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Updated: 13th March 2026
Written by Liam Gray
Edited by Michelle Dymond
What is asset finance and how does it work?
Businesses typically use asset finance to acquire new assets over a fixed period or to release value from existing assets through refinancing.
Asset finance is used in around 40% of UK business investments in vehicles, machinery and equipment, making it one of the most common forms of commercial lending.
The term “asset” has a broad meaning in this context, but most lenders use the DIMS model to determine what qualifies for financing. DIMS stands for Durable, Identifiable, Movable and Sellable. If an asset meets all four criteria, lenders are generally willing to finance it. If it doesn’t — for example, a building extension or a software subscription with no resale value, it is unlikely to qualify.
Types of asset finance
Below are the six main types of asset finance available to SMEs.
Hire Purchase
The finance provider buys the asset on behalf of the business, and the business pays it off through fixed monthly instalments over the agreed term. The business is treated as the owner for tax purposes from the outset, so they can claim capital allowances and full expenses for qualifying plant and machinery, subject to HMRC rules. Hire purchase is best for businesses that want to own the asset outright, especially hard assets with a long useful life.
Finance Lease
The finance company buys the asset and leases it to the business for an agreed period. The business has full use of the asset but never takes legal ownership. At the end of the lease, the business can extend at a reduced rental, return the asset, or arrange a sale. Finance lease is best for businesses that want to spread VAT costs and claim the full rental as a deductible expense.
Operating Lease
An operating lease usually covers only a portion of the asset's useful life, with the asset returned at the end, with no option to purchase. Monthly payments are typically the lowest of any asset finance type because the full cost is not recovered, and rental payments are fully deductible as a business expense. An operating lease is best for assets that depreciate quickly and businesses that want the lowest monthly outlay with no long-term ownership commitment.
Asset Refinance
The business sells an existing asset to a finance company, receives an agreed sum, and leases it back under a standard arrangement while continuing to use it. It’s a common financing method among businesses with valuable fleets or plant equipment with significant equity. Asset refinance is best for businesses that need working capital without losing access to existing equipment.
Contract Hire
A long-term rental agreement is used almost exclusively for vehicles. Monthly payments are fixed and typically lower than hire purchase because there is no transfer of ownership. The vehicle is returned at the end of the term, subject to mileage and condition terms. Contract hire is best for businesses running fleets that want predictable costs with no disposal risk.
Business Contract Purchase
A hybrid between hire purchase and contract hire. Monthly payments are lower than standard HP because a portion of the asset's value is deferred to a final balloon payment. At the end of the term, the business can take ownership, return the asset, or use any equity as a deposit toward a new agreement. Business contract purchase is best for businesses seeking lower monthly payments, with the option to own the asset at the end of the term.
Hire purchase vs finance lease
Here is a summary of the main differences between hire purchase and finance lease.
| Hire purchase | Finance lease | |
|---|---|---|
| Ownership | Transfers to business at the end of the term | Remains with the finance company |
| VAT | Paid upfront on full asset value (can be reclaimed if VAT-registered) | Paid on each rental payment as it falls due |
| Tax relief | Capital allowances on the asset & interest are deductible | Full rental payments are tax-deductible |
| Balance sheet | Assets and liabilities appear on the balance sheet | Recognised on the balance sheet under IFRS 16 / FRS 102 |
| End of term | Business owns the asset outright | Extend lease, return asset, or arrange sale |
| Monthly cost | Typically higher (full asset value recovered) | Can be structured with lower payments |
| Best suited for | Businesses wanting ownership and capital allowance benefits | Businesses wanting tax-efficient use of an asset, without full ownership |
What can you use asset finance for?
Construction & plant machinery
Excavators, loaders, cranes, scaffolding, site vehicles, and specialist plant machinery. High-value assets are essential to operations but expensive to purchase outright.
Manufacturing & industrial equipment
CNC machines, printing presses, production lines, packaging equipment, and factory fit-outs. Often financed over a longer period to match the asset’s useful life.
Transport, haulage & fleet
HGVs, vans, trailers, refrigerated vehicles, and company cars. Asset finance is widely used to acquire, replace, and expand commercial fleets.
