Say you have a full order book and one machine that cannot keep up. Waiting a year to save £80,000 means losing the orders you already have. Equipment finance puts the machine on the shop floor now, and the work it brings in pays the instalments.
It covers more than factory kit. Vans, ovens, server racks, excavators, dental chairs: if it has a resale value and earns its keep, a lender will usually fund it. The equipment itself is normally the security, so there is less for the lender to ask about than on an unsecured loan, and your existing facilities carry on as they are.
Below you will find the main structures, a worked example with real monthly figures, what lenders ask to see and the mistakes we see businesses make.
How equipment finance works
There are five routes, and the choice mostly comes down to one question. Do you want to own the asset at the end?
With hire purchase you put down a deposit if there is one, pay monthly and own the equipment after the final instalment. A finance lease works differently. The lender owns the kit and you rent it for most of its life, then either carry on at a nominal rent or sell it and take a share of the proceeds. Operating leases and contract hire are shorter. You hand the equipment back and take a newer model, which suits IT hardware and vehicles that date fast. Our page on equipment leasing covers how that affects efficiency and cash flow.
An equipment loan simply lends you the money to buy outright. You own the asset from day one, although the lender may want a charge over it or over other business assets. Last comes asset refinance, which turns the question round. You already own the equipment, and a lender releases cash against its value.
All of these come under asset finance, and our asset finance page explains how a broker compares them across the market. If you are still sizing up a single purchase, equipment funding for UK SMEs looks at the cash flow side in more detail.
When equipment finance makes sense for a growing business
The strongest case is any asset sitting directly on the route to revenue. A second CNC machine ships more orders. A refrigerated van opens a new delivery round. An extra scanner fills more clinic appointments. Where you can point at the income, spreading the cost makes sense, because the asset pays its own way while you use it.
Cash is still the better answer for small items that wear out quickly, or when the business holds money it cannot put to better use. A general business loan gives you more freedom over what the money is spent on, but it tends to cost more, as the lender has no asset to fall back on. Equipment finance sits in the middle. It is tied to one purchase, and the term can follow the working life of the asset. Six years of use? A five-year agreement fits inside it.
Tax can swing the choice too. Capital allowances, including the Annual Investment Allowance, may let a business set some or all of the cost against profit, and lease rentals are generally deductible as they are paid. What applies depends on the structure, the asset and whether you trade as a company, a sole trader or a partnership. Speak to your accountant before you pick between hire purchase and a lease.
A worked example
Here is how the numbers run on a real-sized purchase. They are illustrative only and are not a quote.
A food manufacturer needs a packing line at £80,000. It puts down 10%, or £8,000, and finances the other £72,000 over five years at 9% a year.
That works out at about £1,495 a month. Across the five years the business pays back roughly £89,700, which is £17,700 of interest on top of the money borrowed, and the line has cost about £97,700 once the deposit is counted.
Change the term and the picture shifts. Three years means about £2,290 a month and only £10,400 of interest. Seven years drops the payment to about £1,158 but pushes interest up to about £25,300. Short terms are cheaper overall and heavier on cash flow, so the right length depends on what the machine earns.
Take that earning power. Say the packing line brings in an extra £2,400 a month of gross profit from new orders. After the £1,495 payment, £905 is left, and the £8,000 deposit is back in about nine months. If the extra profit is only half that, £1,200 does not cover the £1,495 payment at all. That is the moment for a longer term or a smaller machine. To try your own figures, use the business loan calculator.
Working out the return before you sign
The price on the quote is only the start of the cost. Delivery, installation, staff training, software licences, servicing, insurance and consumables all follow, and maintenance tends to climb as a machine ages. Over a long life it can overtake the purchase price. A year-by-year costing beats the headline number every time.
Then be honest about the income. Use the output you can actually sell, not what the brochure says the machine can do, and run the sums again at half the expected gain. If the payments still get covered, the purchase can take a knock. If it only works in the best case, you are carrying more risk than you need to.
Resale value matters as well, and not only to you. A lender looks at what it could get for the equipment if it had to sell. Common construction plant and standard vehicles have busy second-hand markets, which helps the terms. A one-off machine built for a single process is harder to place, so expect a lender to be more careful.
