Your guide to asset finance

If you’re looking to fund new and used equipment, including vehicles, or release some capital tied up in your existing assets, asset finance might be more suited to your needs than a traditional business loan. Here, we take a deeper dive into what it is and how it can be used, as well as the benefits and drawbacks, to help you make the right choice for your business.

What is asset finance?

Asset finance is an umbrella term used to describe finance that’s provided for a specific business asset. It can be used for acquiring a new or used asset, or raising finance against an existing asset.

It covers a wide range of items, including commercial vehicles, cars, plant and machinery and business equipment, as well as things such as furniture, IT and security.

There are many different types of asset finance, but some of the more popular ones include hire purchase, finance lease and asset refinance, which we’ll go into more depth on below.

Hire purchase

A hire purchase allows you to pay for an asset in instalments over a set period, typically at a set interest rate, and own it at the end of the term. The repayments you make will cover both the original cost of financing the asset, as well as interest charges. 

Finance lease

A finance lease enables you to lease a piece of equipment and use it over a period of time. A finance provider will hold ownership of the asset, but you’ll be given exclusive use of it, providing you meet the terms of the contract and make regular payments. Your payments will cover the original cost of the asset, as well as any interest.

Once the term has ended, you may be given the opportunity to extend your lease or return the asset to your finance provider. If you don’t need an extension, the provider will take back the asset and it’ll normally be sold on. You may then receive a portion of the sale proceeds as a rebate on the rental that you paid.

Asset refinance

Asset refinance allows you to raise capital using your existing assets, which are still being used by your business. This means you can borrow a lump sum secured against an asset or assets. You’ll then make monthly repayments over a fixed term to pay this lump sum back to the finance provider. 

Assets that you put up as security will need to be owned by the business outright, and the lender will conduct a valuation of the assets to determine how much you can borrow.

How long can I take out asset finance for?

Asset finance can be spread over a 1 to 7 year period. The term is determined by the risk appetite of the lender, the asset you’re looking to purchase, or your existing asset’s useful life, as well as how much you can afford to repay each month.

Benefits and drawbacks of asset finance

Benefits

• Allows you to spread the cost of the asset over a fixed term, the asset’s life expectancy or over an agreed payback term that matches your needs
• The asset sits on your business’s balance sheet, allowing you to depreciate the asset over its life expectancy, or gain tax benefits
• As you use the asset as security, it can be cheaper than other loans
• Gives you the upfront capital to fund a new asset, which can be repaid with the extra revenue it helps to generate
• If you fail to pay, the lender can sell the asset to reduce the balance owed by your business
• Less financial documentation is typically required when compared to term loans

Drawbacks

• Not all providers are able to fund all assets
• Each provider will require different fees, so it can be tricky to find the best option for your business
• There’s a risk of losing an asset, especially if you use it as security to borrow money and fail to make your repayments

How can I get asset finance?

While we don’t offer asset finance directly through Funding Circle, our specialist asset finance team works with a dedicated panel of market-leading providers. Our team will be on hand every step of the way to answer any questions you might have, and help you find the most competitive asset finance solution to suit your needs.

Find out more about how we can help you get asset finance that fits your business.

Am I eligible for asset finance?

To be eligible to apply for asset finance through Funding Circle your business needs to:

• Be based in the UK
• Have at least 1 year of trading history
• Have an annual turnover of at least £50,000

24/07/23: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.