Asset Finance UK 2026: The Independent Guide to Equipment and Machinery Lending

What is asset finance?

Asset finance is a form of business lending where the loan is secured against a physical asset that the business needs to operate. Rather than paying for equipment, machinery or vehicles outright from working capital or an unsecured overdraft, the business finances the purchase over an agreed term, typically 24 to 72 months, while using the asset in the business from day one.

The asset itself provides the security for the lender. This means asset finance is generally easier to obtain than unsecured lending, and available to a wider range of businesses, because the lender has a recoverable asset as collateral if the borrower defaults. The business gains use of the asset immediately while spreading the cost over its working life.

UK asset finance is regulated by the Financial Conduct Authority under the Consumer Credit Act 1974 for consumer credit agreements and is subject to the FCA's Consumer Duty for regulated products. Business-to-business asset finance above certain thresholds falls outside consumer credit regulation but lenders remain FCA-authorised for credit broking activities. Any lender or broker offering asset finance in the UK must hold appropriate FCA authorisation, which can be verified on the FCA register at register.fca.org.uk.

The UK Finance Asset and Motor Finance statistics show that asset finance new business in the UK exceeds £30 billion per year, making it one of the largest categories of business lending outside of bank overdrafts and commercial mortgages. The majority is concentrated in plant and machinery, commercial vehicles and IT equipment.

Asset finance products explained

Hire purchase

Hire purchase is the most common form of asset finance for hard assets. The lender purchases the asset and the business pays fixed monthly instalments over the agreed term. Legal ownership of the asset remains with the lender during the agreement, but the business has possession and use of it from the start. At the end of the term, once all instalments have been paid, ownership transfers to the business, typically for a nominal option-to-purchase fee.

For tax purposes, hire purchase is treated as if the business owns the asset from day one. Capital allowances, including the Annual Investment Allowance (AIA) where applicable, can be claimed in the year the asset enters use, not spread over the term. The interest element of the monthly payments is deductible as a business expense. HMRC's Capital Allowances Manual (CA21000 onwards) sets out the treatment in full.

Hire purchase is best suited to assets the business intends to keep long term, where ownership transfer at the end of the agreement is the goal. Hard assets with long useful lives and predictable residual values, such as plant, machinery and commercial vehicles, are typical hire purchase candidates.

Finance lease

Under a finance lease, the lender retains legal ownership of the asset throughout and after the agreement. The business leases the asset for an agreed primary term and makes fixed rental payments. The lease agreement transfers substantially all of the risks and rewards of ownership to the lessee, even though legal title stays with the lessor.

At the end of the primary term, the business can typically continue leasing under a secondary period at a substantially reduced rental, or arrange the sale of the asset to a third party and retain most of the sale proceeds. Unlike hire purchase, legal ownership does not transfer to the business.

Finance lease payments are fully deductible as a business expense against corporation tax or income tax. Capital allowances cannot be claimed by the lessee because legal ownership remains with the lender. The accounting treatment under FRS 102 and IFRS 16 requires finance leases to be recognised on the balance sheet as both an asset and a liability, which affects financial ratios.

Finance lease suits businesses that want to use an asset without the intention of ownership at the end, or where off-balance-sheet treatment is not required. It is commonly used for plant and machinery, print equipment and industrial assets with long primary terms.

Operating lease

An operating lease is a shorter-term rental arrangement where the lender retains both legal ownership and the residual value risk at the end of the agreement. The business pays rentals for the use of the asset during an agreed period, and returns the asset at the end. The lender then sells or re-leases the asset to recover its residual value.

Because the lender takes the residual value risk, operating lease rentals are typically lower than finance lease rentals for the same asset and term. However, the lender's residual value assumption is built into the pricing, so if the asset depreciates faster than expected, the lender absorbs the loss rather than the business.

Operating lease rental payments are fully deductible as a business expense. Under IFRS 16, operating leases above a certain size must be recognised on the balance sheet, removing the historical off-balance-sheet advantage for large companies. For smaller businesses using FRS 102, the treatment depends on whether the lease meets the finance lease criteria.

