Get the latest equipment with an asset based loan

The right equipment can be a growth-enabler for companies of all sizes. But when buying that equipment has a negative impact on cash flow, asset finance becomes a vital lifeline.

Asset finance is a popular financial tool, in fact, according to data released by the FLA, in March 2024 the value of asset finance deals reached £3.8 billion in a single month. Here’s everything you need to know if you’re considering leveraging asset finance.

What is asset finance?

Asset finance enables you to purchase or lease an item by paying for it in instalments over a set period of time. You can use asset finance to replace broken equipment, lease a new company car, or expand your service offerings without requiring a large upfront investment or putting unnecessary strain on cash flow.

The five most popular types of asset finance

The five main types of asset finance are:

Operating lease

Don’t want to be forced to keep up with maintenance? An operating lease allows you to borrow equipment for a set period of time. With an operating lease, the lender maintains and owns the asset.

Finance lease

A finance lease is a great option for those looking for flexibility. Here, you choose the asset and the lender purchases it on your behalf. You then make monthly payments to borrow the asset for the agreed period. At the end of the lease period, you have the option to sell the item on the lender’s behalf, continue leasing the asset, return the asset, or take on ownership of the item.

Contract hire

With contract hire, you lease essential company vehicles (e.g. tractors, lorries, trucks etc.). With contract hire, you do not own the vehicle and you will need to negotiate a new contract or return the vehicle once the contract is fulfilled.

Hire purchase

This enables you to purchase an asset by paying in monthly instalments. With hire purchase, the lender owns the asset until all monthly payments are settled. You cannot sell the asset until all payments have been made.

Balloon hire purchase

Similar to the above but in this case the monthly repayments are reduced and a final “balloon” payment is made at the end of the term. While the monthly repayments are lower, when you include the large final payment the total cost of the asset is higher. In most cases, if you decide not to pay the final balloon payment the asset is returned to the lender.

What are the benefits and drawbacks of asset finance?

Asset finance can facilitate growth and expansion. Here are some of the benefits:

• Low/no deposit: Some lenders offer low/no deposit options so you can enjoy your new asset immediately without impacting cash flow.

• Stability: Having to pay a small fortune to replace an essential piece of equipment can throw your business off its game. Asset finance removes this by enabling you to purchase assets with small monthly payments.  

• Hardware & software: Assets financing isn’t limited to tangible items. Intangible assets, including patents and software, can qualify for asset finance. 

• Built-in collateral: The asset serves as the collateral eliminating the need for additional security.

• Approval: Since asset finance is secured with an asset, it is easier to raise funds with asset finance than to get a traditional business loan.

Some drawbacks you might like to be aware of include:

• Less flexibility: Payment terms are usually set at the beginning of the loan term and must be adhered to.

• Repossession: If you do not make your monthly payments in a timely manner the asset may be repossessed.

• Ownership: The lender usually owns the asset until the last payment is made and, in some cases, ownership is never transferred to you. Ensure you carefully assess the lending terms and are happy with the final outcome of the loan.

• Limited use: Some providers put limits on the asset’s usage. A popular example is mileage limits being placed on leased vehicles. Also, if you damage the asset you may be liable to pay.

What can you purchase with asset finance?

Here are some examples of items you can buy or lease with asset finance:

• Vehicles: Cars, trucks, motorbikes, even planes and boats can all be bought or leased with the help of asset finance.

• Technology: Have you been gazing longingly at that new piece of software everyone says will make your team more efficient? Asset finance can help.

• Equipment: Whether you need a new printing press to support your publishing business or a new oven to help grow your catering venture, asset finance helps you get the essential equipment you need to thrive.

As you can see, there is no shortage of assets your business can seek funding for.

Asset finance vs asset refinancing: what’s the difference?

Asset finance enables you to purchase a new item, for example, if a farmer wanted to utilise more of his farm by purchasing or leasing a new tractor, asset finance could help him make the acquisition.

On the other hand, asset refinancing offers you the flexibility to use an asset you already own as security against a new loan. Using a similar example, in this case, if the farmer already owned the tractor but wanted to free up some cash to purchase some new seeds, he could obtain asset refinancing by putting up the tractor as collateral.

Is your business eligible for asset finance?

Lenders may look at one or several of these things to assess eligibility:

• Creditworthiness: Lenders sometimes look at your company or personal credit score to assess how likely you are to repay the loan.

• Affordability: They may consider your income as a business and any expenses you’re currently paying to determine if you can afford the loan.

• Asset eligibility: Some lenders like to understand the specific assets being financed and may base their approval decision on that information. For example, if you’re obtaining asset financing for a vehicle, some lenders only provide financing for newer models with lower mileage.

• Valuation: Lenders often conduct internal assessments to verify if the value of the asset aligns with the purchase price. Since the asset serves as security for the loan, lenders might decline an application if they believe the asset's value does not cover the loan amount.

How to apply for asset finance as a UK business

Whether you’re enhancing your vehicle fleet or upgrading your team’s office equipment we can help you find a suitable asset finance provider. Just click the link below and follow the steps to find 120+ possible lenders offering loans from £1000 to £20M.

Click here to find a suitable lender offering asset finance.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.