Published and reviewed 15 October 2026. General information, not advice. Figures are illustrations, not lender quotes.
The short version
- Asset finance spreads the cost of equipment, machinery or vehicles over the time the business uses them. The asset itself secures the deal, which is why it is often easier to get than an unsecured loan.
- Choose the structure by what you want at the end. Hire purchase ends with you owning the asset. A finance lease gives you use of it for most of its life. An operating lease or contract hire lets you hand it back.
- Many deals are quoted as a flat rate. A 5% flat rate over four years works out at about 9.6% APR, so convert every quote before you compare.
- VAT and tax land differently. On hire purchase the VAT is usually due upfront and the business can claim capital allowances. On a lease the VAT is spread across the rentals and the rentals are a business cost.
- Two 2026 changes matter: a new 40% first-year allowance that includes assets bought for leasing, and FRS 102 accounting rules that put most leases on the balance sheet from periods starting on or after 1 January 2026.
What is asset finance?
Asset finance is a way for a business to get the equipment, machinery or vehicles it needs and pay for them over time, instead of finding the full price upfront. The finance provider buys the asset from the supplier, and the business pays it back in monthly instalments or rentals while it uses the asset to earn money.
What makes asset finance different from an ordinary business loan is that the asset is the security. Under most agreements the provider owns the asset until the end, or for the whole time. If the payments stop, the provider can take it back and sell it. Because the provider has something to fall back on, it can often lend to younger businesses, lend more, or charge less than it would for an unsecured loan of the same size.
It is one of the most widely used kinds of business finance in the UK. Members of the Finance & Leasing Association provided more than £40 billion of new asset finance in 2025, including a record of more than £24 billion to small and medium-sized businesses. Banks, specialist asset finance companies and the finance arms of equipment manufacturers all provide it.
The term covers several different agreements. They differ on three things: who owns the asset during and after the agreement, how VAT and tax work, and what happens at the end. Get those three right and the rest follows. Our asset finance overview covers the product in brief, with a calculator.
The types of asset finance compared
There are five structures you are likely to be offered. The labels vary between providers, so check what the agreement actually does rather than what it is called.
| Type | Who owns the asset | At the end | VAT | Usually suits |
|---|---|---|---|---|
| Hire purchase | The provider until the final payment, then you. | Pay a small option-to-purchase fee and the asset is yours. | Usually due on the full price at the start. A VAT-registered business can reclaim it. | Assets you want to keep for most of their working life, such as machinery, plant and vans. |
| Finance lease | The provider throughout. | Keep using it for a low secondary rental, or sell it to a third party and receive most of the proceeds. | Charged on each rental. | Expensive assets where spreading the VAT helps, and businesses that do not need legal title. |
| Operating lease | The provider throughout. | Hand it back, extend or upgrade. The provider takes the risk on its resale value. | Charged on each rental. | Assets you replace often or that lose value quickly, such as IT and some vehicles. |
| Contract hire | The provider throughout. | Hand it back. Charges apply for extra mileage or damage. | Charged on each rental. Special rules apply to cars. | Vans, cars and trucks, often with maintenance included. |
| Asset refinance | The provider, until you repay. Ownership comes back to you. | You own the asset again once the agreement ends. | Depends on the structure. Ask the provider and your accountant before you sign. | Raising cash against equipment you already own, or reducing payments on existing finance. |
Hire purchase
Hire purchase is the most common form of asset finance. You usually pay a deposit, often 10% to 20% of the price, and then fixed monthly instalments over a term of two to seven years. The provider owns the asset until the last payment and a small option-to-purchase fee, at which point ownership passes to you. For tax purposes the business is usually treated as the owner from the start, which means it can claim capital allowances on the full cost. Lease purchase is a close relative that is used in the same way.
Finance lease
Under a finance lease the provider buys the asset and rents it to you for most of its useful life. The rentals cover the full cost plus the provider’s charge. You never own the asset, but you take on nearly all the risks and rewards of using it: you insure and maintain it, and the rentals are fixed whatever happens to its value. At the end of the primary period you can usually carry on using it for a nominal rental, often called a peppercorn rent, or sell it to a third party as the provider’s agent and keep most of the sale proceeds as a rebate of rentals.
