Executive Summary
Should UK SMEs lease or buy heavy equipment?
Leasing suits businesses prioritising cash flow preservation and flexibility (upfront costs 85-90% lower), while buying benefits companies planning 7+ years of use with strong capital positions. The decision depends on equipment lifespan, cash reserves, tax strategy, and operational needs. If you need any help in making an informed decision, contact our team of experts now!
Table of Contents
Average Costs of Leasing Vs Buying As An Example
- Leasing: £800-£2,500/month for £100k equipment (depending on term and type)
- Buying: £20,000-£30,000 deposit + loan repayments or full £100,000 upfront
- Break-even point: Typically 5-7 years of use
Key Decision Factors: Cash position, usage duration, technology obsolescence rate, tax planning, balance sheet impact.
Quick Decision Framework To Choose Between Equipment Leasing or Buying
Choose Equipment Leasing If:
- Limited working capital (less than 6 months’ operating expenses)
- Equipment needed for under 5 years
- Technology changes rapidly in your sector
- Prefer predictable monthly expenses with maintenance included
- Want to keep debt off balance sheet for future borrowing
Choose Equipment Purchase If:
- Strong cash reserves or access to affordable business loans
- Equipment will be used 7+ years
- Stable technology with slow obsolescence
- Can benefit from Annual Investment Allowance (up to £1M tax relief)
- Need unlimited usage without lease restrictions
Need personalised advice? Monmouth Group provides free equipment finance consultations for UK SMEs. Speak with a specialist now.
What Is Heavy Equipment Leasing?
Equipment leasing is a financing arrangement where a business pays regular fees to use machinery, vehicles, or equipment owned by a lessor (leasing company), without purchasing the asset.
Three Main Types of Equipment Leases in the UK:
1. Operating Lease (Contract Hire)
- Ownership: Never yours; returned at lease end
- Duration: 2-5 years typically
- Maintenance: Usually included
- Accounting: Off-balance sheet
- Best For: Equipment prone to obsolescence (technology, vehicles)
- Tax Treatment: Lease payments fully deductible as business expense
2. Finance Lease
- Ownership: Option to purchase for nominal fee at end
- Duration: 3-7 years typically
- Maintenance: Your responsibility
- Accounting: On-balance sheet
- Best For: Equipment you’ll likely keep long-term
- Tax Treatment: Lease rentals deductible; capital allowances may apply
3. Hire Purchase
- Ownership: Automatically yours after final payment
- Duration: 1-7 years typically
- Maintenance: Your responsibility
- Accounting: On-balance sheet as asset and liability
- Best For: Equipment you definitely want to own
- Tax Treatment: Interest deductible; 100% capital allowances available
What Does Buying Equipment Mean?
Purchasing business equipment outright or via asset finance/business loan, giving immediate ownership rights and full control over the asset.
Purchase Methods:
Cash Purchase
- Pay full amount upfront
- No ongoing payments or interest
- Immediate 100% ownership
- Best for: Businesses with strong cash reserves
Asset Finance Loan
- Equipment serves as loan security
- Typical deposit: 10-30% of value
- Repayment terms: 1-7 years
- Interest rates: 5-15% APR depending on creditworthiness
Traditional Business Loan
- Unsecured or secured on other assets
- More flexibility on equipment choice
- May have higher interest rates
- Suitable when equipment can’t serve as security
Monmouth Group arranges both asset finance and business loans for equipment purchase. Compare your financing options with the help of our expert team now!
