Hire purchase for businesses: own equipment, vehicles and machinery

Business hire purchase (HP) is an agreement where a lender buys an asset and your company pays for it in instalments, then becomes the legal owner when the last payment and any option-to-purchase fee are paid. Until then, the lender owns the asset and your company has the right to use it.

In practice, an HP deal for equipment, machinery or plant usually runs like this:

1. Supplier quote. Your company agrees a price with the supplier, and the quote goes to the lender with details of the make, model, age and serial number where relevant.
2. Assessment. The lender looks at whether your company can afford the payments and what the asset would be worth if it had to be recovered and sold.
3. Offer and documents. If the lender is comfortable, it issues an HP agreement setting out the cash price, deposit, number of payments, any balloon, fees and the total amount payable.
4. Signing. Directors or partners sign, and many lenders need to see that the asset is insured.
5. Payment to the supplier. The lender pays the supplier directly, usually once delivery is confirmed. Your company takes the asset into use.
6. Repayment period. Your company makes fixed payments, usually monthly by direct debit, for the agreed term.
7. Transfer of title. After the final payment and any option-to-purchase fee, ownership passes to your company. Nothing more is owed on that asset.

Because the lender owns the asset during the term, your company usually cannot sell it, move it abroad or use it as security for other borrowing without the lender's written consent.

Business hire purchase can be shaped around how the asset earns money for your company.

• Standard HP: a deposit followed by equal monthly payments, with ownership at the end.
• HP with a balloon: a larger final payment reduces the monthly instalments. This suits assets that keep a good resale value, but your company must plan for the lump sum.
• Seasonal payments: some lenders allow higher payments in busy months and lower ones in quiet months.
• Deferred start: some lenders may defer the first payment while new machinery is installed. Interest still builds up.
• Multi-asset agreements: several items can be bundled into one agreement with one payment.
• HP on used assets: older plant and machinery can be funded, often with a shorter term so the agreement ends while the asset still has value.

The cost of hire purchase is the difference between the cash price and everything your company pays in total. To compare offers properly, add up every payment and fee rather than looking only at the monthly figure.

Charges you may see on an HP quote include:

• Interest or finance charges: often quoted as a flat rate, which is calculated on the original amount borrowed and looks lower than an equivalent annual rate on a reducing balance.
• Documentation or arrangement fee: usually collected with the first payment.
• Option-to-purchase fee: a small fee at the end that transfers ownership.
• Late payment charges and default interest: set out in the agreement's terms.
• Early settlement terms: how much interest, if any, is rebated if your company pays off early.

Lenders price each deal on risk. The main factors are the type of asset and how easily it could be resold, the asset's age, the length of the term, the size of the deposit, your company's accounts and credit history, and whether a director's guarantee is offered. A widely traded excavator is usually seen as lower risk than a bespoke production line.

Illustrative example only: actual costs depend on the lender and your circumstances.

A manufacturing company buys a CNC machine for £60,000 plus VAT. It pays a 10% deposit of £6,000 and finances the remaining £54,000 over 48 months.

• Amount financed: £54,000
• Finance charges, at an illustrative flat rate of 6% a year for four years: £54,000 × 6% × 4 = £12,960
• Total of instalments: £54,000 + £12,960 = £66,960
• Monthly payment: £66,960 ÷ 48 = £1,395
• Documentation fee £250 and option-to-purchase fee £150
• Total cost of credit: £12,960 + £250 + £150 = £13,360

The company also pays £12,000 VAT at the start, which it may be able to reclaim on its next VAT return if VAT registered. You can model different deposits and terms with our asset finance calculator.

The amount is set by the asset's value and your company's ability to make the payments, not by a fixed multiple of turnover. Lenders usually finance up to the purchase price excluding VAT, less any deposit they require.

When sizing a deal, lenders typically look at:

• The asset's resale value over time: the lender wants the amount owed to stay close to, or below, what the asset would fetch at each point in the term.
• Affordability: whether the new payment fits comfortably within the cash flow shown in bank statements and accounts, after existing commitments.
• Your existing exposure: some lenders set an overall limit for each company across all agreements.
• Term against working life: the agreement should normally end before the asset is worn out.

Larger deals may need management accounts or forecasts.

