Compare 'Asset Finance' in just a few clicks

Asset-based lending can be a good fit if your business has assets that can help you access the finance you need.

It is often used by businesses that sell to other companies, hold valuable stock, or need working capital that can change as activity increases.

You will need assets that are easy to value and for which you can maintain strong records, because lenders usually require ongoing reporting to keep the facility.

It may be less suitable if you want a simple one-off loan, or if your business has limited eligible assets. In those cases, a fixed-term unsecured loan or another type of business finance may be a better fit.

The asset finance product you choose for your business will depend on whether you want to own, rent or release cash tied up in assets you already own. Here’s a breakdown of the different asset finance and equipment loan options you can choose from:

Hire purchase

Hire purchase (HP) is a way to buy a new or used asset without paying for it upfront. You effectively hire the asset from the lender and pay it off in instalments so that you own it outright by the end of the agreement. HP can be used to buy most business assets and is a popular form of business van finance.

The asset usually appears as a positive item on your balance sheet from the start of the agreement, but the provider owns the asset until the last instalment is paid.

This means you cannot sell the asset during the term. However, you may need to pay a purchase option fee at the end of the term to transfer ownership of the asset to you; this fee can be as low as £1. It’s important to remember that you will be responsible for the asset’s upkeep for the length of the agreement.

Finance lease

A finance lease, also known as an equipment lease, is an agreement in which a leasing firm buys a business asset on your behalf and then rents it to your business.

You make regular scheduled payments for the use of the asset. At the end of the agreed term, you can extend the lease, return the asset to the lender, upgrade the item, or buy it outright by making a balloon payment.

Finance leasing can be used for most business assets, from laptops and printers to commercial vehicles and machinery. Equipment lease agreements are based on the asset's depreciation, not the full cost price, so the monthly payments are typically lower than hire purchase.

However, if you decide to purchase the equipment by making a balloon payment at the end of the agreement, it will be more expensive than if you had purchased it outright.

Equipment leasing can offer potential tax advantages as you can offset 100% of your monthly payments against your corporation tax bill.

Asset refinance

Asset refinancing, also known as a sale and leaseback agreement, is a way of accessing money tied to your business's existing assets. It differs from asset finance in that you borrow against your existing assets to access funding rather than acquiring a new asset.

You effectively sell an asset to the lender for an agreed sum based on its current value and then lease it back from them. You make monthly payments for the term of the agreement, and at the end of the term, you will usually retake ownership of the asset.

One advantage of asset refinance is that you don’t need to own the asset you use as security. For example, if you purchased machinery through an HP agreement worth £10,000 and still owe £2,000, the asset refinance company can settle the balance to take ownership of the asset. They can lend you a percentage of the asset’s value, usually around 70%.

Asset refinance is similar to a secured business loan. If you cannot make the monthly payments, the asset refinancing company can take the asset back to recover the money you owe.

Contract hire

Contract hire is used for work vehicles and can be a cost-effective way of leasing new business vans and cars. The contract hire provider will source and maintain the vehicles on your behalf, saving your business time and effort.

You will make fixed rental payments over an agreed-upon term and return the vehicles at the end of the agreement. Leasing in this way can be cost-effective, as you pay for the vehicle’s depreciation during the lease period rather than its total value.

Contract hire can also have tax benefits, as you can claim up to 100% VAT back and offset up to 100% against corporation tax. How much you can claim back will depend on how the vehicle will be used and how eco-friendly it is.

Asset financing should be available to your business, provided you can prove you can meet your financial commitments. Most lenders will also stipulate that your business:

• Is UK-based and registered
• Has been operating for at least two years
• Has a turnover of over £10,000 a year

As with most types of business finance, the better your credit history is, the better your chances of acceptance are, especially if you want to go down the hire purchase route. Lenders will generally be looking to see if you can afford the repayments laid out in your terms and what the risk of lending to you is.

If you’re unsure which option best suits your needs, don’t hesitate to contact our team.

Asset finance can be a cost-effective way for your business to acquire new assets or release money, but it might not be suitable for everyone. To determine if asset finance is the right option for your business, consider the pros and cons.

Pros of asset finance

• Maintain cash flow: The upfront costs of most asset finance products are very small or even zero, which helps preserve your business’s cash flow and can free up capital.
• Easy budgeting: Payments for most asset finance products are fixed and paid monthly over a set period, making it easier for your business to budget.
• Quick access to assets: Asset financing can allow your business to quickly get the assets it needs rather than waiting to accumulate the funds needed to buy the asset outright.
• Low maintenance: The asset finance provider often covers the maintenance cost, so you don’t need to worry about extra maintenance costs.

Cons of asset finance

• Usage limits: As the asset finance provider owns the asset, they may set limits on its usage. For example, many lease vehicles have an annual mileage limit you need to keep to and covering over the limit could result in penalties.
• Asset at risk: If you cannot keep up with the payments, the provider can repossess the asset. This could leave your business without an asset it needs to operate.
• Limited flexibility: Depending on your agreement, you may be unable to sell or upgrade the asset until the end of the term.
• Depreciation: The asset could depreciate in value faster than you can repay the loan, leaving you out of pocket.

Asset finance is usually provided for anywhere between 1 and 7 years. The asset finance company recoups the purchase cost of the asset over the agreed period, plus interest.

The length of the finance agreement can also depend on how long the asset will be ‘usable’ for and how quickly the lender wants the money back. As a business borrower, you’ll have to show that your business can afford to make the agreed payments.

Asset finance differs from asset refinancing in that it is used to acquire new machinery, equipment or vehicles, and asset refinancing is a way of borrowing against an asset that your business already owns.

The amount you can borrow will depend on the asset you’re financing, your business’s credit record and the lender.

However, as a general rule, we finance equipment valued from £1k to £2 million. Lenders lend a percentage of the asset’s value, usually around 70%, but some can offer more.

If you cannot keep up with your payments, the lender can take possession of the asset and use it to recover the amount you owe. In this way, asset finance is the same as any secured loan. However, the lender retains ownership of the asset for the duration of the agreement.

Defaulting on the loan will also have a negative impact on your credit score, making it harder to borrow in the future. If you are struggling to make your repayments, contact the lender as soon as possible to discuss your options.

Yes, you can. However, certain criteria surround the age and condition of the equipment that we will refinance. These can include the type of equipment and the date that you purchased it.

We lend to all types of businesses. Whether you’ve been established for decades or months, we can provide asset finance for businesses of all sizes in all sectors.

Industrial sector businesses, such as those in plants, packaging, printing, processing, agriculture, construction, and technology, can all use asset financing and are among the most common types of businesses to apply.

We can help you find a business loan suited directly to your needs. We have relationships with multiple lenders who can provide fast and flexible business funding. We can offer a wide array of business loan types with numerous benefits and competitive rates.

Finding the right funding is often a long-winded process, with plenty of variables to consider from all the different providers. Our finance experts can help by providing you with the best deals and rates.

Finding the right funding is often a long-winded process, with plenty of variables to consider from all the different providers. Our finance experts can help, providing you with a list of the best deals and rates.