Operating lease and contract hire
An operating lease is closer to long-term rental. The rentals cover only part of the asset’s value, because the provider expects to sell or re-lease it at the end. That makes the monthly cost lower, but you hand the asset back. Contract hire is the vehicle version, often with servicing, tyres and breakdown cover built in. Expect conditions on mileage, use and return condition, and charges if you go over them.
Asset refinance
Asset refinance raises cash against equipment the business already owns. The provider buys the asset from you, or takes it as security, and you pay it back under a hire purchase or lease agreement while you carry on using it. It is often called sale and hire purchase back or sale and leaseback. It can release working capital quickly, but it turns an asset you own outright into one you could lose if payments stop.
What assets can you finance?
Almost any identifiable business asset with a resale value can be financed. What changes is how keen providers are, how much deposit they want and how long they will lend for. The deciding question is simple: if the provider had to take it back, how easily could it sell it?
| Asset type | Examples | How providers see it | Typical term |
|---|---|---|---|
| Vehicles | Vans, pickups, HGVs, trailers, minibuses. | Hard assets with an active used market. Widely financed. | 2 to 5 years |
| Construction and agricultural | Excavators, telehandlers, tractors, combines. | Hard assets that hold value well. Widely financed, often with seasonal payment options in farming. | 3 to 7 years |
| Manufacturing and engineering | CNC machines, presses, packaging lines, compressors. | Hard assets, although bespoke or installed machinery can be harder to resell. | 3 to 7 years |
| Business equipment | Catering kit, salon and gym equipment, medical and dental equipment. | Mid-range. Value depends on brand, age and how easy it is to remove. | 2 to 5 years |
| Technology and soft assets | IT, phone systems, tills, software, security systems. | Soft assets with little resale value. Fewer providers, higher pricing and guarantees are more likely. | 1 to 3 years |
| Energy and efficiency | Solar panels, battery storage, EV chargers, heat pumps, LED lighting. | Growing specialist market. Some providers focus on it. | 5 to 10 years |
Used equipment can usually be financed, but providers look at its age, condition and how long it will keep working. Many limit the age of the asset at the end of the agreement. Buying from a private seller rather than a dealer usually means extra checks, such as proof of ownership and a check that there is no outstanding finance on it.
Match the term to the working life of the asset. Paying for a laptop over five years, or a van over eight, leaves you making payments on something you have already replaced. A sensible rule is that the agreement should end well before the asset stops earning.
How much does asset finance cost?
Pricing depends on the business, the asset, the deposit and the term. For an established business financing a standard hard asset, equivalent annual rates of about 6% to 15% are common reference points, and our guide to business loan interest rates sets that against other finance. Younger businesses, weaker credit records and soft assets are priced higher.
Flat rates are not APRs
Asset finance is often quoted as a flat rate. A flat rate charges interest on the full amount borrowed for the whole term, even though you repay part of it every month. The real annual cost is roughly double the flat rate.
Worked example: a 5% flat rate
A business finances £50,000 over four years at a 5% flat rate. The interest is £50,000 × 5% × 4 = £10,000. The business repays £60,000 in 48 monthly payments of £1,250.
Because the balance falls every month, the true annual rate on that arrangement is about 9.6% APR, not 5%. The same conversion over a four-year term, with no fees and payments monthly in arrears:
- 3% flat is about 5.8% APR.
- 4% flat is about 7.7% APR.
- 5% flat is about 9.6% APR.
- 6% flat is about 11.5% APR.
These figures are illustrations. Ask each provider for the APR or the interest rate on the reducing balance, and for the total amount payable in pounds.
Fees and other charges
- Documentation or arrangement fee. Often a fixed fee of a few hundred pounds, or a percentage on larger deals.
- Option-to-purchase fee. The small final fee on hire purchase that transfers ownership to you.