Operating lease is well suited to assets with high residual values and active secondary markets, such as company cars, vans and IT equipment where the lender can price the residual value with confidence.

Refinance and sale and leaseback

Refinance of existing assets allows businesses to release capital from assets they already own. The lender values the asset and lends against it, with the business using the proceeds for working capital or other investment. The asset itself secures the borrowing.

Sale and leaseback is a specific refinance structure where the business sells an asset it owns outright to the lender at market value and simultaneously enters into a lease agreement to continue using it. The business receives the full market value of the asset as cash and pays ongoing lease rentals for its continued use. Sale and leaseback is commonly used by businesses that have accumulated unencumbered assets and need to release capital without disposing of the asset operationally.

Both refinance and sale and leaseback are available from specialist asset finance lenders and are subject to the lender's assessment of the asset's age, condition and market value. Not all lenders offer these products; Portman Asset Finance and Time Finance are among those that do.

What assets qualify for asset finance?

Hard assets

Hard assets are physical assets with identifiable secondary market values and predictable depreciation curves. These are the core collateral for asset finance and accepted by virtually all UK lenders. Hard assets include construction and plant equipment such as excavators, dumpers, cranes and telehandlers; agricultural machinery including tractors, combine harvesters, sprayers and irrigation systems; commercial vehicles including HGVs, LGVs, trailers, refrigerated vehicles and vans; manufacturing and industrial plant; print and packaging machinery; and material handling equipment including forklifts and warehouse handling systems.

Hard assets are preferred by lenders because the secondary market provides a reliable basis for valuing the asset and recovering it in the event of default. Specialist lenders with sector knowledge, such as Close Brothers Asset Finance in agriculture and print, can price hard assets with greater accuracy than generalist lenders.

Soft assets

Soft assets are assets with lower secondary market liquidity and faster depreciation. They include IT hardware and software, office equipment, catering and hospitality equipment, medical equipment, and business fit-out. Soft assets are accepted by a wider range of lenders than might be assumed, including Aldermore Bank, Novuna Business Finance and Nucleus Commercial Finance, but typically at higher rates than hard assets to reflect the additional risk.

Pure intangible assets such as software licences, intellectual property or goodwill are not eligible for asset finance. The asset must be identifiable, physically traceable and have some recoverable value for a lender to accept it as security.

FCA regulation and consumer protection

Asset finance in the UK is regulated under several overlapping frameworks. The Consumer Credit Act 1974 governs regulated credit agreements, which include hire purchase and conditional sale agreements where the borrower is an individual or small partnership. The FCA's Consumer Duty, which came into force in July 2023, requires lenders to deliver good outcomes for retail customers in all aspects of the product lifecycle.

Business-to-business asset finance above the Consumer Credit Act exemption threshold of £25,000 is not a regulated credit agreement for the purposes of the Act, but lenders remain subject to FCA authorisation requirements for credit broking. The FCA register is the authoritative source for verifying whether a lender or broker holds the permissions required to offer asset finance. Permissions relevant to asset finance include credit broking (CRED), consumer hire (CONHIRE) and regulated mortgage contracts where applicable.

The FCA has paid increasing attention to motor and asset finance commission arrangements following the Supreme Court ruling in Hopcraft v Close Brothers and Johnson v Firstplus Financial Group in 2024, which found that undisclosed commission arrangements between lenders and brokers could be unlawful. Asset finance borrowers who arranged finance through a broker before the FCA's ban on discretionary commission arrangements in January 2021 may be affected by ongoing FCA review activity in this area.

Businesses should always verify that any lender or broker offering asset finance holds current FCA authorisation before proceeding. Authorisation can be confirmed at register.fca.org.uk using the firm's name or FRN number.

Tax treatment of asset finance

The tax treatment of asset finance depends on the product structure and is governed by HMRC guidance in the Capital Allowances Manual and the Business Income Manual.

