Hire Purchase, Leasing or a Loan: Financing Practice Equipment and Technology

Why equipment finance matters to professional practices

Technology now sits at the centre of most professional practices. A dental practice may be weighing a CBCT scanner, intraoral scanners or a new surgery fit-out; a veterinary practice, digital radiography, ultrasound or CT; an optometry practice, OCT and retinal imaging; a pharmacy, a dispensing robot or automation; a funeral director, a hearse or private ambulance fleet; and law, accountancy and advisory firms, case and practice management software, hardware and security. Each of these can involve a large, lumpy outlay that delivers value over many years.

Paying cash is simple but drains working capital that may be needed for tax, recruitment or lock-up. Asset finance lets the practice spread the cost over the useful life of the equipment and preserve cash for the rest of the business. It also aligns the cost of the equipment with the income it helps generate, which lenders and accountants alike tend to regard as sound practice. The question is which structure fits: the main options behave quite differently on ownership, accounting, tax and what happens at the end of the agreement. See practice equipment finance for an overview.

The main structures compared

• Hire purchase (HP): the finance company buys the asset and hires it to the practice. The practice pays instalments, often after a deposit, and on paying the final instalment and any option-to-purchase fee, ownership passes to the practice. HP suits assets the practice intends to keep for their working life.
• Finance lease: the lessor owns the asset throughout and the practice pays rentals that cover most or all of its cost over the primary period. At the end, the practice may continue at a reduced rental, or the asset is sold to a third party with the practice usually receiving much of the proceeds. Legal title does not normally pass to the practice.
• Operating lease: the practice rents the asset for part of its life and hands it back. The lessor takes a view on the residual value, so rentals can be lower, but the practice never owns the equipment. It can suit technology that dates quickly.
• Contract hire: a form of operating lease common for vehicles, often bundling maintenance. Mileage and condition terms apply, and the vehicle is returned at the end.
• Unsecured business loan: the practice borrows cash and buys the asset outright, so it owns it from day one. Useful where the purchase includes a large share of soft costs, or the practice wants flexibility over suppliers.
• Refinance of owned assets: where the practice already owns valuable equipment or vehicles outright, some lenders will advance funds against them, typically through a sale and hire purchase back or sale and leaseback, releasing cash for other purposes.

Many practices use more than one. A dental group might use HP for chairs and imaging, a lease for IT, and a loan for the fit-out works that sit around them.

Ownership, balance sheet and VAT in general terms

The accounting and tax treatment of each structure is a specialist area, and the rules for companies, LLPs, partnerships and sole traders differ. The points below are general context only; confirm the position for your practice with your accountant before you commit.

• Ownership: with HP, the practice is working towards ownership and is generally treated for many purposes as if it owns the asset. With leases, the lessor owns it. With a loan, the practice owns it immediately.
• Balance sheet: depending on the accounting framework the practice reports under, some or all leases may appear on the balance sheet as an asset and a liability, much like HP. Your accountant will know which applies.
• VAT: the VAT treatment differs between structures. In broad terms, HP is usually structured so that VAT on the asset falls due at the outset, whereas lease rentals typically carry VAT on each rental. That timing matters much more to practices that cannot recover VAT, or can recover only part of it, which includes many providers of exempt healthcare services. This is a point to settle with your accountant before choosing a structure.

For a practice with limited VAT recovery, the difference between paying VAT up front and spreading it across rentals can materially change the cash profile of the deal, even where the headline cost looks similar.

Capital allowances and the Annual Investment Allowance

Capital allowances let businesses deduct the value of certain purchases, including equipment, machinery and business vehicles, from their profits before tax. GOV.UK’s capital allowances guidance sets out the categories, and the Annual Investment Allowance (AIA) allows a deduction for the full value of qualifying plant and machinery up to an annual limit. GOV.UK notes some exclusions, including cars.

Whether the practice or the finance company claims the allowances depends on the structure. GOV.UK explains that under hire purchase contracts a business can claim allowances once it starts using the item, but not on the interest payments. Under leases, the allowances generally sit with the owner of the asset, and the practice instead deducts rentals according to the applicable rules. The timing and value of relief can therefore differ significantly between HP, leasing and a loan.

We do not give tax advice. The practical step is to ask your accountant to model the options before you sign, and to tell us which structure they prefer so we approach the right lenders.

Soft costs: software, installation and building works

Asset finance lenders take comfort from the equipment itself: if the practice fails, the asset can be recovered and sold. That works well for a dental chair, an X-ray unit, a van or a hearse. It works less well for costs with no resale value, often called soft costs:

• software licences, implementation and data migration for case or practice management systems;
• installation, shielding and electrical work for imaging equipment;
• training, project management and commissioning;
• building and fit-out works associated with a new surgery, consulting room or dispensary.

Lenders treat these in different ways. Some will include a proportion of soft costs within an asset finance agreement where they sit alongside substantial hard assets from an established supplier. Others will finance only the hardware. Specialist technology lessors may fund software projects on their own terms. Where soft costs dominate, an unsecured business loan or a refurbishment finance facility can be a better fit. Presenting the quote with hard and soft costs clearly separated usually helps.

Profession by profession: typical considerations

• Dental: chairs, CBCT, scanners and milling units are well understood by asset finance houses and specialist healthcare lenders. See dental practice loans.
• Veterinary: imaging, anaesthesia and laboratory equipment, sometimes alongside an extension or a new branch. See veterinary practice loans.
• Optometry: OCT, field analysers and dispensing fit-outs. See optician practice loans.
• Pharmacy: dispensing robots and automation, where installation is a meaningful part of the cost. See pharmacy practice loans.
• Legal, accountancy and advisory: IT hardware, telephony and case management platforms, where soft costs often predominate.
• Funeral directors: hearses, limousines and private ambulances, where specialist vehicle knowledge matters to lenders. See practice vehicle finance and funeral director finance.

What asset finance lenders assess

• The practice: filed accounts, management accounts and bank statements, and how the repayments fit alongside existing commitments.
• The asset: what it is, whether it is new or used, its expected life and whether there is a resale market if it has to be recovered.
• The supplier: an established manufacturer or dealer with a clear quote and invoice is generally preferred, particularly for used or specialist equipment.
• The deal structure: any deposit, the split between hard and soft costs, and whether the term is sensible against the asset’s working life.
• The people: credit profiles of directors, partners or the sole practitioner, and, in some cases, personal guarantees.
• Existing borrowing: other finance agreements and any charges over the business’s assets.

New practices, and practices buying specialist equipment with a limited second-hand market, can still obtain finance, but the choice of lender matters more. Our guide to preparing a practice finance application covers the documents in more detail.

Sequencing and common pitfalls

• Agree finance before you sign the supplier order. Some lenders will not fund equipment the practice has already paid for without treating it as a refinance.
• Do not rely on supplier-arranged finance alone. It can be convenient, but it reflects one route; comparing the wider market is sensible for significant purchases.
• Match the term to the asset. Paying for technology long after it has been replaced is a common frustration.
• Read the end-of-term terms. Option fees, secondary rentals, return conditions and mileage limits differ between agreements.
• Check the VAT and tax position first, particularly if the practice has limited VAT recovery.

Think too about what happens if the practice wants to upgrade before the agreement ends. Some lenders will allow early settlement or a rollover into new equipment; others make early exit expensive. Where technology is likely to be replaced during the term, that flexibility can be worth more than a marginally lower payment.

Supplier promotions deserve the same scrutiny. A manufacturer’s offer can be competitive, but the equipment price, the finance terms and any service contract are separate elements, and it helps to understand each on its own before accepting a bundle.

Where a sole trader or small partnership is the borrower, the consumer credit position should also be established early. Finance of £25,000 or less for sole traders and small partnerships can be regulated consumer credit, and we will say at the outset if that applies. Our guide to business finance and consumer credit explains when the rules come into play.

How we can help

We search the market across 300+ lenders, including asset finance houses, specialist healthcare and professions lenders and technology lessors, and structure the request so that hard assets, soft costs and any refinance are presented clearly. See how it works and practice equipment finance, or, if the equipment is part of a wider investment, practice expansion finance and practice refinance. All finance is subject to status, lender criteria and approval.

Common questions

This guide is for general information only and should not be treated as legal, tax, accounting or financial advice. Funding availability and lender requirements depend on individual circumstances.