Asset Finance: The Complete Guide for UK Businesses

Asset finance is secured funding that lets a business acquire or release cash from physical equipment, such as vehicles, plant, machinery and technology, by spreading the cost over the working life of the asset. It suits UK businesses that need to invest in equipment without tying up working capital, from manufacturers and hauliers to healthcare and hospitality operators.

Key facts

• Funding level: up to 100% of the asset cost, depending on the asset and the borrower.
• Term: typically 2 to 7 years, matched to the useful life of the asset.
• Facility size: Growth Business Finance (GBF) arranges finance from £200k, including multi-asset and fleet programmes.
• Security: the asset itself, which is why it is often more accessible than unsecured lending.
• Main structures: hire purchase, finance lease, operating lease, contract hire and asset refinance (sale and leaseback).
• Pricing: fixed or variable, priced deal by deal. Variable deals usually reference Bank Rate, currently 3.75% according to the Bank of England.
• Related facility: asset finance funds specific items. If you want to borrow against all of your plant and machinery as part of a wider revolving line, asset based lending can advance up to 85% of net orderly liquidation value.

How asset finance works

The lender either buys the asset on your behalf and lets you use it in return for regular payments, or advances money against equipment you already own. Repayments run over a term that broadly matches how long the asset will earn money for you, so the cost is spread across the period it produces revenue.

A typical new-asset transaction runs like this:

1. You choose the equipment and obtain a quote from the supplier.
2. The lender assesses the asset and your business and issues terms.
3. You sign the agreement and, where required, pay any deposit.
4. The lender pays the supplier directly and the asset is delivered.
5. You make fixed or variable payments over the agreed term.
6. At the end, depending on the structure, you own the asset, return it, or continue renting it.

The main structures

• Hire purchase (HP): you pay instalments and ownership passes to you at the end, usually on payment of a small option fee. It suits core assets you intend to keep for their full life.
• Finance lease: the lender owns the asset and you pay rentals for its use. At the end you may continue on a secondary rental or sell the asset to a third party on the lender's behalf and receive a share of the proceeds.
• Operating lease: a shorter rental where the lender takes the residual value risk and you return the asset at the end. It suits assets that date quickly, such as IT hardware.
• Contract hire: a vehicle operating lease, often bundled with maintenance. It is the usual route for commercial fleets.
• Asset refinance and sale and leaseback: you release cash from equipment you already own, while keeping full use of it. This is useful for funding growth, an acquisition or a refinancing.

Tax and accounting treatment differs between these structures. Your accountant should confirm how each would be treated in your accounts and for capital allowances; HMRC's guidance on capital allowances is the official starting point.

Who asset finance suits

Asset finance works best where the equipment is identifiable, has a serial number or registration and has a credible second-hand market. Sectors where it is most widely used include:

• Manufacturing and engineering: CNC machines, production lines, presses and robotics. Larger manufacturers often combine asset finance with manufacturing ABL.
• Transport and logistics: HGVs, trailers, vans, forklifts and warehouse systems. See transport and logistics.
• Construction: plant, cranes, access equipment and site vehicles. See construction.
• Healthcare: diagnostic equipment, dental and clinical kit. See healthcare and medical devices.
• Food and drink and hospitality: production lines, commercial kitchens, refrigeration and fit-out. See food and drink and hospitality.

Soft assets such as software, furniture and fit-out can be financed, but lenders treat them more cautiously because they are harder to recover and resell.

Costs and terms

Asset finance is priced deal by deal. The main factors are:

• Asset type, age and resale value: new, hard assets with a strong secondary market attract the keenest terms. Used and specialist kit is possible but more selective.
• Your credit profile: filed accounts, management information, trading history and directors' credit records.
• Deposit: up to 100% of cost can be funded, but a deposit can improve pricing or help where the asset or credit profile is weaker.
• Term: a longer term lowers each payment but increases the total cost.
• Structure: HP, lease and operating lease are priced differently because the lender carries different residual value risk.

