Merchant cash advance vs hire purchase: which is better for equipment?
By Helm, Business Funding Specialists
- Hire purchase ties funding to a specific asset while an MCA gives you unrestricted cash
- MCA repayments flex with revenue while hire purchase has fixed monthly payments
- Hire purchase gives you ownership of the asset at the end of the term
- An MCA is faster to arrange and does not require the asset as security
When your business needs new equipment, the question is rarely whether to buy it but how to fund it. Hire purchase has been the traditional route for decades, letting you spread the cost over time while using the equipment immediately. But a merchant cash advance offers a different approach that many businesses find more flexible.
The right choice depends on what you are buying, how you want to repay, and whether you need the money for equipment alone or for broader purposes.
How each product works
Hire purchase is an agreement where a finance company buys the equipment on your behalf and you repay in fixed monthly instalments over an agreed term, typically two to five years. You use the equipment throughout, and ownership transfers to you once the final payment is made.
A merchant cash advance gives you a lump sum of cash that you can spend on anything, including equipment. You repay through a fixed percentage of your daily card transactions. There is no fixed term, and you own whatever you buy outright from day one.
Key differences at a glance
The two products differ in almost every dimension.
| Feature | Hire purchase | Merchant cash advance |
|---|---|---|
| Funding type | Asset-specific finance | Unrestricted cash |
| Ownership | At end of agreement | Immediate (you buy outright) |
| Repayment | Fixed monthly instalments | % of daily card sales |
| Typical term | 2 to 5 years | 3 to 12 months |
| Speed of approval | 1 to 3 weeks | 24 to 48 hours |
| Security | The asset itself | None required |
| Personal guarantee | Sometimes required | Typically not required |
| Flexibility | Tied to specific asset | Spend on anything |
When hire purchase makes more sense
Hire purchase is the better choice in certain situations.
- You are buying a high-value asset that you want to spread over several years
- The equipment holds its value and serves as adequate security
- You want predictable fixed monthly payments for long-term budgeting
- You prefer the tax advantages of capital allowances on the asset
- You are buying a standard item like a vehicle, printing press, or CNC machine
When an MCA makes more sense
A merchant cash advance is the stronger option in other scenarios.
- You need the equipment quickly and cannot wait weeks for hire purchase approval
- You want to pay for the equipment outright and own it immediately
- You need funding for equipment plus other costs like installation, training, or marketing
- Your revenue fluctuates and fixed monthly payments would strain your cash flow
- The equipment is secondhand, custom-built, or not suitable for hire purchase
Cost considerations
Hire purchase typically has a lower headline cost because the repayment is spread over a longer period with lower rates. However, the total cost over a three to five year term can be significant when you add up all the payments.
A merchant cash advance costs more per pound per month, but the total repayment period is much shorter. The fixed factor rate means you know the exact cost from day one, with no surprises.
Can you use both?
Yes. Some businesses use hire purchase for large, long-life assets like vehicles or heavy machinery, and a merchant cash advance for smaller equipment, stock, or general working capital. The two products complement each other when used for different purposes.
Frequently asked questions
Is an MCA or hire purchase cheaper?
Hire purchase typically has lower rates, but the comparison is not straightforward because the terms are very different. An MCA is repaid over months, while hire purchase stretches over years. Compare the total cost of each option for your specific situation.
Can I buy used equipment with either option?
An MCA places no restrictions on what you buy, including used equipment. Hire purchase providers may have restrictions on the age and condition of equipment they will finance.
Which is faster to arrange?
A merchant cash advance is significantly faster, typically 24 to 48 hours compared to one to three weeks for hire purchase.
Do I own the equipment immediately with hire purchase?
No. With hire purchase, ownership transfers to you only after the final payment is made. With an MCA, you buy the equipment outright and own it from day one.