Detailed Comparison: Leasing vs Buying Heavy Equipment
Financial Impact
| Aspect | Leasing | Buying |
| Initial Cash Outlay | £0-£5,000 (1-2 months’ payments) | £10,000-£100,000+ (full price or 10-30% deposit) |
| Monthly Cost | Fixed payments (£500-£5,000+ depending on equipment value) | Loan repayments or £0 if cash purchase |
| Total 5 Year Cost | Higher (includes lessor profit margin) | Lower if equipment retained beyond break-even |
| Cash Flow Impact | Minimal strain; preserves working capital | Significant initial impact; reduces over time |
| Hidden Costs | Early termination fees, excess wear charges | Maintenance, repairs, storage, insurance |
Tax Benefits Comparison
Leasing Tax Treatment:
- Operating lease payments: 100% tax deductible as business expense
- Finance lease: Lease rentals deductible plus capital allowances on asset portion
- Reduces taxable profit immediately
- Simpler administration for tax purposes
Buying Tax Treatment:
- Annual Investment Allowance: Deduct 100% of cost (up to £1M per year) from taxable profits
- Writing Down Allowances: 18% per year on main pool if AIA exceeded
- Interest on loans: Tax deductible
- Potential first year tax relief of up to £250,000+ for £1M equipment purchase
Example: £100,000 excavator at 25% corporation tax rate
- Leasing: £2,000/month payments = £24,000/year deductible = £6,000 annual tax saving
- Buying: £100,000 AIA claim = £25,000 first year tax saving
Tax benefits vary by business structure and circumstances. Consult our team for personalised advice.
Operational Flexibility
Leasing Advantages:
- Upgrade to newer models every 2-5 years
- Return equipment if business needs change
- No resale hassle at end of use
- Maintenance often bundled (operating leases)
- Scale fleet up/down more easily
Buying Advantages:
- Modify equipment as needed
- No usage restrictions (hours, mileage, wear-and-tear)
- Use equipment as loan collateral
- Sell whenever you choose
- No early termination penalties
Balance Sheet Impact
Leasing (Operating Lease):
- Off-balance sheet financing
- Doesn’t count as debt in most ratios
- Improves ROA (Return on Assets) metrics
- Better debt-to-equity ratio presentation
- Easier to qualify for additional credit
Buying:
- Asset appears on balance sheet
- Increases company asset value
- Loan creates corresponding liability
- May limit additional borrowing capacity
- Builds tangible net worth
Industry Specific Considerations
Construction Companies
Typical Equipment: Excavators, dumpers, telehandlers, concrete mixers
Recommendation: Hybrid approach
- Lease: Short term project equipment, newer technology machinery
- Buy: Core equipment used daily (small tools, mixers)
- Why: Project based work suits flexible leasing; core tools benefit from ownership
Manufacturing Businesses
Typical Equipment: CNC machines, presses, production lines, forklifts
Recommendation: Buy with asset finance
- Long equipment lifespan (10-20 years)
- Stable technology
- High usage rates exceed typical lease allowances
- Capital allowances provide substantial tax relief
- Equipment serves as excellent loan collateral
Logistics & Haulage
Typical Equipment: HGVs, vans, forklifts, pallet trucks
Recommendation: Lease for vehicles, buy for warehouse equipment
- Lease vehicles: Technology advances, emissions regulations change, high mileage
- Buy forklifts/warehouse kit: Long lifespan, stable technology
- Operating leases keep fleet modern and compliant
Agriculture & Farming
Typical Equipment: Tractors, harvesters, sprayers, handling equipment
Recommendation: Consider hire purchase or finance lease
- Path to ownership important for farm asset value
- Seasonal cash flow suits structured payments
- Equipment lasts 15+ years with proper maintenance
- Can leverage farm assets for financing
Monmouth Group specialises in equipment finance across all these sectors. Discuss your industry-specific needs
Real Cost Analysis: 5 Year Comparison
Scenario: £100,000 Excavator
Option 1: Operating Lease
- Monthly payment: £2,000
- Contract term: 5 years
- Maintenance: Included
- Total cost: £120,000
- You own: Nothing (return equipment)
Option 2: Finance Lease
- Monthly payment: £1,900
- Contract term: 5 years
- Balloon payment: £5,000
- Maintenance: Your cost (~£800/year = £4,000 total)
- Total cost: £119,000
- You own: £100,000 asset (estimated residual value: £35,000-£45,000)
Option 3: Asset Finance Purchase
- Deposit: £20,000
- Loan amount: £80,000
- Interest rate: 8% APR
- Term: 5 years
- Monthly payment: £1,623
- Maintenance: Your cost (~£4,000 total)
- Total cost: £121,380
- You own: £100,000 asset (estimated residual value: £35,000-£45,000)
Option 4: Cash Purchase
- Upfront cost: £100,000
- Maintenance: Your cost (~£4,000 total)
- Total cost: £104,000
- Opportunity cost: Lost investment returns on £100,000 (varies)
- You own: £100,000 asset (estimated residual value: £35,000-£45,000)
Key Insight: Over 5 years, costs are similar. Decision should factor in:
- Cash flow preservation needs
- Tax position and allowances available
- Likelihood of keeping equipment beyond 5 years
- Importance of ownership and asset building
Our team of experts can help you assess your options over the long term. Reach out now to learn more.