Look beyond the monthly payment. Check documentation fees, option-to-purchase fees, balloon payments, early settlement terms and end-of-lease conditions such as return standards. A written comparison of total cost across two or more structures is the simplest way to see which genuinely costs less. Our financial calculator can help you test repayment scenarios.

Eligibility and what lenders look at

Because the asset provides security, lenders can be more flexible than they are on unsecured loans. They will still look at:

• The asset: what it is, its age, who supplies it, and what it would be worth if it had to be sold.
• Affordability: whether trading cash flow comfortably covers repayments alongside existing debt.
• Trading history: two or more years of accounts opens up the widest choice, though some lenders support younger businesses with strong assets.
• Credit record: both business and director credit histories. Past issues do not always rule you out but narrow the options.
• Existing security: whether a bank holds a debenture that needs consent or a waiver over the asset.

Documents you will need

• Supplier quote or invoice with the asset specification
• Last two years of filed accounts and up-to-date management accounts
• Recent business bank statements
• A schedule of existing finance agreements
• For refinance, an asset list with serial numbers, ages and any valuations
• A brief explanation of how the asset will be used and the return it will generate

Asset finance vs the alternatives

See business loans and commercial mortgages for more on those options.

Common mistakes

• Choosing on monthly payment alone. Compare total cost, including fees, balloon payments and end-of-term options.
• Mismatching term and asset life. Paying for an asset after it has stopped earning, or after you have replaced it, strains cash flow.
• Using short-term cash for long-term assets. Paying outright from working capital can leave the business short when an unexpected bill arrives.
• Forgetting existing security. A bank debenture can delay completion if consents are not arranged early.
• Overlooking refinance. Businesses with equipment owned outright often have funding available they have not considered.
• Ignoring tax treatment. The right structure for one business may be the wrong one for another. Take accounting advice.

How a broker and debt adviser like GBF helps

Growth Business Finance is a commercial finance broker and debt adviser, not a lender. Our role is to make sure the structure fits the asset and your wider funding:

1. Review the requirement. We look at the assets, the timing, your existing facilities and your cash flow.
2. Recommend a structure. We assess whether HP, leasing, refinance, ABL or a combination is the best fit.
3. Approach suitable lenders. We present the case to lenders whose appetite matches the asset class and your sector.
4. Compare offers properly. We set out total cost, terms and end-of-term conditions side by side.
5. Manage completion. We coordinate supplier payments, security consents and documentation.

If you already have several agreements in place, our facility health check can show whether consolidating or refinancing would improve your position.

FAQs

What is asset finance?

Asset finance is a way to fund equipment, vehicles or machinery by spreading the cost over the asset's working life, with the asset itself as security. It can also release cash from equipment you already own.

How much of the asset cost can be funded?

Up to 100% of the asset cost can be funded, depending on the asset, its resale value and your credit profile. Some lenders ask for a deposit on used or specialist equipment.

What is the difference between hire purchase and leasing?

With hire purchase you own the asset at the end of the agreement. With a lease, the lender keeps ownership and you pay to use the asset, then return it, extend the rental or arrange a sale.

How long are asset finance agreements?

Most run for 2 to 7 years. The term is usually set to match how long the asset will be productive for your business.

Can I raise money against equipment I already own?

Yes. Asset refinance and sale and leaseback release cash from owned equipment while you keep using it. For larger businesses, plant and machinery can also be included in an ABL facility at up to 85% of NOLV.

Can a newer business get asset finance?

Often, yes, because the lender is secured on the asset. Strong, easily resold assets and a clear business plan improve the chances, though choice of lender is narrower than for established businesses.

Is asset finance the same as asset based lending?

No. Asset finance funds specific items over a fixed term. Asset based lending is a single revolving facility that can borrow against receivables, stock, plant and machinery and property together.

Find out what you could raise

If you are planning an equipment investment or want to release cash from assets you own, use check what you could raise for an indication of what your business could support, or call us on 020 3432 2341.

Growth Business Finance Ltd (company 17136039) is an Appointed Representative of Swoop Finance Limited (FRN 936513). Our FCA reference is 1034979. We are a commercial finance broker and debt adviser, not a lender. Finance is subject to status and lender approval.

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF