Your guide to asset finance

Asset finance describes a range of financial products that help businesses acquire or release value from physical assets, without having to buy them outright. It covers everything from funding new vehicles and machinery through to raising capital against equipment you already own.

Asset finance lets you spread the cost over the useful life of the asset, keeping cash available for the day-to-day running of the business.

How does asset finance work?

A finance provider either pays for the asset on your behalf, or advances funds against an asset you already own. You repay over a fixed term (usually in monthly instalments). In most cases, the asset itself acts as security for the finance.

The exact structure depends on the type of product you use. Some arrangements result in you owning the asset outright at the end of the term; others are usage-based, with the asset returned when the agreement ends.

Types of asset finance

Hire purchase

With hire purchase, you pay for the asset in fixed monthly instalments over an agreed term. The repayments cover the cost of the asset plus interest. At the end of the term, once all payments have been made, ownership of the asset transfers to you.

Finance lease

In a finance lease arrangement, the finance provider owns the asset and you use it in exchange for regular lease payments. At the end of the term, you typically have 3 options: extend the lease, return the asset or facilitate its sale (with a share of the proceeds returned to you).

Operating lease

An operating lease works similarly to a finance lease, but you're only using the asset for part of its useful life. At the end of the term you return it, with no option to purchase. This makes it well suited to assets that depreciate quickly or need regular upgrading like IT equipment or a fleet of vehicles.

Asset refinance

If your business already owns assets outright, asset refinance lets you unlock the value tied up in them. A lender carries out a valuation and advances a percentage of that value as a lump sum, which you repay over an agreed term. The asset remains in use throughout.

It's a practical option for businesses that need capital but want to avoid taking on unsecured debt or diluting equity. The lender will need the asset to be fully owned - not already subject to existing finance.

What assets can be financed?

Asset finance covers a broad range of business assets, including:

• Commercial vehicles, vans and cars
  
  

• Plant and machinery
  
  

• Manufacturing and engineering equipment
  
  

• IT systems and technology
  
  

• Agricultural equipment such as tractors and harvesters
  
  

• Office furniture and fit-out

Funding Circle offers asset finance for vehicles, agricultural equipment and general equipment through a panel of specialist lenders. Vehicle finance, equipment finance and agricultural finance are all available through a single application, with a dedicated account manager to help you find the right deal.

Benefits and drawbacks of asset finance

The benefits of asset finance mean you can spread the cost of equipment rather than tying your capital up in a single purchase. Instead, you pay in manageable installments all while the asset is generating revenue. It can also be cheaper than unsecured borrowing, and helps you to keep cash available for the day to day demands of running the business.

The asset also appears on your balance sheet (in hire purchase and finance lease arrangements), which can be relevant for businesses that need to demonstrate asset strength.

There are some drawbacks, however. The asset can be repossessed if you fall behind on payments and the finance provider has the right to reclaim it - this can be risky if your business relies on that equipment. It also works out more expensive than buying the item outright as you’ll pay more over the full term.

It’s also tied to a specific asset - asset finance isn’t a flexible credit facility. It's structured around a single asset or portfolio of assets, so it's not suited to covering general cash flow needs.

How to apply for asset finance

The general process to apply for asset finance is:

1. Identify the asset you want to finance and get a clear sense of the cost.
   
   

2. Approach a lender or broker
   
   

3. Provide your business and financial details (lenders will typically want information on your trading history, turnover and financial position).
   
   

4. The lender assesses your creditworthiness and, where relevant, the value of the asset.
   
   

5. You receive an offer with the rate, term and monthly repayment set out clearly.

Funding Circle's dedicated account managers handle the legwork of comparing deals across lenders, helping you find the right option for your business without having to approach each one separately. 

Find out more about whether asset finance is right for your business.

FAQs

What is the difference between asset finance and a business loan?

A business loan gives you a lump sum of cash that you can use for any purpose - stock, working capital, refurbishment, whatever the business needs. Asset finance is specifically structured around a physical asset, using that asset as security. This means rates can be more competitive for asset finance, but the borrowing is tied to that specific purchase. If you need flexible funding rather than finance for a specific asset, a business loan is likely the more appropriate route.

What is asset-based lending?

Asset-based lending (ABL) is a broader term that covers any borrowing secured against business assets — including asset finance, but also invoice finance and revolving credit facilities secured against a company's debtors or stock. Asset finance is one form of asset-based lending, focused specifically on physical assets.

How long can asset finance be spread over?

Most asset finance arrangements run for between 1 and 7 years, depending on the type of product, the asset being financed and the lender's terms. Shorter-lived assets (like IT equipment) tend to suit shorter terms; longer-lived assets (like heavy machinery or commercial property fit-out) may have longer repayment periods.

18/06/26: 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.