Soft assets
IT infrastructure, servers, software licences, telecoms systems, security equipment, office furniture, and fit-outs. Not all lenders finance soft assets, so check provider eligibility before applying.
What is the difference between hard and soft assets?
Hard Assets
Hard assets are physical items that retain significant value over their useful life. They are easy to identify, recover and resell, which makes them strong security for lenders. Examples include:
- Commercial vehicles
- HGVs
- Trailers
- Cars
- Specialist plant machinery
- Production lines
- Factory fit-outs
- Construction equipment
- Industrial equipment
- Print & packaging
- Buses & coaches
- Machine tools
- Waste recycling
- Cranes
- CNC machinery
- Materials handling
- Milking machines
Medium Assets
Specialist equipment that holds moderate resale value. Medium assets carry mid-range rates and are sometimes available only for financing through the Growth Guarantee Scheme. Examples include:
- Broadcast, vision & sound
- Garage equipment
- Textile equipment
- Waste equipment
- Welfare units
- Portacabins
- Holiday pods
- Pumping equipment
- Surveying equipment
- Compressors
- Traffic lights
- Medical equipment
- Robotics
Soft Assets
Soft assets depreciate quickly, have limited resale value, and are harder for lenders to recover. Rates are higher, terms may be shorter, and larger deposits may be required. Examples include:
- Catering equipment
- IT equipment
- Office equipment & fit-outs
- Leisure equipment
- Telecoms
- Security equipment
- Scaffolding
- Gym equipment
- Restaurant fit-outs
- Software
- Park homes & holiday pods
- Air conditioning units
Pros and cons of asset finance
The benefits and potential shortcomings of asset finance will depend on your business type, funding requirements, and finance type, but here are the typical pros and cons.
Preserves working capital
Spreading the cost over months or years means cash is available for day-to-day operations, payroll and growth. This is beneficial as it means businesses aren’t tying up large lump sums in a single purchase.
Faster approval and higher acceptance rates
Because the asset serves as collateral, lenders face less risk than with unsecured lending. This typically means quicker decisions, higher approval rates, and lower interest rates than other forms of business finance.
Access to better equipment sooner
Asset finance allows businesses to acquire equipment they might not be able to afford outright, providing a practical way to secure new technology and tools while preserving working capital.
Predictable monthly costs
Fixed monthly repayments can make budgeting and cash-flow forecasting much easier. As payments remain fixed for the full term, there’s clarity over costs throughout the agreement.
Tax advantages
Depending on the type of agreement, businesses can claim capital allowances (including the Annual Investment Allowance and full expensing), deduct lease payments as business expenses, or benefit from VAT deferrals on finance leases. Tax rules change periodically, so businesses should verify current allowances with their accountants.
Flexible end-of-term options
Different types of asset finance offer flexible options at the end of the term, for example, owning the asset, upgrading, extending the agreement at a reduced rate, or returning it.
Higher cost than outright purchase
Interest charges and fees mean businesses usually pay more over the life of the agreement than they would if they bought outright with cash.
Restricted use or modification
Some agreements include conditions on how the asset can be used, maintained, insured or modified, and failing to comply can constitute a breach of the agreement.
Risk of repossession
The asset is collateral. If the business falls behind on payments, the lender can repossess it, which could disrupt operations if the equipment is essential to trading.
Commitment to fixed payments
Monthly payments are locked in for the full term, regardless of whether the asset is still in use. Early termination typically incurs penalties.
Depreciation and negative equity
If the asset loses value faster than the outstanding balance is paid down, businesses can owe more than the asset is actually worth. This is a particular risk with soft assets and technology.
End-of-term obligations
Leases and contract hire agreements may include return conditions such as fair wear-and-tear standards, mileage limits, and maintenance requirements, with additional charges if not met.