What lenders look at
A lender has two questions. Can the business pay, and will the asset hold its value? To answer the first, expect to hand over filed accounts, recent management figures and the last three to six months of bank statements. For the second, they want the supplier’s quote or invoice. They will also ask how long you have traded, who the directors are and, on smaller deals, for a personal guarantee. A deposit is optional on many deals, and putting one in usually improves the terms.
A patchy credit history is not the end of it. The equipment is security in its own right, so a weaker record tends to show up in the rate, in the deposit asked for and in which lenders will look at the case. That last point is where a broker helps most. Knowing who will engage saves weeks of applications that go nowhere.
Where businesses come unstuck
Taking on too much comes first. Three agreements signed in the same quarter can leave fixed payments that one slow month cannot cover. Keep a reserve worth a few months of repayments, and space the purchases out.
Next is buying kit that dates. Funding technology that will be out of fashion in three years over seven is a poor match. Fit the term to the useful life, and lean towards leasing for anything that ages quickly.
The contract itself deserves a slow read. Check the charge for settling early, who pays for maintenance and insurance, what happens if the equipment breaks down, and what the end-of-term options cost. The equipment is the security, so missed payments can end with it being taken back, and the work it was meant to bring in goes with it.
Cash flow around the purchase gets forgotten too. Seasonal firms can often arrange payments that follow their income, and a balloon payment at the end lowers the monthly figure in return for a bigger bill later. Our page on working capital finance looks at covering the gap between paying for equipment and being paid for the work it does.
Frequently Asked Questions
What is equipment finance?
A way of paying for business equipment in instalments, with the equipment itself as the lender’s security. Hire purchase, leasing and secured loans all count, and all of them sit under asset finance. You get the use of the equipment straight away and spread the price over the term.
Should I choose hire purchase or a lease?
It depends on whether you want to own the asset. Pick hire purchase if you plan to keep the equipment for its whole working life. Pick a lease if it dates quickly or you want the option to upgrade, usually at a lower payment. VAT and tax treatment differ between the two, so ask your accountant first.
Can a new business with no revenue get equipment finance?
Yes, but expect to put in a deposit, give a personal guarantee, or both. With no trading history, the lender leans on the director’s credit record, any signed contract or order, and the value of the equipment. A confirmed contract for the work can carry a lot of weight.
Do I need a deposit?
Not always. Some lenders fund the full price. Others want a deposit, depending on the asset and the business. Putting money in cuts the monthly payment and the interest, and can get you better terms.
Can I raise money against equipment I already own?
Yes. Asset refinance releases cash against equipment you own outright. The lender values it, lends a percentage of that value and takes security over it. It works for a business that wants funds for growth without buying anything new.
What kinds of equipment can be financed?
Almost anything physical with a resale value. That covers manufacturing machinery, construction plant, commercial vans and lorries, IT systems, catering kitchens and medical or imaging kit. Assets that keep their value get the best terms.
Final Thoughts
Finance works when the purchase has a clear job, the term matches the life of the asset and the payments are covered with room to spare. Miss one of those and it becomes a burden. Get all three right and it is simply how the business grows.
Commercial Finance Network is a whole-of-market FCA authorised commercial finance broker working with property investors, developers and businesses across the UK and internationally. We work across the full equipment and asset finance panel and will tell you which lenders will engage with your purchase, what rate and term to expect and how to structure the application before anything is submitted.
Commercial Finance Network is directly authorised and regulated by the Financial Conduct Authority.
Equipment finance and other business finance is not regulated by the Financial Conduct Authority.
Call us on +44 1494 622 111 or email info@cfnuk.com to speak to a specialist directly.
Your property may be repossessed if you do not keep up repayments on a loan secured against it. Commercial and business-purpose lending secured against investment property is not regulated by the Financial Conduct Authority.
Related Pages
- Invoice Finance for UK Businesses – Releasing cash tied up in unpaid invoices.
- Understanding Asset-Based Lending – How lenders borrow against a business’s assets.
- Day-to-Day Working Capital Loans – Funding the everyday costs of running a business.
- Commercial Finance UK – The full range of property and business funding.
- Securing Commercial Loans in the UK – What lenders expect to see before they approve a loan.