Read the full agreement before signing, because business HP terms are set by each lender and are not standardised. The points below are the ones most worth checking.

• Personal guarantees: many lenders ask directors or partners to guarantee the debt, which means they can be personally liable if the company does not pay. See what a personal guarantee means.
• Repossession and default: if payments are missed, the lender can usually end the agreement, recover the asset and claim any shortfall from the company.
• Early settlement: check how the settlement figure is worked out. Some agreements rebate only part of the remaining interest.
• Insurance and maintenance: your company is normally responsible for both, and the lender may need to be noted on the insurance policy.
• Selling or moving the asset: usually not allowed without the lender's consent.
• Balloon payments: whether your company will have the cash to pay it, or whether refinancing it is realistic.

Hire purchase is usually the right fit when your company wants to own a long-life asset and spread its cost. Other options can suit better in some situations.

• Equipment leasing may suit kit that dates quickly or that you plan to replace at the end of the term, since you never take ownership.
• Asset refinance suits a company that has already paid cash for machinery or plant and now wants to release that money back into the business.
• Secured business loans or an unsecured loan may make sense when you are funding a mix of assets, fit-out and working capital that cannot all be secured on one asset.

Our guide comparing asset finance and a bank loan goes through the trade-offs in more detail.

Sometimes, yes. Because the asset itself is security, hire purchase can be more accessible than unsecured borrowing, but each lender sets its own rules and some will decline.

Lenders that consider a younger company, one with a past credit issue or one with thin profits often ask for a larger deposit, a shorter term or a director's guarantee. Assets with a strong resale market, such as popular plant or commercial machinery, give lenders more comfort than specialist equipment. Minimum trading periods vary from a few months to two or three years depending on the lender.

Hire purchase for limited companies, LLPs and partnerships of four or more partners is generally unregulated business finance. The Consumer Credit Act protections that apply to individuals generally do not apply to these agreements.

That means the written agreement is what governs your rights, including early settlement, termination and what happens if payments are missed. Read it carefully and take independent legal or accounting advice if anything is unclear. Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. Our guide to regulated and unregulated business finance explains more.

We are a commercial finance broker, not a lender. Every client has a dedicated relationship manager, a real person you can reach by phone, email and chat from your first enquiry until the lender pays your supplier.

1. You complete our 60-second eligibility check, which does not affect your credit score.
2. Your relationship manager gathers the supplier quote and documents, and explains the HP structure that fits the asset.
3. We approach suitable lenders on our panel. Lenders run their own credit checks once you decide to apply.
4. We help you compare offers on total cost, not only the monthly payment, and point out terms worth checking.
5. Once you sign, the lender pays the supplier and you take the asset into use.

We do not charge your company a fee. We are paid a commission by the lender when the finance completes. You can ask us how much it will be, and the amount can differ between lenders. Read more on how we are paid.

Who owns the asset during a hire purchase agreement?

The lender owns it until the final payment and any option-to-purchase fee are made. Your company has the use of it and, for tax purposes, is usually treated as the owner from the start.

Can I settle a hire purchase agreement early?

Usually, yes. The lender gives a settlement figure covering the remaining capital and possibly some remaining interest.

Can I sell machinery that is still on hire purchase?

Not without the lender's consent, because it still owns the asset. The usual route is to ask for a settlement figure and pay off the agreement from the sale proceeds.

What is a flat rate on an HP quote?

A flat rate is charged on the original amount financed for the whole term, even though the balance falls as you pay. It therefore looks lower than an equivalent rate calculated on a reducing balance.

Does plant finance work the same way as equipment finance?

Yes. Plant finance and machinery finance are usually arranged on hire purchase in the same way as other equipment finance. Lenders pay close attention to hours used, condition and the resale market for that make and model.

Can hire purchase fund installation and delivery costs?

Some lenders include delivery, installation and commissioning when they are on the supplier's invoice and are a modest part of the total. Costs with no resale value, such as building work, are less likely to be funded.

What happens if the asset breaks down during the agreement?

Your company still has to keep up the payments. Repairs are normally your responsibility, so check the warranty and insurance.

Can a balloon payment be refinanced at the end?

Some lenders will consider refinancing a balloon, but it is not automatic and depends on the asset's value and your company's position at the time. Plan as if you will need to pay it in cash.