What is asset financing? And how can I get it?

Are you looking to buy equipment, vehicles or machinery for your business? If so then asset financing can be a great way to spread the cost and help your cash flow. It allows you to buy or rent equipment without having to find all the money up front.

In this guide we explain how asset financing works, how to qualify and the pros and cons. We also answer common questions like “how much can I borrow?” and “does the business actually own equipment with asset financing”. Let’s take a look in more detail.

Table of Contents

What is an asset?

Assets are valuable items or resources that are used by your business. They range from heavy machinery, to company vans and office furniture. These assets are used by your business to help generate sales and support operations.

Lending companies split assets into two types—hard and soft assets:

  • Hard assets are physical items with significant value like machinery, equipment, vehicles or buildings.
  • Soft assets have a lower value and are less durable. They include objects like IT equipment and office furniture and even some non-physical items like computer software.

What is asset financing?

Asset financing allows you to rent or gradually buy equipment for your business. It’s great if you want to expand but don’t have enough money saved for new assets or want to spread the cost over a longer period. Asset financing is also useful if you want to improve your cash-flow. That’s because it allows you to gradually pay for assets rather than tying up cash by paying for expensive equipment up front.

Asset refinancing. Asset financing can also be used to release cash to use into your business by securing a loan against existing assets. This type of asset financing is called refinancing and it is a type of business loan that’s secured against existing assets.

How does asset financing work?

Asset financing is available through banks, brokers, specialist lenders and vehicle leasing companies. It works a bit like any other type of business loan with interest and capital repayments agreed up front. The lending company buys and owns the equipment and you rent it from them for an agreed period of time. Lenders often require businesses to pay some money at the start of the agreement, for example 10% of the purchase price.

When you apply, lenders will want to check if your business can afford the repayments. You will often need to provide them with information on your length of time in business, business plan, financial accounts, turnover and the type of assets you want to finance. They will then perform credit checks before they decide whether to lend to you.

Once the lending company has decided to lend to your business, it will issue a contract setting out the terms of the agreement. The contract will cover the interest rate, who is responsible for maintenance, who will own the asset at the end of the agreement and whether you have the option to buy the equipment in the future.

What are the different types of asset financing?

There are several different types of asset financing and each one suits different types of assets or businesses.

Type of Asset finance
Will you own asset at the end of contract?Do you have option to buy at the end of contract?Are you responsible for maintenanceSuitable for

Hire purchase
YesN/AYesGood for paying for an asset gradually. The business will own the asset at the end of the hire purchase period.

Equipment leasing
No(Depends on the terms of your agreement)NoUseful to spread cost of new assets; often slightly cheaper than hire purchase as you won’t own the asset at the end.

Operating leasingNoNoNoUsually more affordable than finance leasing because you rent asset for less than its useful life.

Finance leasing/Capital leaseNoYesYesAllows businesses to lease an asset over most or all of its useful life.

Contract hire
NoNoNoContract hire is only used for vehicles.

Soft asset financing
BothBothBothFor assets with lower value like computer hardware or office furniture. Fewer lenders offer it because the assets have less value.

Asset refinancing
YesN/AYesAsset refinancing is used to release cash by securing a loan on existing equipment. It is not used to purchase equipment.

What can asset financing be used for?

Asset financing can be used to obtain new or second hand equipment. You can also use it for soft assets like computer software. Lenders will look at the type of asset you require when they are assessing your application to see if it meets their criteria.

Some types of asset financing are more appropriate for certain types of assets. For example, you might choose a hire purchase agreement for an asset with a long useful life where you want to own the asset at the end of the contract. Whereas you might decide to go for an operating lease if you don’t have the servicing expertise in your company. Operating leases are also often a great option for assets with significant servicing costs e.g. photocopiers.

Asset refinancing is different to other types of asset financing. It’s used to release cash by securing a business loan against existing equipment. Asset refinancing is often used to raise cash to help businesses with cash flow and working capital. It is also useful if business owners need cash to expand their business.

What are the pros and cons of asset financing?


