Asset finance

Compare asset finance

Asset finance could help you fund the purchase of new equipment to help your business grow
Learn more about the benefits of asset finance to see if it’s the right option for your business.

What is asset finance?

Asset finance is a way to borrow money to cover the costs of buying essential items for your business, such as machinery, computers or vehicles. It could be useful if you need to replace ageing equipment or expand your operations.

You can typically borrow as little as £1,000 and up to £10 million over periods as long as seven years. You pay fees and interest in addition to the cost of the asset. You have full use of the asset throughout the term.

The two main types of asset finance are:

Equipment leasing (including finance leases, operating leases and contract hire)
Hire purchase.

How does asset finance work?

The finer points of how asset finance works depends on the type you choose, but these three steps give you a general idea.

1. Apply for asset finance
Before making a formal application for asset finance, compare different lenders to see who offers the best terms for your business. You’ll need to provide information about your business accounts.

Like all loans, the lender will carry out affordability and credit checks to decide whether to lend to you and at what rate.

2. Repay what you owe
If you’re approved for equipment leasing finance, the lender will purchase the asset on your behalf. You’ll then pay them back in instalments – with interest included – over a set timeframe, typically one to seven years. Depending on the provider, instalments can be fixed or variable rates and could be paid monthly or quarterly.

Make sure you fully read the terms of any agreement you sign up to, to make sure you understand your responsibilities and can keep up the payments. For example, with lease finance, you’re responsible for the upkeep of the equipment, so you have to pay all maintenance costs and insurance.

3. End or extend the agreement
What happens depends on the type of asset finance agreement you have.

If you have finance lease products:

At the end of the lease period:

You can continue to rent the asset for an extended period
Return the equipment
Sell the asset to a third party on behalf of the leasing firm.

If you have hire purchase:

At the end of the hire purchase period

Your business legally takes ownership of the asset after all the instalments have been paid.

What types of asset financing are there?

There are several asset finance solutions available. Although they work in similar ways, there are subtle differences. It’s important you choose the one that best suits your business and helps you achieve your goals.

Finance lease

The lender buys the asset you need and then leases it back to your business. You will be responsible for maintaining it.

At the end of the agreement, you can choose to

Continue renting it
Follow the end of lease procedure, which could include the option of buying it
Facilitate the sale of the asset and potentially receive a share of the proceeds.

Operating lease

Under this arrangement, you can lease equipment for a set time. You might choose this type of asset finance if you need specialist equipment for only a limited period, not permanently. During the rental period, you may be able to upgrade the asset to a more advanced model.

The lender is also responsible for maintaining the asset during the finance agreement, which can save you time and money.

Contract hire

Contract hire is often used by businesses to lease cars and vans. The lender buys the vehicle or fleet of vehicles you need, and you pay them back over time. Servicing is usually the lender’s responsibility. However, maintenance is often charged back separately to the customer. This can allow for more predictable budgeting.

Leasing can be a cost-effective way to access vehicles because you pay for the cost of depreciation for the lease period rather than the vehicle’s total value.

It’s worth knowing that when you return a vehicle and its condition is considered to be beyond ‘fair wear and tear’, you’ll have to pay for repairs. You may also have to pay an extra fee if the vehicle has exceeded agreed mileage levels.

Hire purchase

With hire purchase, you make monthly payments to rent the asset from the finance provider. It’s down to you to service and maintain the asset. At the end of the agreement, you own the asset outright.

Business contract purchase

This is similar to hire purchase, except that your monthly payments are only designed to cover the interest on the loan.

While this reduces your ongoing costs, you’ll need to make a final ‘balloon’ payment to fully pay off the loan.

What types of assets can you buy using asset finance?

Asset finance loans can be used to buy:

Equipment, such as new ovens, farm machinery, printing equipment
Technology hardware and software
Vehicles, such as cars, vans and motorbikes.

What are the advantages and disadvantages of asset finance?

Asset finance can be beneficial to businesses as you can spread the cost of a big ticket item over several months. But it won’t be right for everyone.

Advantages

Improved cash flow – you can keep cash in the bank to fund day-to-day expenses you need to run your business.
Maintenance covered – in some situations the equipment supplier or their third-party will maintain and repair the asset – with maintenance payments included in the overall charges you pay Some will even replace it if it develops a fault during the loan period. Check to see what applies in your situation.
It can be cheaper than other types of financing, but you need to do the sums yourself to make sure it adds up.

Disadvantages

Usage limits – the finance provider might place limits on the use of the asset. For example, you may have to pay extra if you exceed the annual mileage limit for a leased vehicle.
Penalties for contract breaches – you may be liable for any damage the asset suffers beyond what’s laid out in the agreement.
Long-term commitments – asset finance agreements typically last for at least a year, sometimes much longer.
Risk of repossession – if you don’t keep up with your repayments, the finance provider could start default proceedings. This could have a negative effect on your business credit score.

What is asset refinancing?

Asset refinancing lets you unlock the cash value of an asset you already own. With this type of asset backed finance, you secure your own asset as collateral against the loan.

Even if you only partially own the asset, lenders may let you borrow money based on the amount of equity you hold in that asset. How much will depend on the amount of equity you have.

The main benefit of asset refinancing is that it allows you to quickly release cash tied up in your assets. This could be useful if you need to cover an unexpected cost. However, if you fail to keep up the payments on the loan, you risk losing your asset.

What businesses can take out an asset finance loan?

Whatever your size, location or sector, all types of UK business can apply for asset finance, including:

Sole traders
Partnerships
Limited companies
Startups.

You’ll need to meet certain criteria to be eligible for asset financing though. Each lender will have their own rules.

Approval for asset finance will also depend on your business’s income, outgoings and credit rating. But if you’re approved, you can use the funds for all kinds of equipment, whether you’re looking to buy a new fleet of vans or want to install a commercial kitchen.

If you’re not sure about which type of asset finance you need, speak to an independent financial advisor or broker before applying.

You’ll find more business tips and ways to save in our business hub.

Compare asset finance options with Swoop

Compare a range of asset finance deals through our trusted partner Swoop. Just give a few details about your business and how much you want to borrow. Swoop will search its panel of lenders to show you loans and their key features in minutes.

Find an asset finance loan

Frequently asked questions

What is an asset in finance?

An asset is anything of value your business owns to generate income and grow profits.

In finance, an asset can be used as collateral for a loan. The amount that a lender is willing to offer will be influenced by the value of the asset put up as collateral.

Is asset finance a debt?

Yes, asset finance is a form of debt a business takes on where the asset acts as collateral on a loan. This means that if you don’t make your loan repayments on time, you risk having the asset seized.

This could make it extremely difficult to run your business, not to mention make finance providers less likely to want to lend to you in the future.

Is asset finance easy to get?

Asset finance could be easier to get than a traditional business bank loan. That’s because the asset you acquire serves as security for the loan. However, your chances of approval will depend on your business’s credit rating, the value of the asset and the lender's borrowing criteria.

You can improve the likelihood of your application for asset finance being accepted by: