Asset Finance Explained

Asset finance can allow your business to accelerate its growth by purchasing vehicles, machinery, technology, or other essential equipment - without needing to pay the full cost upfront. This can prevent you from unnecessarily tying up your capital, helping you manage cash flow.

Here, we’ll explain in detail what this type of commercial finance can mean for your business, how it works, what you need to know about getting the best rates, and how to be prepared to approach the top UK lenders.

What is asset finance?

In simplest terms, asset finance allows your business to spread the cost of purchasing tangible assets (such as machinery, vehicles, or equipment) using regular payments instead of paying the whole price out of pocket. It protects your cash flow and preserves working capital for other priorities you may have.

How does it work?

Using asset finance can be quite straightforward. Essentially, you choose the asset you need, and the lender funds the purchase on your behalf (in one way or another). The asset itself can act as security for the loan, which reduces the lender’s perceived risk.

You then pay back the cost plus interest over an agreed term, sometimes with the option to own the asset at the end of the agreement. Different financing structures determine if and when ownership of the asset eventually transfers to you (e.g. leasing versus hire purchase).

Asset finance solutions and uses

Asset finance can be tailored to suit different industries, asset types, and business needs, with common uses and structures including:

• Hire purchase (HP): Spread the cost of an asset over fixed monthly payments (including interest), with ownership passing to you at the end of the term once you make all payments.

• Finance lease: The lender purchases the asset and leases it to you for a set term. You won’t automatically own it at the end, but you can often extend the lease or upgrade to newer equipment.

• Operating lease: Suitable for short-term or high-tech assets that depreciate quickly. You can lease the equipment for an agreed period without taking ownership, and this may involve perks like included maintenance.

• Contract hire: Commonly used for vehicles, it allows you to lease them for your business use with fixed monthly payments, often including servicing and maintenance packages. There is usually no option to own the asset.

• Asset refinance: You could release equity tied up in assets you already own, using them as security to purchase new equipment that’s needed. Doing this usually involves a valuation process from the lender.

Calculating how much you can borrow

The amount you can secure through asset finance depends on several factors, including:

• The type of asset and its value

• Current market rates

• The specific finance arrangement you choose

• Your business’s trading history

• Intended use of the asset

• Your business credit profile

• Potential rates of asset depreciation

Because there’s no one-size-fits-all calculation, using an asset finance calculator isn’t much help, but working with an experienced asset finance broker can be invaluable. An experienced broker can assess your requirements and compare offers from multiple lenders.

This allows them to give you tailored figures for both how much you could borrow and the expected monthly repayments. It ensures you understand exactly what you can afford before committing to any finance agreement.

How to apply for asset finance

If you’re applying for asset finance, finding the right lender and comparing all the options can be time-consuming and complex. Each lender will assess applications differently, taking into account the type and age of the asset, your business’s financial outlook, and the financial structure you’re looking for.

Speaking with an advisor who specialises in asset finance can make the process much easier. They’ll understand which lenders are most suitable for your industry, the asset you’re acquiring, and your long-term business goals, while also helping you secure competitive terms and rates.

If you’d like a free, no-obligation chat with a broker who specialises in asset finance, you can get started here:

Secure the best asset finance deal today

Get Started

Asset finance rates in the UK

Asset finance rates in the UK vary depending on several factors, including the type of asset you’re financing, its age and condition, the term length, and your business’s financial profile. Lenders also price risk differently, meaning that the same application could attract very different rates depending on who you approach.

While it can be tempting to go directly to your bank or the first lender you find, this often means you’re missing out on better deals elsewhere. To get the most competitive rates for your asset finance agreement, it’s worth taking the following steps:

• Shop around: Compare deals from multiple lenders, as rates can differ significantly between high street banks, specialist asset finance providers, and challenger lenders.

• Use a broker: An experienced asset finance broker can save you time by identifying lenders who already work within your industry and asset type, making it more likely you’ll secure favourable terms and rates.

• Match the lender to the asset: Certain lenders specialise in specific types of assets (e.g. heavy machinery, commercial vehicles, high-tech equipment, etc.), which often means better rates and more flexible terms.

• Tailor the finance structure: Hire purchase, finance lease, and operating lease all have various cost and ownership implications. Choosing the right structure for your business goals can reduce your overall financial burden.

• Maintain strong financials: Lenders offer their most competitive rates to businesses with solid credit histories, proof of consistent cash flow, and realistic repayment plans. Ensure all your details are correct and presented properly.

• Negotiate where possible: Especially if you’re a repeat customer or financing high-value assets, don’t be afraid to negotiate rates, fees, or repayment schedules. Your advisor can assist with this if you need. 

Examples of top UK asset finance lenders

While your needs and circumstances will likely limit your commercial borrowing options, here are some examples of popular asset finance providers that may offer solutions for certain companies:

• Investec Asset Finance: Offers asset finance solutions focused on SMEs, financing small to middle ticket transactions up to £10 million. Investec is particularly comfortable with sustainable businesses in areas such as solar panels, biomass energy, and onshore wind.

• Close Brothers Asset Finance: Will consider asset finance applications for hire purchase, leasing, and refinancing. You can choose to finance either new or second-hand purchases, and Close Brothers even runs its own asset marketplace for purchasing goods.

• Lombard Business Finance: Part of the NatWest Group, Lombard is the UK’s largest asset finance provider and typically offers payment terms ranging from 12 to 84 months. It’s open to agreements for vehicles, equipment, and specialist assets. It also makes efforts to support sustainable and renewable initiatives with business purchases.

If you’d like tailored guidance and access to exclusive rates, our specialist brokers can match you with the most appropriate lender for your asset purchase or refinance needs.

Alternative finance options to consider

While asset finance is a flexible way to acquire or release value from equipment, vehicles, or other business assets, it’s not always the most suitable option for every situation.

Here are some alternative forms of commercial finance you might want to explore with your advisor:

• Business loans: A straightforward term loan can be used for a wide range of purposes, including purchasing assets outright. While you won’t have the asset as security in the same way as with asset finance, rates can be competitive if you have a strong credit profile.

• Invoice finance: If your main challenge is cash flow rather than access to equipment, “invoice factoring” or “invoice discounting” allows you to unlock cash tied up in unpaid invoices without taking on traditional debt.

• Commercial mortgages: If you’re looking to purchase premises or property-based assets, a commercial mortgage might offer better terms for long-term borrowing.

• Equipment leasing from suppliers: In some industries, suppliers or manufacturers offer in-house finance or lease arrangements, which can sometimes be cheaper or more convenient, although they may come with less flexibility.

• Government-backed finance schemes: In the UK, schemes such as the British Business Bank’s asset finance programmes or sector-specific funding initiatives can offer preferential rates or guarantees for eligible businesses.

• Peer-to-peer (P2P) lending: Some businesses secure funding through online platforms that connect them directly to private or institutional investors. This can be quicker to arrange but often carries higher interest rates.

• Trade credit: For certain types of purchases, negotiating longer payment terms with your supplier can be an effective form of short-term financing without entering into a formal loan or lease.

Exploring these alternatives with the help of a broker can help you understand the full picture of your financing options and make sure you choose the arrangement that best supports your cash flow, growth plans, and asset requirements.

Why choose Teito for your commercial finance needs?

If you’re exploring asset finance for your business and want a tailored comparison or bespoke guidance, our specialist brokers understand the nuances of financing strategies across industries and asset types.

Here are some more reasons why businesses across the UK trust us to help arrange their asset finance solutions:

• Speak to advisors who specialise in commercial finance

• Free initial chat with no obligation to proceed further

• Our brokers are 5-star rated on leading review platforms

• Whole-of-market access to mainstream and niche UK lenders

If you’d like to compare your asset finance options or speak with an experienced broker, you can get started here.