Common Questions Answered
Which is cheaper long-term, leasing or buying equipment?
Buying is typically cheaper if you keep equipment for 7+ years. The break-even point is usually 5-7 years depending on interest rates and lease terms. Beyond this, you own an asset while lease payments continue indefinitely. However, leasing may prove more economical if you upgrade frequently or equipment becomes obsolete.
Can I claim tax relief on equipment leasing?
Yes. Operating lease payments are fully tax-deductible as business expenses. Finance lease rentals are also deductible, and you may claim capital allowances on the asset portion. This reduces your taxable profit, lowering your corporation tax or income tax bill.
What credit score do I need to lease equipment?
Most UK leasing companies require:
- Good credit: Credit score 650+ for competitive rates
- Fair credit: 550-649 may qualify with higher rates or larger deposits
- Poor credit: Below 550 makes approval difficult but specialist lenders exist
Factors beyond credit score matter: business turnover, profitability, time trading, and industry sector.
Is a down payment required for equipment leasing?
Usually minimal or none for operating leases (maybe 1-2 months in advance). Finance leases and hire purchase may require 10-20% deposit. Buying with asset finance typically requires 10-30% deposit. Requirements vary by lender, equipment value, and your business profile.
What happens if I can’t make lease payments?
Short-term difficulty: Contact lessor immediately; they may offer payment holidays or restructuring.
Default: Lessor can repossess equipment, charge early termination fees, and report to credit agencies.
Impact: Damages business credit score, makes future financing harder.
Prevention: Build cash reserves, consider payment protection, maintain open communication with lenders.
Can I buy leased equipment at the end of the term?
Operating lease: Usually no purchase option; equipment must be returned.
Finance lease: Purchase option for nominal fee (£1-£100) or fair market value.
Hire purchase: You automatically own it after final payment.
Check your specific contract terms, as agreements vary by lessor and equipment type.
How to Make Your Decision: Step-by-Step Process
Step 1: Assess Your Financial Position
- Current cash reserves: Do you have 6+ months operating expenses?
- Monthly cash flow: Can you handle monthly payments comfortably?
- Upcoming expenses: Any large costs in next 12-24 months?
- Credit position: What interest rates can you access?
Step 2: Determine Equipment Usage
- Duration: How many years will you use this equipment?
- Intensity: Daily use or occasional projects?
- Obsolescence risk: How quickly does technology advance in your sector?
- Flexibility needs: Likely to upgrade or change requirements?
Step 3: Calculate Total Costs
- Get quotes for both leasing and buying options
- Include maintenance, insurance, storage costs
- Factor in tax benefits under each scenario
- Consider opportunity cost of capital
- Calculate 5 year and 10 year total costs
Step 4: Consider Strategic Factors
- Balance sheet: How important is off-balance sheet financing?
- Asset building: Do you want to build company asset value?
- Future borrowing: Planning to seek additional credit soon?
- Resale value: What’s equipment worth after your use period?
Step 5: Get Professional Advice
- Accountant: Tax implications and optimal structure
- Finance specialist: Available products and terms
- Industry peers: Real-world experiences in your sector
Monmouth Group can provide quotes for both leasing and buying options, allowing you to compare real numbers before deciding. Talk to our expert team to assess your options now
Why Choose Monmouth Group for Equipment Finance?