  • Quick. asset financing allows companies to buy equipment straight away rather than waiting until they’ve saved up.
  • Cash flow. asset financing is great for cash flow because it allows businesses buy to use cash or working capital in the business rather than locking up cash in expensive assets.
  • Flexible. asset financing gives businesses flexibility as they can acquire or dispose of assets quickly and easily.
  • Scalable. asset financing is useful for expanding businesses that want to scale up quickly. They don’t have to wait and save up to acquire new assets.
  • Convenient. asset financing can be a very convenient way to obtain equipment or machinery. Some types of finance include servicing and maintenance. This is minimizes the risk of your business being disrupted by equipment breaking down.
  • New equipment. leasing can be a good solution if assets need to be replaced regularly in your industry. You won’t be stuck with old, obsolete equipment.
  • Lower interest payments. because asset finance is secured on the assets it will often be slightly cheaper than a traditional business loans or overdrafts.
  • Fixed costs. interest and any capital payments will be set out in the asset finance agreement. This means that your business can have certainty about future costs.


  • Interest charge. Asset financing is usually more expensive than buying an asset outright because you’ll have to pay interest as well as covering the cost of the asset.
  • Damage. You may be responsible for repairing or replacing damaged machinery or equipment, depending on the terms of your agreement. It’s possible to take out separate insurance to cover this risk.
  • Not always suitable. Lenders won’t usually consider short term agreements for under a year.
  • Won’t own the assets. With most types of asset finance, the business will not own the asset at the end of the agreement.
  • Risk of default. If you default on payments you may lose use of the asset. This may disrupt your ongoing business if it’s an essential piece of equipment or machinery.
  • Credit checks. The lender will perform credit checks on your business. If the lender decides to refuse your application, this could negatively affect your credit rating in the future.

Where can you get asset financing?

Asset financing is available through a variety of lenders including, banks, specialist lenders, brokers, vehicle leasing companies and sometimes directly through a supplier. It’s worth researching several different options and lenders as asset financing terms and interest rates vary widely.

How can you qualify for asset financing?

Asset financing lenders will have different criteria for assessing whether to lend to businesses. Here are some of the common requirements:

  • Business use only, the asset must be for use in your business.
  • Trading period. some lenders will only lend to businesses that have been trading for 2 years. It makes sense to shop around because some types of finance and lenders are more flexible than others.
  • Turnover asset financing is only available for business with a minimum turnover of £100,000 with certain lenders. Again, do your research as some lenders will consider smaller businesses.

What is the government annual investment allowance?

The government annual investment allowance or capital allowance gives you tax relief on a qualifying asset. This means that you can claim tax relief by adding the cost of the asset to your expenses on your tax return. The allowance is usually only available for assets that you will own at the end of the asset finance agreement. If you decide to buy an asset at the end of an operating lease then you can claim the annual investment allowance in the year that you buy it. Ask your accountant for advice as the rules are complicated.

Frequently asked questions

How much can I borrow?

How much you can borrow via asset financing depends on lots of factors. Lenders will look at the type of equipment you are buying, their lending criteria, your turnover and credit rating. Some lenders consider applications of up £10 million whereas other lenders offer small loans of as little as £1,000.

How long can I finance heavy equipment?

Asset financing is usually available for a minimum of a year and is typically agreed for periods of 3, 7 or 10 years but can be available for up to 20 years in some circumstances. Shorter loan periods will typically attract higher interest rates.

Can you sell equipment while on lease finance?

You won’t be able to sell equipment without the owner’s permission as you’re not the legal owner.

Does the business actually own the equipment with asset financing?

This depends on the terms of the agreement. Some contracts allow you to buy the asset at the end of the lease period.

Can I get asset financing as a sole trader if I’m not a Ltd company?

Some lenders will only consider limited companies but others are happy to lend to business that are not limited companies. You will still need to meet their other eligibility criteria.

Is asset financing regulated?

Most asset financing is not currently regulated by the Financial Conduct Authority (FCA), although some specific types of financing are regulated. For example, car hire purchase agreements are regulated. Many lenders are themselves regulated by the FCA and you should do your research you make sure that you are using a reputable lender.

Alternatives to asset financing

If your business needs to borrow cash quickly or you don't have suitable assets then alternative business finance may be more suitable than using asset financing.

Here are some other types of business finance to consider:

  • Invoice financing - lenders advance cash based on the value of your outstanding customer invoices. The loan is usually repaid once cash comes in from customers.
  • Working capital loan - this is a flexible loan arrangement used to provide cash to cover short-term borrowing needs.
  • Small business loan - a simple small business loan works like a personal loan with an agreed interest rate and repayment schedule.
  • Bridging loan - this is often used to bridge a gap between buying one building and selling another, although it can also be used for other short term borrowing needs.
  • Small business loan - a simple small business loan works like a personal loan with an agreed interest rate and repayment schedule.