- Broker fee or commission. If a broker arranges the deal, ask how they are paid and how much.
- Insurance. You will usually have to insure the asset and note the provider’s interest on the policy.
- Early settlement charges. Ask how the settlement figure is worked out before you sign.
- Return charges. On operating leases and contract hire, charges for extra mileage, damage or late return.
Balloon payments
A balloon is a larger final payment that lowers the monthly cost. It is useful when cash flow is tight early on, or when you expect to sell or trade in the asset at the end. The trade-off is more interest, because more of the balance stays outstanding for longer, and a large bill at the end that you need a plan for. You can model a balloon with our asset finance calculator.
Worked example: one machine, three ways to pay
The clearest way to see the differences is to put the same asset through each route. Every figure here is an illustration of how the structures work, not a quote, and the rates are assumptions.
Worked example: a £50,000 machine plus VAT
A VAT-registered manufacturing company needs a new CNC machine costing £50,000 plus £10,000 VAT. It compares three options over four years, each with monthly payments in arrears.
- Hire purchase at about 9% a year. The company pays a 10% deposit of £5,000 plus the £10,000 VAT at the start, and finances £45,000. That is about £1,120 a month, with interest of about £8,752. It reclaims the £10,000 VAT on its next VAT return and owns the machine after the final payment and option fee.
- Hire purchase with a £10,000 balloon. The same deal with a £10,000 final payment costs about £946 a month, but the interest rises to about £10,407 and £10,000 is due in month 48.
- Finance lease at about 9% a year. No deposit. The rentals are about £1,244 a month plus £249 VAT, so about £1,493 a month goes out of the account, and the VAT on each rental is reclaimed through the VAT returns. Total rentals are about £59,724 before VAT. The company never owns the machine, but can keep using it at a low secondary rental.
- Unsecured loan at about 12% a year. £50,000 over four years is about £1,317 a month, with interest of about £13,201. The company must also find the £10,000 VAT from its own cash until it is reclaimed.
On these assumptions, hire purchase has the lowest interest bill but needs about £15,000 upfront, falling to £5,000 once the VAT is reclaimed. The lease needs no upfront cash and keeps the bank account steadiest. The loan is the most expensive and still ties up cash in VAT. Which is best depends on the company’s cash position, its tax position and whether it wants to own the machine at the end.
Compare offers on the same basis. Use the same price, deposit, term and payment timing, and compare the total payable and the upfront cash, not just the monthly figure. Our guide to comparing business loans has a checklist that works for asset finance too.
VAT, tax relief and the 2026 changes
How an agreement is taxed can change its real cost as much as the rate. These are the general rules. Your accountant should check the treatment for your business before you sign, because it depends on the agreement and your circumstances.
VAT
- Hire purchase: HMRC treats it as a supply of goods, so VAT is usually due on the full price at the start. The credit charge is exempt from VAT. A VAT-registered business can usually reclaim the VAT, but it has to fund it until the refund arrives.
- Leases and contract hire: VAT is charged on each rental and reclaimed through your normal VAT returns.
- Cars are different. VAT on buying a car is usually blocked unless it is used only for business. On leased cars, a business can usually reclaim only 50% of the VAT on the rentals if there is any private use. Vans and commercial vehicles follow the normal rules.
Capital allowances on hire purchase
Under hire purchase the business is usually treated as owning the asset from the time it starts using it, so it can claim capital allowances on the full cost, and deduct the interest as a cost over the agreement. The main allowances for plant and machinery are:
| Allowance | Who can use it | What it gives |
|---|---|---|
| Full expensing | Companies | 100% of the cost of new, unused main-rate plant and machinery in the year of purchase. Cars and assets for leasing are excluded. |
| Annual Investment Allowance | Companies, sole traders and partnerships | 100% of qualifying spending up to £1 million a year, including second-hand equipment. Cars are excluded. |
| 40% first-year allowance | Companies, sole traders and partnerships | 40% of the cost of new, unused main-rate plant and machinery bought on or after 1 January 2026, including assets bought for leasing. Cars are excluded. |
| Writing-down allowance | All businesses | The remaining cost relieved over time. The main rate fell from 18% to 14% from April 2026. |
Worked example: tax relief on the £50,000 machine
If the company buys the CNC machine on hire purchase and claims full expensing, it can deduct the full £50,000 from its taxable profits in the year it starts using the machine. At the 25% main rate of Corporation Tax that is up to £12,500 less tax for the year, even though it has only paid a £5,000 deposit. A company paying the 19% small profits rate would save up to £9,500. The relief depends on having enough taxable profits, and the company still owes every remaining instalment.
