Asset finance, in full
This is the detail behind the asset finance overview: the five structures explained properly, how the rates and fees actually work, the tax side, and how it stacks up against other funding. If you already know what you need, skip it and tell us about the asset.
By the CapExpand Team, led by Alex Beardsley · Updated June 2026
The five types, in detail
Hire purchase (HP)
You put down a deposit, pay fixed monthly instalments, and the asset is yours once the final payment clears. It is commonly used for plant, machinery and vehicles a business intends to run for years. You build equity as you go and can usually claim capital allowances. Of the five structures here, it is the one that ends with you owning the asset.
Finance lease
The funder buys the asset and leases it to you over an agreed term. You take on most of the risks and rewards of owning it, but they keep legal title. Rentals are usually a business cost. It is commonly used for higher-value kit, and the VAT is spread across the rentals instead of paid upfront.
Operating lease
You pay to use the asset for a set period and hand it back at the end, with no obligation to buy. The rentals are based on use, not the full value, so they can be lower. It is commonly used by businesses that replace kit on a cycle, since the old kit goes back to the funder.
Contract hire
The vehicle version of an operating lease, often with maintenance and servicing bundled in. Popular for fleets. You get a fixed monthly cost and someone else carries the resale risk. It is not a route to ownership: the vehicle goes back at the end.
Asset refinance and sale and leaseback
Own valuable kit outright? A lender can lend against it and you repay over a term. Sale and leaseback goes further: you sell the asset to the funder for a lump sum and lease it straight back, so you keep using it day to day. Both are ways to pull working capital out of things you have already paid for.
A few less common structures that also come up when they fit: lease purchase and business contract purchase, which are hire purchase variants built around a larger balloon; chattel mortgage, common in agriculture; and stocking or floorplan finance, used by dealers to fund stock they will sell on. If a lender on our panel offers it, we can place it.
What you can finance
Lenders sort assets into three buckets, and it drives the rate and the deposit. Hard assets hold their value and are easy to resell, so they get the keenest terms. Medium assets sit in the middle. Soft assets lose value fast or are hard to recover, so they are fundable but on tighter terms and shorter periods.
Hard assets
Keenest termsVehicles, HGVs, plant, excavators, tractors, CNC machinery, production lines.
Medium assets
In betweenPortacabins and modular buildings, commercial catering, gym equipment, AV kit.
Soft assets
Shorter termsIT and servers, EPOS, furniture, fit-out, software and security systems.
Beyond the obvious, we regularly place finance on:
New or used, from small-ticket items into seven figures. Greener kit like solar, biomass, heat pumps and electric vehicles appears in many lenders' published criteria. Each lender takes its own view of an asset's value and useful life.
Sectors we cover
Different trades have different rhythms, and some lenders publish criteria built around particular sectors. We introduce asset finance across:
Rates, fees and the total cost
Asset finance is usually quoted as a flat rate, which is the rate applied to the original amount across the whole term. The thing nobody tells you is that a flat rate looks far cheaper than it really is, because you keep paying it on the full balance even as you pay the debt down. As a rough guide the equivalent APR is close to double the flat rate. Always ask for the APR and the total payable so you are comparing like with like.
What moves your price: the asset and how easy it is to resell, the term, the size of your deposit, how long you have traded, the strength of your accounts, and director credit. A clean limited company buying a mainstream van gets a very different number to a new-start buying niche kit. Each lender prices on its own assessment, so a rate is known only once a lender has seen the case.
Watch the extras: documentation or facility fees, an option-to-purchase fee on hire purchase, and the early settlement terms. None of these are dealbreakers, but they belong in the total when you compare offers. We show the costs provided by each lender so you can compare them.
The repayments can also flex to your cash flow. Lenders offer seasonal payment profiles for farming and tourism, deferred or low-start payments while an asset beds in and starts earning, VAT deferrals so you are not funding the VAT on day one, and balloon payments to keep the monthly down. Each lender publishes the profiles it offers, and the one you prefer goes to the lender with your enquiry.
Tax treatment (then check with your accountant)
We are not tax advisers, so treat this as background and confirm the detail with your accountant. Here is the general shape so you know what to ask about.
- HPYou generally own the asset for tax purposes, so you can usually claim capital allowances on it and treat the interest part of the payments as a business expense.
- LeaseThe rentals are usually deductible as a business cost. The funder owns the asset, so you generally do not claim capital allowances on it.
