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How Asset Finance works and the different options available

How Asset Finance works and the different options available

So what is Asset Finance

Asset finance is a type of lending that enables you to access business assets such as equipment, machinery and vehicles without having to buy them upfront. It can also allow you to release cash from the value in assets you already own or use your existing assets as security against a business loan from an asset finance lender.

Business asset finance is typically attractive to businesses who want to put their growth plans into action but don’t necessarily have the ready cash, or business owners who would rather spread large costs over a longer period. Short-term asset finance also enables businesses to remain competitive by making it easier for them to access the latest technology. Asset finance is a broad category that relates to valuable items in your business.

An ‘asset’ can be almost anything, whether it’s cars and trucks for a delivery company or a small independent printers — and with a wide choice of alternative lenders across the market, you can find asset finance for almost anything.

Generally speaking there are two types of asset finance — lending secured against existing assets, and equipment finance to get additional assets. Depending on the type of asset finance, the borrower can eventually take on full ownership of the asset, return it to the lender or lease a newer version.

The different types of Asset finance include:

  • Asset refinance

  • Equipment leasing

  • Finance leases

  • Operating leases

  • Hire purchase

How Asset Finance Works

Asset finance works in a few different ways, depending on which type of asset finance you opt for. Hire purchase works by enabling you to spread the cost of purchasing an asset over a set amount of time. Once you've paid the lender in full, the asset is yours to keep.

Equipment leasing, on the other hand, works by the lender buying the asset and you paying a monthly fee to rent it. At the end of the agreed term, you can extend the lease, pay the remaining balance to buy it, upgrade to a new model or return the asset back to the lender.

Asset refinance allows you to release cash into your business using your existing assets. You can also use it to consolidate debt or provide security when structuring a deal. Depending on your situation, lenders will typically lend up to 80% of your asset's value.

How long is asset finance for?

Asset finance is usually provided for anywhere between one to seven years, or even longer in some instances (usually for very expensive assets). The asset finance company recoups the purchase cost of the asset over the agreed period, plus interest.

The length of time the finance is provided for also depends on how long the asset is going to be ‘usable’ for, as well as how quickly the lender wants the money back. As a business borrower, you’ll have to show that you can afford to make the agreed payments.

Who is asset finance for?

Asset finance is designed for any type of business, including SMEs. It's designed for those who wish to access an item that has high value to support their business’ growth and spread the cost of the item over its usable life. Asset finance is available to eligible limited companies and partnerships, sole traders and public limited companies.

So what might Asset Finance cost you

By using our Free Asset Finance Calculator, you will be able to type in the loan amount and the term your want to pay the loan off over, and get an instant idea of the monthly repayments. Our How To Video will also show you how to do this here.


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