Rentals on a lease
On a lease, the business does not claim capital allowances, because the provider owns the asset. Instead, the cost is usually deducted from profits as the rentals run, with the timing generally following the accounts. The provider claims the allowances. Assets bought for leasing could not use full expensing, but the new 40% first-year allowance covers them, which some providers expect to feed through into lower rentals.
Leases are moving onto the balance sheet
For accounting periods starting on or after 1 January 2026, the revised UK accounting standard FRS 102 brings most leases onto the balance sheet for businesses that use it, including small companies. Instead of showing rentals as an expense, a business will usually show a right-of-use asset and a lease liability, with depreciation and interest in the profit and loss account. Short-term and low-value leases are exempt, and micro-entities using FRS 105 are not affected.
This does not change what you pay, but it does change how your accounts look. Reported assets and debts go up, which can affect gearing ratios and the covenants in existing loans. If you have bank covenants, ask your accountant to check them before you take on a large lease. It also means an operating lease is no longer a way to keep borrowing off the balance sheet.
What providers check
Asset finance providers assess two things: whether the business can afford the payments, and whether the asset would cover the debt if it could not. A strong asset can make up for a short trading record, but not for payments the business cannot afford.
| What they check | Why it matters | How to strengthen it |
|---|---|---|
| Trading history | Two years or more opens up the widest choice and the best pricing. | Younger businesses can often still borrow against hard assets with a larger deposit. |
| Affordability | Bank statements and accounts show whether the payments fit. | Show how the asset adds income or cuts costs, with simple numbers. |
| The asset | Age, type, resale value and the supplier all affect the risk. | Choose a reputable supplier and provide a full quote or invoice. |
| Credit history | The company’s record and, for smaller firms, the directors’. | Check both files before you apply and explain any past problems. |
| Existing borrowing | Other finance and any charges over company assets. | List all existing agreements, including other asset finance. |
Documents to have ready
- A quote or pro forma invoice from the supplier, with the full specification.
- Three to six months of business bank statements.
- The latest filed accounts and, for larger deals, up-to-date management accounts.
- Details of existing finance agreements and other debts.
- Identity and address details for the directors.
- For used equipment, details of its age, condition and current owner.
Small, straightforward deals are often decided on bank statements and credit checks alone. Larger or unusual deals need fuller accounts and sometimes a forecast. Our guide on how to get a business loan covers what lenders look for in more depth.
Start-ups and bad credit
Asset finance is often the first company finance a young business can get, because the asset carries much of the risk. Expect a bigger deposit, a shorter term, a higher rate and a personal guarantee from the directors. Our guide to startup business loans sets out the other routes by stage. With a weak credit record, a larger deposit and a hard asset with a strong resale value give you the best chance. Be wary of anyone who guarantees approval or asks for a fee before a decision.
How to get asset finance, step by step
- Pick the asset and get a quote. Agree the price, specification and delivery with the supplier. Many suppliers also offer finance through a partner, which is worth comparing with other providers rather than accepting by default.
- Decide what you want at the end. Ownership points to hire purchase. Use without ownership points to a finance lease. Regular replacement points to an operating lease or contract hire.
- Work out the upfront cash. Include any deposit, VAT on hire purchase, advance rentals and fees.
- Compare offers on the same basis. Same price, deposit, term and balloon. Compare the APR, the total payable and the end-of-term terms.
- Apply. Send the quote and documents. Ask whether the credit search is soft or hard, and whose file it touches.