Top 50 UK Asset Finance Providers
| # | Company | Net Leasing Investment (£m) | Net Leasing Investment (£m) | Change |
|---|---|---|---|---|
| 1 | Lombard | 6,807 | 7,023 | +3% |
| 2 | HSBC | 3,386 | 3,644 | +8% |
| 3 | Close Brothers | 3,309 | 3,531 | +7% |
| 4 | BNP Paribas | 2,693 | 2,700 | 0% |
| 5 | Novuna | 2,463 | 2,626 | +7% |
| 6 | Lex | 1,719 | 2,174 | +26% |
| 7 | Aldermore | 1,779 | 2,064 | +16% |
| 8 | LeasePlan (trading as Ayvens) | 1,324 | 1,476 | +11% |
| 9 | DLL | 1,504 | 1,468 | −2% |
| 10 | Alphabet | 1,508 | 1,402 | −7% |
| 11 | BPCE | 1,197 | 1,375 | +15% |
| 12 | PEAC | 1,376 | 1,349 | −2% |
| 13 | Siemens | 1,218 | 1,302 | +7% |
| 14 | Investec | 1,139 | 1,224 | +7% |
| 15 | ALD | 1,113 | 1,186 | +7% |
| 16 | Arval UK | 934 | 1,110 | +19% |
| 17 | Scania | 705 | 874 | +24% |
| 18 | Virgin Money | 647 | 856 | +32% |
| 19 | VFS | 688 | 716 | +4% |
| 20 | PACCAR | 744 | 714 | −4% |
| 21 | Paragon Bank | 644 | 700 | +9% |
| 22 | Haydock | 601 | 672 | +12% |
| 23 | Propel | 509 | 591 | +16% |
| 24 | Simply | 479 | 505 | +5% |
| 25 | Kion | 434 | 500 | +15% |
| 26 | NIIB | 483 | 474 | −2% |
| 27 | United Trust | 381 | 448 | +18% |
| 28 | Allica Bank | 302 | 424 | +41% |
| 29 | Metro Bank | 348 | 404 | +16% |
| 30 | Hampshire Trust | 382 | 383 | 0% |
| 31 | Caterpillar | 365 | 332 | −9% |
| 32 | Interbay | 220 | 317 | +44% |
| 33 | grenke | 239 | 275 | +15% |
| 34 | Deutsche Leasing | 288 | 260 | −10% |
| 35 | Arkle Finance | 205 | 248 | +21% |
| 36 | Xerox Finance | 212 | 245 | +16% |
| 37 | Renaissance | 134 | 199 | +49% |
| 38 | Asset Alliance | 98 | 199 | +103% |
| 39 | Praetura | 154 | 194 | +26% |
| 40 | TP Leasing | 159 | 181 | +14% |
| 41 | Shire Leasing | 147 | 178 | +21% |
| 42 | Cambridge and Counties Bank | 132 | 165 | +25% |
| 43 | Tower Leasing | 99 | 152 | +53% |
| 44 | CHG Meridian | 124 | 134 | +9% |
| 45 | Oxbury Bank NEW | 28 | 128 | — |
| 46 | Star Asset Finance | 116 | 125 | +8% |
| 47 | Ricoh Capital | 120 | 125 | +3% |
| 48 | BLME | 256 | 122 | −52% |
| 49 | White Oak Europe | 150 | 121 | −19% |
| 50 | Conister Bank | 137 | 116 | −16% |
How to apply for asset finance
1. Identify the asset and get a quote from the supplier
Work out exactly what your business needs and get a written quote from the supplier confirming the price. For used assets, note the age, condition, and hours/mileage, as lenders typically need these details upfront.
2. Approach lenders or a broker
Apply directly to lenders, contact a broker use an online broker like Funding Options to compare multiple asset finance offers from one source. Going direct suits businesses that already know which lender they want, but brokers can access deals and providers not available through direct channels.
4. Credit and asset assessment
The lender carries out a credit check on the business and, usually, on the directors personally. This is alongside an asset valuation to confirm that it provides adequate security. Some lenders will make a decision in a few hours, but larger or more complex transactions may take several days.
3. Submit your application
You will typically need to provide business details (company number, registered address, turnover), full details of the asset, recent financial accounts, three to six months of bank statements, and details of all directors, partners or owners.
5. Receive and review the offer
If approved, the lender issues a formal offer that includes the interest rate, total cost, fees, repayment schedule, term, and end-of-term options. Check the total finance cost here carefully, and pay close attention to early settlement charges.
6. Sign the agreement and receive funding
The lender purchases the asset from the supplier (or releases funds), and the repayment schedule begins. Some providers fund within 24 hours of signing, but higher-value deals may take longer to fund.
