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Information written by Holly Bennett Last updated on 06 May 2022.

What is asset finance?

Asset finance is a type of loan used by a business to buy expensive assets such as machinery, company cars or IT equipment, without overstretching its financial limits. The business pays a regular amount to use the asset over an agreed period, rather than spending a large lump sum in one go to buy it outright.

An asset finance loan might be considered an alternative to other business funding options, such as overdrafts and bank loans.

How asset financing can help a business

Asset financing might be an option if:

  • You need an expensive asset for your business but can’t afford to buy it upfront.
  • You would rather spread payments over time.
  • You prefer to rent, rather than buy the equipment.
  • You want to release cash against assets your business already owns.

There are different types of finance available, so it can offer a flexible way for businesses across all sectors to borrow. Capital that might have been spent on the asset – from IT equipment to forklift trucks – could instead be channelled towards other parts of your business.

If you’re looking to borrow against the value of assets your business already owns, in full or in part, asset refinancing could give the business the cash injection it needs.

The types of asset finance

There are a few types of finance available. But as a rule, you choose the asset you want and the finance company buys and owns it on your behalf. Your business then makes regular repayments over a specific period, in line with a pre-agreed contract.

So you get access to critical equipment quickly, without having to pay a large sum upfront.

The options are usually flexible, but these are the most common types of asset financing:

Hire purchase

You hire an asset for a specific number of years, paying a deposit and fixed monthly instalments over an agreed term. It’s your responsibility to insure and maintain the asset. At the end of the contract term, the asset is yours.

Leasing finance

Your lender buys the asset you need, and you rent it from them for a fixed monthly cost. At the end of the term, you may get the choice to continue renting, buy it for an agreed price, or hand it back.

Asset refinancing

This is a loan secured against assets the business already owns. You can release cash from existing assets to reinvest into other parts of your business by selling them to the lender and leasing them back over time. You pay back the loan in instalments over an agreed period, plus interest.

What are the benefits of asset financing?

The specific benefits can depend on the type of asset financing you choose, but generally, asset finance can benefit a business in the following ways:

  • You can get high-value assets without spending a large amount upfront.
  • You may get a quicker decision and better rates than more traditional lending routes.
  • Repayments are usually fixed, which can help with long-term budgeting.
  • The lender may take care of servicing and maintenance of the asset.
  • It is possible to rent the latest, high-spec equipment for a short time, rather than its whole working life.
  • The asset’s depreciation, and if it stops working, is usually the provider’s concern.
  • There is often flexibility over the contract term and repayment structure.
  • There are super-deduction tax benefits if your company pays corporation tax and invests in qualifying plant and machinery.

What are the disadvantages of asset financing?

For all the potential benefits of asset finance, it isn’t right for every business.

You’ll need to make sure you can make the regular repayments on time over the agreed term. You should also be clear on the terms of the contract, including the interest rate charged and the total amount you’ll be paying. Consider carefully if it suits your company’s financial situation before you sign an agreement.

It’s worth knowing that:

  • If you miss a payment or default on the loan, the lender will usually take back the equipment and this could affect your business operations.
  • With leasing finance or a hire contract, you’ll pay for an item you might never end up owning.
  • It may not be a short-term fix, as terms usually last from one to seven years. Although for very expensive assets, longer terms may be offered.
  • It can end up costing more than if you had bought the asset outright. You may also have to pay a deposit, though the asset itself is usually considered acceptable security for the loan.
  • The provider may carry out credit checks when you apply for finance, which could affect your business credit rating.
  • If you want to end your contract early, you may need to meet certain conditions, and you will usually need to pay a settlement fee.

How to apply for asset finance

You can get asset finance through a finance provider, an equipment provider or manufacturer, or a broker.

First, research the asset you want, including preferred brands and models. This will help you determine the amount you need to borrow.

When you are ready to apply, check your eligibility with that provider. Your business may need to be a limited company or limited liability partnership, and UK-based. Though some providers also welcome sole traders. Your business may also need to have a minimum trading time or annual turnover and a good credit history.

Like any business loan, you will need to provide documents to prove your eligibility and show that your business can make agreed repayments on time. This may include financial forecasts, bank statements and tax returns, so it’s important to get these in order before you apply.

Timescales depend on the provider, the amount you are asking for and your business structure, among other things. But some providers may approve an application and put the agreement in place within just 24 hours. If you get follow-up requests from your lender asking for additional documentation, it may affect timings.

How to compare asset finance with NerdWallet

Use our table to compare asset finance deals from a range of providers. You’ll see:

  • minimum turnover requirements
  • contract terms available
  • loan amounts available
  • minimum trading history requirements
  • if soft or hard assets are financed, or both
  • if it’s a broker, the number of suitable lenders searched through one request

Then just click on the deal for more information.

Asset Financing FAQ

How flexible is asset financing?

Asset financing is flexible in a few ways. An asset can be anything from catering equipment to a heavy goods vehicle, provided it’s critical to your operations and removable. You can also choose a provider that specialises in that type of asset, or that knows your type of business.

With equipment leasing, once the contract term ends, you may be able to choose if you want to:

  • extend the lease
  • upgrade to a new asset
  • pay the remaining nominal balance, so it’s yours
  • pass the asset back to the lender

Contract terms and amounts loaned can also depend on the provider. This means it’s possible to choose a deal that is specific to what your business needs for as long as it needs it, if the monthly payments are affordable.

A lender may, for example, offer a repayment structure that considers seasonal fluctuations in your cash flow. Or they may let you create your own repayment schedule.

Can a limited company get asset finance?

Yes. In fact, some financing companies will only work with limited companies or public limited companies. But limited companies, partnerships, public limited companies and sole traders of all sizes, across all sectors, from waste disposal to manufacturing, can access asset finance.

Each provider has its own eligibility criteria, and some specialise in particular types of company, and may exclude others.

What’s the difference between asset financing and asset-based lending?

Asset financing lets a business fund an asset it needs. With asset-based lending, also called asset refinancing, the business uses an asset it already owns as security against a loan, to release the cash for other parts of the business.

The asset might include stock, equipment, machinery and property that appear on your balance sheet, or even intellectual property and accounts receivable.

You can continue to use the asset, where applicable, and ownership will revert back to your business at the end of the agreement. If you don’t make the repayments or fail to meet the lender’s terms and conditions, the lender can remove the asset.

» MORE: What is a secured business loan?

What’s the minimum amount you can get through asset finance?

Asset finance can start from as little as £5,000. The amount you can borrow will depend on the type of asset financing you choose, the asset you need and the individual provider.

What’s the maximum amount you can get through asset finance?

The maximum amount of asset finance offered by lenders can be as much as £10 million. Whether your business could access that amount depends on its finances and the affordability of repayments, among other things.

Can I finance second-hand assets?

Yes, you can finance second-hand and new assets. The lender will want to make sure the used equipment is in good condition and is worth the value given to it. It will also need to establish the asset’s remaining usable life.

What is asset refinancing?

Asset refinancing is a loan that is secured against assets a business already owns. The capital this frees up can be used elsewhere in the business, with the amount based on the equity the business owns in the asset. Even if your business doesn't own the asset outright, it may be possible to use refinancing alongside other financing.

The lender will have criteria an asset has to meet before it can be used as security for a loan.

As with asset finance, the business makes monthly payments over the agreed term until the sum and interest charged are repaid. If you can’t keep up with repayments, or if your business fails to meet the lender’s terms and conditions, the lender can remove the asset to recoup its losses.

» MORE: How does invoice financing work?

What happens if my assets are stolen or damaged?

You should let your lender know if the asset is stolen or damaged. Responsibility for insuring leased equipment usually falls to the lender, so the lender should take care of the claim. Check the terms and conditions of the agreement to be sure before you lease the equipment.

If you are responsible for insurance – perhaps because it’s a hire purchase agreement – you should tell your lender about loss or damage as soon as possible and make a claim on your business insurance policy. Your lender may ask that the insurance payout is paid straight to them to settle the outstanding debt before paying you the remainder. The process should be explained when you first get in touch.

» COMPARE: Business insurance deals

Will I have to pass a credit check?

The provider may carry out credit checks on your business when you apply for finance, which could affect your business credit rating. If your business credit rating is poor, it might be a good idea to try to improve it before you apply for business loans or credit facilities.

If you are comparing asset finance through a broker, if they search for products and carry out eligibility checks, it won’t usually affect your credit score.

Can a business asset loan affect my personal finances?

If your business doesn’t meet pre-agreed repayments for asset finance, it may impact on your personal credit score if you personally guaranteed the business account in any way.

If you are a sole trader, you and your business are the same in the eyes of the lender, and your name will appear on debts your business owes. So late payments and defaults could potentially damage your personal credit score. This would also apply to all owners of a limited liability partnership.

If your business is run as a limited company, your business’s name would appear on the debt instead of yours. This should leave your personal credit report unaffected if your company can’t meet the repayments.

If you are struggling to meet the repayments, talk to your provider as soon as possible.

» MORE: How to check your personal credit rating

About the author:

Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more

Compare business loans

4 products found
  • Puzzle Funding Asset Finance logo
    Broker

    Puzzle Funding Asset Finance

    • Get funds to buy or lease vehicles, equipment and machinery
    • Release capital from your existing assets
    • Speedy application and funding if approved
    • Minimum Turnover
      £100,000 p.a.
    • Available Amounts
      £5,000 to £2,000,000
    • Available Terms
      1 month to 5 years
    See Deal + More info
  • Swoop Funding Asset Finance logo
    Broker

    Swoop Funding Asset Finance

    • Funding to help you access equipment, machinery or vehicles
    • Confidently acquire the business assets you need to grow and operate both efficiently and effectively
    • Enables you to buy or lease equipment
    • Minimum Turnover
      No minimum
    • Available Amounts
      £5,000 to £2,000,000
    • Available Terms
      1 month to 7 years
    See Deal + More info
  • JD Capital Finance Asset Finance logo
    Broker

    JD Capital Finance Asset Finance

    • Finance to purchase/refinance vehicle, plant, equipment
    • Asset refinancing solutions available
    • Panel of commercial lenders to choose from
    • Minimum Turnover
      £100,000 p.a.
    • Available Amounts
      £20,000 to £1,000,000
    • Available Terms
      6 months to 5 years
    See Deal + More info
  • Funding Xchange Asset Finance logo
    Broker

    Funding Xchange Asset Finance

    • Discover instant & personalised loan offers in just 3 minutes
    • Borrow against your company's current or new assets and get the capital your business needs
    • One search compares Secured with Unsecured lending solutions to find the best for you
    • Minimum Turnover
      £100,000 p.a.
    • Available Amounts
      £5,000 to £250,000
    • Available Terms
      1 to 5 years
    See Deal + More info

    • Suppliers that don't offer Business Asset Financing but may offer suitable alternatives:

    • Nationwide Finance Business Finance logo

      Nationwide Finance Business Finance

      • Nationwide Finance help 35,000 businesses get finance each year
      • Direct funder - not a broker
      • Same day decision, funds within 24 hours
      • Minimum Turnover
        No minimum
      • Available Amounts
        £10,000 to £500,000
      • Available Terms
        1 to 5 years
      See Deal
    • Funding Circle logo

      Funding Circle

      • Your business must have a minimum of 2 years’ trading history
      • A leading UK platform for Small Business Loans
      • Simple online application and decisions in as little as 1 hour
      • Rates from 2.9% to 12.1% per year - No early settlement fees
      • Minimum Turnover
        No minimum
      • Available Amounts
        £10,000 to £500,000
      • Available Terms
        2 to 6 years
      See Deal
    • Capify logo

      Capify

      • Your business must have a minimum of 1 years trading history. No sole traders.
      • Capify loans are paid back in very small automated regular payment; either daily or weekly
      • A fast and easy business funding alternative for SMEs
      • Funds can be used for any business purpose, from managing cashflow through to improving technology
      • Minimum Turnover
        £120,000 p.a.
      • Available Amounts
        £5,000 to £500,000
      • Available Terms
        3 to 18 months
      See Deal
    • Fleximize logo

      Fleximize

      • Industry-leading flexibility - top-ups, repayment holidays, penalty-free early repayment, no set-up fees
      • Interest charged on reducing balance, not total loan amount - repay early and only pay for the time you had the loan
      • Apply online in five minutes, typically get a decision in 24 to 48 hours, receive funds the same day
      • Minimum Turnover
        £60,000 p.a.
      • Available Amounts
        £5,000 to £500,000
      • Available Terms
        3 months to 4 years
      See Deal
    • iwoca logo

      iwoca

      • Flexible finance for small businesses from £1000 to £200,000
      • No long term commitments and flexible repayments to fit for your business
      • Apply online in minutes for a decision (some decisions may take up to 24 hours)
      • Minimum Turnover
        £50,000 p.a.
      • Available Amounts
        £1,000 to £200,000
      • Available Terms
        up to 12 months
      See Deal
    • Cubefunder logo

      Cubefunder

      • Only available to Limited Companies in England and Wales with 3+ months' trading.
      • Fast and Flexible funding from £5,000 - £100,000 for Limited Companies within England and Wales
      • No penalties for Late payments or Early repayment
      • Apply and receive funds within 48 hours
      • Minimum Turnover
        £50,000 p.a.
      • Available Amounts
        £5,000 to £100,000
      • Available Terms
        3 months to 1 year
      See Deal
    • 365 Business Finance logo

      365 Business Finance

      • Your business must process credit and debit card transactions to apply for this product
      • A flexible business funding alternative
      • Cash advanced against card transactions
      • Pay back an affordable % of your card transactions
      • Minimum Turnover
        £10,000+ card transactions per month
      • Available Amounts
        £10,000 to £300,000
      • Available Terms
        4 to 18 months
      See Deal

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