- Read the agreement. Check the payment schedule, insurance and maintenance duties, early settlement, default terms, any personal guarantee and what happens at the end.
- Sign and take delivery. The provider pays the supplier directly, and you confirm the asset has arrived and works before payments start.
A standard deal on a common asset can be decided within a day or two and paid out within a week. Larger, used or specialist assets take longer, especially if the provider needs an inspection or valuation.
What happens at the end of the agreement?
The end of the agreement is where the structures differ most, and where unexpected costs tend to appear. Know the answer before you sign.
| Type | Your options | Watch for |
|---|---|---|
| Hire purchase | Pay the option-to-purchase fee and own the asset. | Any balloon payment due with the final instalment. |
| Hire purchase with balloon | Pay the balloon, refinance it, or sell the asset to clear it. | Whether the asset will be worth more than the balloon when it falls due. |
| Finance lease | Continue for a low secondary rental, sell the asset as the provider’s agent and keep most of the proceeds, or return it. | Notice periods. Some leases continue at the full rental unless you give notice. |
| Operating lease | Return, extend or upgrade. Sometimes buy at market value. | Return condition, collection costs and automatic extensions. |
| Contract hire | Return the vehicle, or extend. | Excess mileage and damage charges, measured against industry return standards. |
Put the end date and notice period in your diary on the day you sign. Equipment leases for phones, printers and IT have a history of complaints from small businesses about minimum terms and automatic renewals, so read those clauses closely.
Risks to weigh before you sign
- The asset can be taken back. Under hire purchase and leasing the provider owns the asset until the end. If payments stop, it can repossess it, and losing a machine or vehicle you rely on can stop the business earning.
- You may still owe money after repossession. If the sale does not cover what is owed, the provider can claim the shortfall, plus costs.
- Personal guarantees. Smaller companies are often asked for one, which makes the directors personally liable for any shortfall. Read our personal guarantees guide first.
- Early exit can be expensive. Settling hire purchase early usually gives some interest rebate. Ending a lease early often means paying most or all of the remaining rentals.
- Payments continue if the asset fails. If the equipment breaks down or becomes obsolete, the agreement usually still has to be paid. Check warranties and maintenance before you sign.
- Too many agreements add up. Several small agreements can quietly add up to a large monthly commitment. Keep a list of every one, with its end date.
Asset finance or a business loan?
Asset finance is not the only way to pay for equipment. The right choice depends on what you are buying and what else the business needs money for.
| Option | Best for | Main trade-off |
|---|---|---|
| Asset finance | A specific asset with a resale value. | The asset is at risk. Only covers that asset. |
| Unsecured business loan | Equipment plus installation, training, fit-out or stock in one sum. | Usually more expensive, and often needs a personal guarantee. |
| Secured business loan | Larger investment where you can offer property as security. | Puts property at risk, and takes longer to arrange. |
| Paying cash | Smaller purchases when the business has plenty of cash. | Uses money that might be needed for a quiet month. |
| Renting short term | Equipment needed for a single contract or a season. | The most expensive per month, but no long commitment. |
Many businesses combine them. A common pattern is asset finance for the machine, with a smaller loan or invoice finance for the working capital that the new capacity needs. Our guide to commercial loans compares every main type of business finance, and our secured vs unsecured guide explains how security changes the price.
Is asset finance regulated?
It depends on who borrows and how much. Agreements for £25,000 or less with sole traders and small partnerships are generally regulated under consumer credit rules, according to the Financial Conduct Authority. Agreements with limited companies, and larger business agreements, generally are not.
A regulated hire purchase agreement gives the borrower extra rights, including the right to end the agreement early, with what is owed generally capped at half the total price, and limits on repossession once a third has been paid. A limited company usually has none of these statutory protections, so the terms of the agreement are what count.
Some protection still applies. Members of the Finance & Leasing Association must follow its Business Finance Code, which covers fair treatment, clear information about end-of-term and termination options, and complaints. Micro-enterprises can take some complaints to the Financial Ombudsman Service. Check that any firm you deal with is on the FCA Register where it needs to be.
