When your business needs new equipment, vehicles or machinery, but buying them outright just isn’t realistic right now, asset finance can offer a flexible way forward. It gives you access to the things you need to grow your business, without putting pressure on your cash flow. But with different types of asset finance available, it’s not always clear which one makes the most sense. That’s why we’ve pulled together this guide to walk you through your asset financing options so you can make an informed decision with confidence.
What Is Asset Finance?
Asset finance is a funding solution that helps businesses acquire essential assets like vehicles, machinery or IT equipment, without having to cover the full cost upfront. Instead, you either pay in instalments or lease the asset for a period of time, depending on the structure of the agreement.
It’s a go-to option for many SMEs across the UK, especially when managing working capital is just as important as investing in growth.
Types of Asset Finance
1. Hire Purchase
This is one of the most common and straightforward forms of asset finance. With hire purchase, you spread the cost of the asset over a set term through fixed monthly payments. Once you’ve made the final payment (which may include a small purchase fee), the asset becomes yours.
Best suited for:
Businesses that want to own the asset in the long run, but can’t (or don’t want to) pay for it all in one go.
Things to consider:
You’re responsible for maintaining the asset during the agreement and it will appear on your balance sheet as a capital expense.
2. Finance Lease
A finance lease lets you rent the asset for most of its useful life. You don’t own it, but you still get full use of it for an agreed term. At the end of the lease, you can either extend the agreement or return the asset to the finance company.
Best suited for:
Businesses that need to use high-value assets long-term but aren’t too concerned with owning them.
Things to consider:
Lease payments can usually be offset against profits for tax purposes, which might give you an added benefit.
3. Operating Lease
This works much like a finance lease, but for a shorter duration and usually lower overall commitment. You won’t pay for the full value of the asset and you typically return it at the end of the lease. Operating lease is a popular choice for assets that may become outdated quickly, like IT or tech equipment.
Best suited for:
Businesses that need flexibility or only require the asset for a specific contract or project.
Things to consider:
It’s not the cheapest form of finance in the long run, but the lower risk and shorter commitment often make it worthwhile.
4. Asset Refinance
Already own valuable assets? Asset refinancing allows you to unlock capital tied up in those assets. A lender buys the asset from you and then leases it back, putting a lump sum of working capital into your business, while you continue using the equipment.
Best suited for:
Businesses looking to improve cash flow or consolidate existing debts.
Things to consider:
Your assets need to hold good value and lenders may require valuations or financial documentation to move forward.
5. Contract Hire (For Vehicles)
This is a specific type of operating lease, mainly used for vehicles. Contract hire allows you to lease a car or van for a fixed period with a mileage cap. Maintenance and servicing are often included and at the end of the contract, you simply hand the vehicle back.
Best suited for:
Businesses that want predictable fleet costs without the hassle of vehicle ownership.
Things to consider:
There’s no option to buy the vehicle at the end, so it’s all about usage, not ownership.
Choosing between the different types of asset finance really comes down to what your business needs, not just today, but a year or two from now. Do you need to own the asset? Would flexible payments help your cash flow? Are you after long-term use or short-term access? There’s no one-size-fits-all answer here, but the good news is, there’s likely a finance solution that fits your specific goals.
Get in touch with Business Finance House today and let’s find the best financial solution for your business goals.
