There are two main ways you can pay for the resources and equipment your business needs:
- by buying it outright
- on hire purchase or lease
Buy an asset outright
Buying outright is a good option if you have the capital available, or if it is essential that you own the equipment. However, large capital expenditure can affect your cashflow.
Hire purchase or lease
Paying for goods on hire purchase or leasing equipment:
- allows you to use an asset over a fixed period in return for regular payments
- lets you choose the equipment you require, with the finance company buying it for your business to use
- usually makes your business responsible for the maintenance of the asset
The smaller payments will leave you with more cash, but because you pay interest on the instalments, you will pay more for the goods in the long run.
Leasing means you may never own the asset outright, although some lease arrangements let you buy the asset at the end of the agreement. However, you can often update your equipment without the expense of buying newer models.
With hire purchase, the business owns the asset once all the payments have been made. One advantage of hire purchase is that the interest rate is likely to be less than the bank loan or overdraft that may be needed to buy the item outright. You can also claim capital allowances against tax from the beginning of the hire purchase contract.