What is the best asset finance rate in the UK?
The best asset finance rate in the UK currently starts from around 4% APR for the strongest applicants financing high-value hard assets over shorter terms.
However, most SMEs should expect rates between 5% and 10%, depending on the provider, asset type, deposit, and credit profile.
Allica Bank is one of the few providers to publish a full rate card, with a minimum net interest rate of 6.35% for larger hard-asset deals.
Fixed vs variable rates
Most asset finance agreements use fixed rates, meaning monthly payments remain the same throughout the term. This is the default for hire purchase and most lease arrangements. Some lenders offer variable rates tied to the Bank of England base rate.
Fixed rates provide certainty, but variable rates may suit businesses that are comfortable with some rate risk in exchange for a lower starting cost.
Note: Advertised “from” rates are usually only reserved for the strongest applicants. Most SMEs should expect to pay somewhere in the mid-range.
Getting quotes from multiple providers or via a broker can be a good way to find and compare competitive rates.
What affects the asset finance interest rate?
The interest rate for asset finance is determined by the business’s creditworthiness, the type of agreement, and the asset’s age and condition.
Businesses with strong credit profiles, clean accounts, and longer trading histories will generally secure better interest rates on asset finance.
The same is true for newer hard assets with slower depreciation, as they are often lower risk for lenders and tend to attract more competitive terms.
In contrast, soft assets and older equipment carry higher interest rates.
The agreement type is also important, as hire purchase, finance lease, and operating lease each have different cost structures and tax implications, so the cheapest monthly payment is not always the cheapest option overall.
Term length has an inverse effect on monthly and total cost, as longer terms reduce monthly payments but increase the total interest paid over the life of the agreement.
Additional costs of asset finance
Asset finance costs go beyond the headline interest rate. Arrangement fees, documentation charges, deposits, and end-of-term costs all contribute to the total amount a business pays until the end of an agreement.
Interest rates
Interest rates for most SME asset finance typically range from 4% and 10% APR, the rate depends on the provider, the type of asset, its value, the deposit size, and the credit profile.
Lower interest rates are generally reserved for strong applicants financing high-value hard assets over shorter terms.
Arrangement and documentation fees
Most lenders charge fees at the outset of an agreement. Arrangement or documentation fees are typically a one-off cost paid when the agreement is signed, and valuation fees may apply for refinancing or for higher-value assets where the lender requires an independent assessment of the asset’s condition and worth.
Deposits
Deposits are usually required at around 10% of the asset value plus VAT. A larger deposit reduces the amount being financed and can improve the interest rate offered.
Some lenders offer low- or no-deposit options, but these typically come with higher monthly costs to compensate for the additional risk.
Balloon payments and option-to-purchase fees
Balloon payments are a larger final instalment included in certain finance structures, particularly business contract purchase agreements.
Instead of spreading the full asset value evenly across monthly payments, a portion is deferred to the end of the term. This reduces the monthly cost during the agreement but means a significant lump sum is due at the end if the business chooses to take ownership. Ultimate Finance, for example, offers balloon payments up to £100,000.
Option-to-purchase fees apply at the end of a hire purchase agreement to formally transfer ownership of the asset to the business. These are usually nominal and range from £1 to around £200 depending on the provider.
Asset Finance Calculator
Use our asset finance calculator to show your monthly and total payment based on the asset finance received, the interest rate and the lending duration. You can also see how much interest you would pay per month and over the total loan duration.
Finance Details
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Alternatives to asset finance
There are several types of business loans that could be classified as ‘short-term’. The most popular types are:
Unsecured business loans
Unsecured business loans provide a lump sum without using the asset as collateral, so the business retains full ownership of the asset from day one, and there is no risk of repossession. However, because the lender has no assets to use as collateral, rates are typically higher. For smaller purchases, the difference in total interest may be modest enough to justify the simplicity and speed of an unsecured loan.
Business credit cards
Business credit cards can work for smaller equipment purchases where the balance will be cleared quickly.
However, they are poorly suited to high-value assets as credit limits are typically capped at £5,000 to £25,000, which is well below the cost of most commercial equipment.