- AllowancesCapital allowances can include the Annual Investment Allowance (up to £1 million on qualifying plant and machinery) and, for companies, full expensing on qualifying new equipment. Cars have their own CO2-based rules and are treated differently.
- VATOn hire purchase, VAT is usually charged on the asset upfront and a VAT-registered business can typically reclaim it. On leasing, VAT is usually charged on each rental. Cars with private use carry VAT recovery restrictions.
Tax rules change and depend on your circumstances. None of this is tax advice. Check the position with a qualified accountant before you rely on it.
Who lends, and what changed this year
The asset finance market is large and moving. UK businesses took £40.3bn of asset finance in 2025, a fifth consecutive year of growth, and £24.4bn of that went to smaller businesses, the highest on record, on the Finance and Leasing Association's own figures.
Appetite by asset class is uneven, and that is the useful detail. Plant and farm machinery are everyday business for asset lenders, while an aircraft or a boat goes to a short list of specialists. The further your asset sits from a plant hire yard, the shorter the list.
Three features decide more deals than the rate: whether the lender will defer the VAT on the purchase, whether it will fund an asset bought from a private seller rather than a dealer, and whether it will take older machinery rather than insisting on new. Lenders differ on all three. Ask about each one before you agree a purchase, because two of them change what you can buy.
How it compares to other funding
| Asset finance | Unsecured loan | |
|---|---|---|
| Secured on | The asset | Often a guarantee |
| How it is quoted | Usually a flat rate | Usually an annual rate |
| Repayments | Fixed monthly | Fixed monthly |
| Typically used for | Buying an asset | General working capital |
Costs vary by facility and lender. We set the costs each lender provides side by side so you can judge for yourself.
Pros and cons, straight
What it offers
- Keeps cash in the business instead of a big upfront hit
- The asset is the security, which lenders reflect in their pricing
- Fixed, predictable monthly payments
- Lenders weigh the asset alongside the credit file
- Possible tax efficiencies (check with your accountant)
The catch
- The asset can be repossessed if you fall behind
- A director personal guarantee is often needed
- On a lease you do not own the asset at the end
- Flat rates hide the true cost, so check the APR
- Balloons lower the monthly but raise the total
More questions
What is a balloon payment?▼
It is a larger optional final payment at the end of a hire purchase, set against the assets expected value. It keeps the monthly payments lower, then you settle the balloon to own the asset, refinance it, or in some structures hand it back. Common on vehicles. The catch is you are paying interest on a bigger balance for longer, so it costs more overall.
Can I get asset finance with bad credit or as a young business?▼
Sometimes. Because the asset is the security, lenders weigh it alongside the credit file. Expect a larger deposit, a personal guarantee and a higher rate. We take enquiries from three months of trading, and each lender sets its own minimum.
What is asset refinance or capital release?▼
If you already own an asset outright, a lender can lend you a lump sum against its value and you repay over a term. It frees up cash from kit you have already paid for. The amount depends on the assets current value and condition.
Do the rentals on a lease count as a business expense?▼
Usually, yes. Lease rentals are generally deductible as a business cost, though there can be restrictions on cars. The funder owns the asset, so you generally do not claim capital allowances on a leased asset. Confirm the detail with your accountant.
What happens at the end of a finance lease?▼
It depends on the agreement. You might extend for a peppercorn rental, sell the asset to a third party as the funders agent and keep a share of the proceeds, or hand it back. The funder keeps legal ownership throughout, so you do not automatically own it.
Is VAT charged differently on hire purchase versus leasing?▼
Generally yes. On hire purchase the VAT on the asset is usually due upfront and a VAT-registered business can typically reclaim it. On a lease the VAT is usually charged on each rental. Cars with private use carry VAT recovery restrictions. Speak to your accountant for your situation.
How much can I borrow?▼
It is driven by the asset value and your business strength rather than a fixed cap. Small ticket deals start in the low thousands and run well into six and seven figures for plant, machinery and fleets. Tell us the asset and we will set out which lenders publish criteria that cover it.
Sources
- Finance & Leasing Association (FLA) asset finance statistics
- British Business Bank, Small Business Finance Markets
- FCA Consumer Credit sourcebook (CONC)
- GOV.UK, Annual Investment Allowance
- GOV.UK, full expensing for companies
- GOV.UK, business cars and capital allowances
- HMRC, VAT guide (Notice 700)
- NACFB, National Association of Commercial Finance Brokers
Ready when you are
Tell us the asset and a bit about your business, and we'll put it to the lenders on our panel whose published criteria cover it.