Under hire purchase, the business is treated as the owner of the asset for capital allowances purposes from the date the asset enters use. The Annual Investment Allowance (AIA) allows businesses to deduct the full cost of qualifying plant and machinery up to the AIA limit (£1,000,000 per year for most businesses as at 2026/27) in the year of expenditure. Writing Down Allowances (WDA) apply to expenditure above the AIA limit, at 18% per year for the main rate pool and 6% for the special rate pool. The interest element of hire purchase payments is deductible as a business expense separately from the capital element.

Under finance lease and operating lease, the lessee cannot claim capital allowances because legal ownership remains with the lessor. Instead, the full rental payment is deductible as a business expense against taxable profit. This can be advantageous for businesses with insufficient AIA capacity or those in a tax loss position.

Sale and leaseback has specific tax implications. The disposal of the asset by the business to the lender at market value may trigger a balancing charge or balancing allowance for capital allowances purposes, and may also trigger a capital gain or loss depending on the asset type and the business's tax position. HMRC's Capital Allowances Manual at CA26100 sets out the treatment of sale and leaseback transactions.

Businesses should seek independent tax advice before selecting an asset finance product structure, as the optimal choice depends on the business's current capital allowances position, tax rate, and forecast profitability.

How to apply for asset finance

Asset finance applications can be submitted directly to a lender or via an FCA-authorised asset finance broker. Brokers with access to multiple lender panels can compare terms across funders and may be able to source facilities that a direct lender application would not access, particularly for businesses with complex credit profiles, non-standard assets or requirements that fall outside a single lender's criteria.

A standard asset finance application requires the following documentation: business bank statements for the last 6 to 12 months; the most recent 2 years of filed company accounts or self-assessment returns for sole traders; details of the asset to be financed including make, model, year, serial number and purchase price or valuation; a copy of the purchase agreement or invoice if the asset is being bought; and director identification documents including passport or driving licence. Some lenders require a director personal guarantee for SME facilities; this is standard practice and businesses should review the guarantee terms carefully before signing.

Credit searches are standard for all asset finance applications. A hard credit search will be recorded on the business and potentially the directors' personal credit files. Businesses should consolidate applications with a single lender or broker rather than applying to multiple lenders simultaneously, as multiple hard searches in a short period can affect credit scores.

Decision timescales vary by lender and facility size. Portman Asset Finance and Time Finance can issue same-day decisions for sub-£100,000 applications. Bank lenders including Shawbrook and Close Brothers typically take 24 to 72 hours. Larger or more complex facilities may take longer.

How to compare asset finance lenders

Comparing asset finance lenders requires looking beyond the headline monthly payment to the total cost of credit over the full term. The key metrics to compare are the flat rate or APR (annual percentage rate), the total amount payable including all fees and charges, the term length, the deposit or initial payment required, and any early settlement penalties.

Not all lenders publish rates openly. Aldermore Bank and Fleximize publish indicative rate ranges on their websites, which allows businesses to estimate affordability before applying. Most specialist lenders and bank asset finance divisions only provide rates after a formal application and credit search. This makes independent comparison difficult without a broker who has access to live panel rates.

Beyond price, the key differentiators between lenders are the minimum and maximum loan thresholds, the asset classes accepted, the trading history required, and the speed of decision. A business financing a £3,000 catering equipment purchase needs a different lender to one financing a £2,000,000 agricultural combine harvester. Matching lender to requirement is the primary function of an independent asset finance broker.

Independent lender reviews

The following independent reviews cover the eight largest UK asset finance lenders by market profile, with FCA FRN numbers, loan ranges, asset coverage and KT Score assessments verified against the FCA register, Companies House and published company accounts. No commission is earned from any lender.

Choosing the right lender

The right lender depends on four variables: facility size, asset type, trading history and speed requirement. Bank lenders including Shawbrook and Aldermore offer the security of FCA and PRA regulation, published accounts and consistent pricing, but have higher minimum thresholds and take longer to decide. Specialist non-bank lenders including Portman and Time Finance are faster and more accessible for smaller facilities and harder asset classes, but pricing is less transparent for direct comparison. Alternative lenders including Nucleus and Fleximize are the most accessible for younger businesses and those with adverse credit, but carry higher effective rates.