Buying business assets outright
Buying business assets outright is a good way to avoid interest costs and means the business owns the asset immediately with no obligations. However, it depletes working capital in a single transaction. It may not be the most tax-efficient approach, as asset finance allows the business to claim capital allowances or deduct lease payments while retaining cash for other uses.
Invoice finance
Invoice finance releases cash tied up in unpaid customer invoices, providing working capital without traditional debt.
Invoice finance does not directly fund asset purchases but can free up enough cash flow to buy equipment outright.
Grants and government schemes
Some industries and regions offer grants or subsidised loans for specific equipment, such as green technology or agricultural innovation. The Growth Guarantee Scheme provides government-backed facilities of up to £2 million through accredited lenders, including Haydock, Close Brothers, Novuna and Allica Bank. Grants are worth investigating, but they are typically competitive and slow to access compared to alternatives.
FAQs
What is the difference between asset finance and asset refinancing?
Asset finance is used to acquire new or used equipment, vehicles, or machinery by spreading the cost over a fixed term. Asset refinancing (sale and leaseback) involves selling an asset you already own to a finance company and leasing it back, releasing working capital while retaining use of the equipment. For example, you could sell a £50,000 excavator to a lender for £35,000 and immediately lease it back, receiving cash while continuing to use it.
Is my business eligible for asset finance?
Most UK businesses can access asset finance if they have 12-24 months of trading history, though this varies by lender. Turnover requirements vary by lender, with some requiring a minimum annual turnover of £50k.
How do I choose an asset finance lender?
Firstly, check if the lender finances the type of asset you need and if their typical loan size matches your deal. Then compare the total cost of finance, fees, deposit requirements, and any end-of-term charges.
Consider whether you want to deal directly with a lender or go through a broker. Brokers can access multiple lenders through a single application and access deals not available directly to businesses.
Can I use asset finance for second-hand equipment?
Asset finance can be used to finance secondhand or used business assets, though terms may differ from those for new equipment. The asset’s age, condition, and remaining useful life will affect the rate and the maximum term offered. Very old assets or those nearing the end of their useful life may not qualify.
What happens if I miss a payment?
If you fall behind on your asset finance payments, the lender may repossess the asset, as it serves as collateral. However, most lenders will work with you before taking recovery action, including restructuring payments, extending the term, or agreeing on a temporary payment holiday. Contact your lender as early as possible if you’re experiencing difficulty.
Can I settle my asset finance agreement early?
Yes, most asset finance agreements allow early settlement, but this could involve an early termination fee or settlement charge. The cost depends on the lender, the terms, and how far through the agreement you are.
What is the Growth Guarantee Scheme?
The Growth Guarantee Scheme (GGS) is a UK government-backed lending programme that provides a government guarantee to lenders, making it easier for smaller businesses to access finance. Several providers on this list (Haydock, Close Brothers, and Allica Bank) are accredited GGS lenders. The maximum facility size is generally £2 million per business group.
How can I learn more about asset finance?
The Finance & Leasing Association (FLA) is a good place to start. You can find industry statistics, member directories, best practice guides, and more information on asset finance. The British Business Bank is also useful, offering guidance on business finance options and the Growth Guarantee Scheme, which provides government-backed lending.
What is the difference between Asset Finance and Asset-Based Lending (ABL)?
Asset finance is used to fund the purchase of a specific asset, such as a vehicle or piece of machinery, with that asset serving as collateral. The finance is tied to a single item and repaid over a fixed term. Asset-based lending (ABL) is a broader facility secured against multiple business assets at once, typically including stock, debtors, plant and machinery, and sometimes property.
Rather than funding a single purchase, ABL provides a revolving credit line, with the amount available to draw down fluctuating with the value of the underlying assets. In practice, asset finance suits businesses acquiring individual items of equipment, while ABL is typically used by larger or more complex businesses that want to borrow against the combined value of several asset classes.
Written by
Liam Gray
Liam is the Content Manager at Merchant Savvy, with over 8 years of experience writing for UK SMEs and financial services audiences. He has produced content across tech, finance, and B2B.
At Merchant Savvy, he writes and edits content that helps small businesses make smarter decisions around business finance, lending and payments.