For businesses seeking to expand their operational assets, there are various financing alternatives to consider. Investing in capital equipment can be a significant financial commitment, necessitating careful thought and research to determine the most suitable option with long-term implications.
Comparison of Hire Purchase and Equipment Leasing
Aside from the conventional approaches like securing a bank loan or outright purchase, two prevalent methods of financing assets are hire purchase and equipment leasing. These avenues come with distinct implications for your business and are accounted for differently in your financial statements.
Hire Purchase – in a hire purchase arrangement, the lender assumes ownership of the equipment throughout the contract’s duration, during which the business makes regular payments for equipment usage. At the contract’s conclusion, the asset’s ownership is transferred to the borrower—this transition can occur automatically or with the payment of a final “option to own” fee.
Since the business eventually owns the asset, the interest component of the repayments and the equipment’s depreciation can potentially be claimed as tax deductions. Hire purchase agreements can prove beneficial for businesses seeking to acquire assets over the long term.