Where Business Loan Advice fits
We are not a lender and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders, including for asset finance. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you.
In the meantime, the asset finance calculator and these guides are free to use with no sign-up. If your limited company is planning to finance equipment or vehicles, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.
Common questions
How does asset finance work?
A finance provider buys the equipment or vehicle your business needs and you pay for it in monthly instalments or rentals over an agreed term, usually two to seven years. The provider owns the asset, or holds it as security, until the agreement ends, so it can take it back if payments stop.
Is asset finance a loan?
Not exactly. Hire purchase is close to a secured loan for one asset, because you end up owning it. Leases are rental agreements, so you pay to use the asset and never own it. Under the accounting rules that apply from 2026, both usually appear as liabilities in the accounts of companies using FRS 102.
What is the difference between hire purchase and leasing?
With hire purchase you own the asset after the final payment and can claim capital allowances, but VAT is usually due upfront. With leasing the provider keeps ownership, VAT is spread across the rentals and the rentals are a business cost. Choose by whether you want to own it at the end.
What are typical asset finance rates?
For an established business financing a standard hard asset, equivalent annual rates of about 6% to 15% are common. Many deals are quoted as a flat rate, which is roughly half the APR. A 5% flat rate over four years is about 9.6% APR.
Do I need a deposit for asset finance?
Often, but not always. Hire purchase deposits are commonly 10% to 20% of the price, and VAT is usually payable upfront as well. Leases often need one or more rentals in advance instead. Young businesses and soft assets usually need larger deposits.
Can a new business get asset finance?
Often, yes. Because the asset secures the deal, asset finance is one of the first kinds of company finance a young business can get. Expect a larger deposit, a shorter term, a higher rate and a personal guarantee from the directors.
Can I get asset finance with bad credit?
Possibly. Choice is narrower and the cost is higher. A larger deposit and a hard asset with a strong resale value, such as a van or plant machinery, give you the best chance. Avoid anyone promising guaranteed approval or asking for a fee before a decision.
How long does asset finance take?
A standard deal on a common asset can be approved within a day or two and paid to the supplier within a week. Larger deals, used or specialist equipment and private sales take longer, especially if an inspection or valuation is needed.
Can I finance used equipment?
Usually. Providers look at the age, condition and expected working life, and many set a maximum age at the end of the agreement. Private sales need extra checks, such as proof of ownership and that no finance is still outstanding on it.
Can I claim capital allowances on asset finance?
On hire purchase, usually yes. The business is treated as owning the asset and can claim allowances such as full expensing or the Annual Investment Allowance on the full cost. On a lease, the provider claims the allowances and you deduct the rentals instead.
Can I pay off asset finance early?
Usually. Settling hire purchase early normally gives a rebate of some future interest. Ending a lease early often means paying most or all of the remaining rentals. Ask for the early settlement terms in writing before you sign.
What happens if I cannot make the payments?
Contact the provider as early as you can, because many will agree a temporary change. If payments stop, the provider can repossess and sell the asset, and claim any shortfall from the business and anyone who gave a personal guarantee.
Leasing World: FLA full-year 2025 asset finance new business figures, 5 March 2026
GOV.UK: Business investment boosted with new tax relief taking effect today, 1 January 2026
GOV.UK: New first-year allowance and main rate of writing-down allowances
HMRC Capital Allowances Manual CA23195A: 40% first-year allowance conditions
GOV.UK: Capital allowances, full expensing
GOV.UK: Annual Investment Allowance
HMRC VAT Time of Supply Manual VATTOS9250: hire purchase
HMRC: VAT on motoring expenses (VAT Notice 700/64)
ACCA: Key amendments to FRS 102 from the periodic review
Financial Conduct Authority: steps to support small businesses’ access to finance
Consumer Credit Act 1974, section 99
Finance & Leasing Association: membership and the Business Finance Code
Financial Ombudsman Service: which small businesses we can help
Rates, tax bands and lender criteria change. Confirm the current details with the lender, your solicitor or your accountant before relying on them.