For businesses financing above £25,000 with at least 2 years trading and a hard asset, Shawbrook or Aldermore are the natural starting points for a bank lender quote. For sub-£25,000 hard asset finance, Portman or Time Finance will typically be faster and more accessible. For soft assets at any size, Aldermore, Novuna or Fleximize are the strongest options. For businesses with less than 12 months trading or adverse credit, Nucleus Commercial Finance offers the widest eligibility.

Using an FCA-authorised asset finance broker gives access to multiple lender panels simultaneously and allows comparison of live rates without multiple credit searches. The broker's duty under FCA Consumer Duty is to act in the customer's best interests and to disclose any commission received from lenders.

Frequently asked questions

What is the difference between hire purchase and finance lease?

Hire purchase transfers legal ownership of the asset to the business at the end of the agreement, once all instalments and the option-to-purchase fee have been paid. Finance lease does not transfer ownership; the lender retains legal title throughout and after the agreement. For tax purposes, hire purchase allows the business to claim capital allowances on the asset from the start, while finance lease allows the full rental payment to be deducted as a business expense. The choice between the two depends on whether ownership is desired and on the business's current tax and capital allowances position.

Can I get asset finance with bad credit?

Yes, though the lender options and rates differ significantly from those available to businesses with clean credit. Nucleus Commercial Finance considers applications from businesses with adverse credit history on a case-by-case basis. Portman Asset Finance also considers non-standard credit profiles, particularly for hard asset classes where the asset provides strong collateral. Bank lenders including Shawbrook, Aldermore and Close Brothers apply more stringent credit criteria and are unlikely to accept applications with material adverse credit. The total cost of credit for businesses with adverse credit will be higher to reflect the additional risk, and lenders may require a larger deposit or more restrictive terms.

Can asset finance be used to buy second-hand equipment?

Yes. Asset finance is widely available for used and second-hand equipment, including assets purchased at auction. The lender will assess the age, condition and market value of the asset as part of the underwriting process. Portman Asset Finance specialises in used plant and machinery including auction purchases and can issue same-day decisions. Age and condition limits apply and vary by lender and asset type; very old or heavily depreciated assets may not be eligible or may attract lower loan-to-value ratios.

What is the Annual Investment Allowance and how does it affect asset finance?

The Annual Investment Allowance (AIA) is a capital allowances relief that allows businesses to deduct the full cost of qualifying plant and machinery from taxable profits in the year of expenditure, up to the AIA limit. For 2026/27 the AIA limit is £1,000,000 per business. Where asset finance is structured as hire purchase, the business is treated as owning the asset from the date it enters use and can claim the AIA on the full purchase price, not just the deposit paid. This means a business can claim tax relief on the full cost of the asset in year one even if it is paying for it over five years. The AIA does not apply to finance lease or operating lease assets, where only the rental payments are deductible.

Do I need to provide a personal guarantee for asset finance?

A director personal guarantee is standard for most SME asset finance facilities across both bank and non-bank lenders. The guarantee means the director personally agrees to repay the outstanding balance if the business defaults. Fleximize is unusual in offering some unsecured facilities without a personal guarantee for qualifying businesses. For bank lenders including Shawbrook, Aldermore and Close Brothers, a personal guarantee is typically required for all SME facilities. Larger corporates with strong balance sheets may be able to negotiate reduced or limited guarantees, but this is the exception rather than the rule. Businesses should always take independent legal advice before signing a personal guarantee.

Is asset finance regulated by the FCA?

Asset finance in the UK is subject to FCA regulation, though the scope varies depending on the borrower type and facility size. Hire purchase and conditional sale agreements with individuals and small partnerships are regulated credit agreements under the Consumer Credit Act 1974 and subject to FCA oversight. Business-to-business asset finance above £25,000 is not a regulated credit agreement under the Act, but all lenders and brokers must hold FCA authorisation for credit broking. The FCA's Consumer Duty applies to all regulated activity. Any lender or broker offering asset finance must hold current FCA authorisation, which can be verified at register.fca.org.uk.