Monmouth Group specialises in advising financing for UK SMEs, offering:
Comprehensive Solutions
- Operating leases from £10,000 to £5M+
- Finance leases with flexible end-of-term options
- Hire purchase agreements for guaranteed ownership
- Asset finance loans with competitive rates
- Business loans for outright purchase
Industry Expertise
We work extensively with:
- Construction and civil engineering
- Manufacturing and production
- Logistics and transport
- Agriculture and farming
- Healthcare and medical equipment
- Hospitality and catering equipment
The Monmouth Advantage
- Free consultation with experienced equipment finance specialists
- Access to 40+ specialist lenders for competitive terms
- Fast decisions: Most applications decided within 24-48 hours
- Flexible criteria: We work with startups and established businesses
- No hidden fees: Transparent pricing and clear terms
- Ongoing support: Available throughout your agreement
Our Process
- Initial consultation: Understand your equipment needs and financial position
- Quote comparison: Present leasing and buying options with real numbers
- Application support: Handle paperwork and liaise with lenders
- Fast approval: Typically 24-48 hours for decisions
- Equipment delivery: Coordinate with suppliers for quick deployment
Client Results
- £750M+ in equipment finance arranged since 2009
- 85%+ client satisfaction rating
- Average time from enquiry to funds: 7-10 days
- Repeat business rate: 68% of clients return for additional financing
Final Recommendations by Business Type
Startups & New Businesses (0-2 Years Trading)
Recommendation: Lease with operating lease or hire purchase
- Preserves precious startup capital
- Builds credit history through regular payments
- Flexibility to pivot if business model changes
- Lower approval barriers than business loans
Monmouth Tip: Consider hire purchase for essential equipment you’ll keep long-term, operating lease for everything else. Talk to our team for more advice.
Growing SMEs (2-5 Years Trading)
Recommendation: Hybrid approach
- Lease rapidly-changing technology and vehicles
- Buy core equipment with asset finance
- Balance cash preservation with asset building
- Maintain borrowing capacity for growth opportunities
Monmouth Tip: Your improving credit profile may unlock better buying terms than available at startup. Talk to our team for more advice.
Established Businesses (5+ Years Trading)
Recommendation: Strategic buying with selective leasing
- Strong credit and cash flow support asset purchase
- Buy equipment for long-term use (7+ years)
- Lease when flexibility or off-balance sheet treatment valuable
- Maximise tax benefits through capital allowances
Monmouth Tip: Leverage your established relationship with us for preferential rates and terms. Contact our team for tailored advice to established businesses.
Cash-Rich Businesses
Recommendation: Buy strategically, preserve liquidity
- Purchase essential, long-life equipment outright
- Consider asset finance to preserve cash for opportunities
- Lease supplementary or project-specific equipment
- Balance tax efficiency with asset ownership
Monmouth Tip: Even with cash available, financing may offer better ROI if you can invest the cash elsewhere at higher returns. Our specialists help cash rich businesses optimise capital deployment, balancing equipment ownership with liquidity for growth investments, acquisitions, or market opportunities.
Conclusion: Making the Right Choice for Your Business
The leasing vs buying decision isn’t one-size-fits-all. The optimal choice depends on your unique combination of:
- Financial position and cash flow needs
- Equipment usage duration and intensity
- Industry dynamics and technology obsolescence rates
- Tax planning strategy and allowances available
- Growth plans and future financing needs
- Balance sheet presentation priorities
Key Takeaway: Neither option is inherently “better”—the right choice aligns with your specific business circumstances, financial strategy, and operational requirements.
Next Steps
- Calculate your numbers: Get quotes for both leasing and buying the equipment you need
- Consult your accountant: Understand tax implications for your business
- Compare total costs: Look at 5 year and 10 year scenarios
- Consider flexibility: How likely are your needs to change?
- Make an informed decision: Choose the option that best supports your business goals
Let Monmouth Group do the heavy lifting. We’ll provide side-by-side comparisons of leasing and buying options with real quotes from our panel of lenders, so you can make an informed decision based on actual numbers, not hypotheticals.
