being hire-purchase which involves making a final
payment after your payment obligations have been met in full
and the lease has ran the full duration of its minimum term.
Continued...
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