Asset finance: How it works and how to apply

Asset finance is a way to buy new equipment, machinery or IT hardware for your business if you don’t have the cash to pay for it in one lump sum.

There are several options. Some let you own the asset outright at the end of the agreement, while others let you rent it, return it or upgrade to a newer model.

This guide explains the main types of asset finance, what lenders look for and how to prepare an application, so you can decide whether it suits your business.

What you can use it for:

Asset finance is a type of business loan that can be used for a range of different purchases for your business, including: 

• Business vehicles

• Tools

• IT hardware, such as laptops, servers or phone systems

• Plant machinery

• Construction equipment

• Agricultural equipment

• Manufacturing equipment

Types of asset finance

The right asset finance choice for your business will depend on many factors, including the type of asset you want and whether you want to own the asset outright or hand it back. 

Hire purchase 

• A lender buys the asset and you pay regular instalments over a pre-agreed term. 

• The asset appears on your balance sheet from the start, but the lender keeps ownership until you’ve paid the cost and interest. 

• The final purchase fee then transfers ownership to you, and you’re responsible for maintenance and can’t sell the asset until the term ends, or you settle early.

Finance lease

• A provider buys the asset and leases it back to your business. 

• Monthly payments cover the asset cost plus interest. 

• You’ll be responsible for maintaining and insuring the asset.

• At the end of the term, you can keep renting it, return it, or sell it to a third party on the provider’s behalf.

Operating lease 

• Lets you acquire equipment for a limited period, making regular rental payments. 

• A key benefit is that you may be able to upgrade to a newer model mid-agreement.

• You remain responsible for maintaining the asset.

Contract hire 

• Generally used for cars and vans, and especially useful for businesses running vehicle fleets. 

• The provider handles sourcing and maintenance, saving you time.

• You pay over a set term, then either extend the agreement or return the vehicles.

Asset refinance

• Helps release funds back into your business. 

• The lender values assets you already own outright and gives your business cash based on that value.

• You then lease the equipment back under a new agreement, so day-to-day operations continue with no change.

Is my business eligible?

Sole traders, partnerships and limited companies can all apply for asset finance. To be approved, you’ll need to show lenders that you can afford the monthly repayments and pay them on time.

Because the asset is usually security for the finance, asset finance may be more accessible than unsecured borrowing for some businesses. However, lenders will still assess your affordability, credit history, trading record and the asset’s resale value.

Some providers may require a deposit, director’s personal guarantee or additional security. Check the agreement carefully, including what could happen if your business cannot keep up with payments.

How to prepare an application

As you’re making a purchase for a specific item, applying for asset finance differs from other finance options, like a business loan, for example. 

You’ll need to provide standard information about your business, including address and registration number, as well as financial records. 

Most lenders will ask for business bank statements, management information or annual accounts. The documents required vary by lender, business age and borrowing amount

Lenders will then require information about the asset you want. This will differ depending on factors including your business, the asset, its cost and the provider.

You may need to provide:

• Supplier quote or invoice

• Delivery and installation costs

• Supplier or seller details 

• What the asset will be used for 

For business vehicle purchases, you’ll have to provide the make, model and vehicle identification number of the vehicle you want.

Is asset finance right for your business?

If you want to grow your business and need the latest equipment or technology but can’t afford to buy it outright, asset finance is well worth considering. It can be useful for newer businesses that need essential equipment without paying the full cost upfront, and for established businesses replacing assets, expanding capacity or protecting cash flow.

Before you commit, shop around and compare your options carefully so you know you can comfortably afford the repayments.

Asset finance pros and cons:

Pros

• Spreads out the cost of expensive purchases

• Tailored options to fit your business model

• Keeps your business technologically up to date

Cons

• Long-term costs might be higher due to interest

• The lender can take the asset back if you miss payments

• Commitment to regular payments, regardless of business performance

Choosing an asset and provider

Before applying for the finance, you’ll have to find the right asset; when doing so, consider the product's lifespan, maintenance and resale value. 

Then, you’ll need to find your provider. 

• Compare providers: Rates and terms can vary, so get quotes from more than one lender.

• Look at the total cost: Check the interest rate, any fees and the final payment, not just the monthly price.

• Ask about flexibility: Find out what happens if you want to settle early or your needs change.

In your money.co.uk account, you can search for asset finance options and check your eligibility with no impact on your credit score.

What happens next?

If the lender approves your application, you’ll enter into an agreement that will detail the finance duration, repayment schedule, interest rates, and any associated fees.

After that, the provider will release the funds for the purchase, and you can acquire your asset.