Equipment Finance UK 2026: How to Fund Business Equipment Independently

What is equipment finance?

Equipment finance is asset finance applied specifically to business equipment purchases. It covers a wide range of asset types from hard equipment such as plant, machinery and commercial vehicles to soft equipment such as IT hardware, technology infrastructure, office furniture, catering equipment and medical devices. Rather than purchasing equipment outright, the business finances it over an agreed term and uses it from day one.

Equipment finance is available from bank lenders, specialist non-bank lenders and alternative finance providers. The right lender depends on the equipment type, the facility size and the business's credit profile and trading history. Hard equipment is accepted by virtually all lenders; soft equipment is accepted by a wider range of lenders than many businesses assume, including Aldermore Bank, Novuna Business Finance and Nucleus Commercial Finance.

UK Finance figures show equipment finance is the second largest category of asset finance new business after plant and machinery, with commercial vehicles and IT equipment among the most commonly financed asset types.

Hard equipment vs soft equipment

The distinction between hard and soft equipment is central to how lenders assess equipment finance applications. Hard equipment has an established secondary market, predictable depreciation and recoverable value if the borrower defaults. Plant and machinery, agricultural equipment, construction plant, commercial vehicles and manufacturing equipment are all hard assets. Lenders can value hard equipment with confidence using established market data from auction houses and equipment dealers.

Soft equipment depreciates faster, has less liquid secondary markets and carries higher residual value risk for the lender. IT hardware, office equipment, catering and hospitality equipment, and medical devices are soft assets. Despite the higher risk, soft equipment finance is widely available. Novuna Business Finance has one of the widest soft asset coverage profiles of any UK lender, covering office equipment, IT, medical and catering alongside hard assets. Aldermore Bank also covers technology and catering equipment from £5,000.

Rates for soft equipment finance are typically higher than for hard equipment to reflect the additional residual value risk. Operating lease is often the most cost-effective structure for soft assets because the lender retains the residual value risk and builds it into the rental, while the business benefits from lower payments and can cycle out outdated technology at term end.

Equipment finance products

Hire purchase is the most common structure for hard equipment such as machinery, vehicles and manufacturing plant. Fixed monthly payments, capital allowances from day one and ownership transfer at term end make hire purchase the most straightforward and typically most tax-efficient option for businesses that want to own their equipment long term.

Finance lease suits equipment where the business wants to use the asset for its full working life but does not require ownership. Rental payments are fully deductible as a business expense. At the end of the primary term the business can continue on a secondary period or arrange the asset's sale and receive most of the proceeds. Finance lease is common for larger or more expensive equipment where outright ownership is less important.

Operating lease is well suited to technology and vehicles where residual value risk is high and the business wants to upgrade regularly. Because the lender takes the residual value risk, monthly payments are lower than hire purchase or finance lease for the same asset. The business returns the equipment at the end of the primary term and can refinance new equipment. Operating lease is standard for company car fleets and IT refresh cycles.

For a detailed breakdown of each product and how they compare on tax, accounting and cost, see: Asset Finance UK: The Independent Guide.

Technology and IT equipment finance

IT and technology equipment finance is a large and growing segment of the UK equipment finance market. Servers, networking infrastructure, cloud computing hardware, laptops, desktops, telecommunications equipment and business software are all financeable through specialist lenders. Novuna Business Finance, trading as Hitachi Capital Equipment Finance until 2022, is one of the largest IT equipment finance providers in the UK market and operates primarily through an introducer broker network and vendor finance programmes with technology dealers and distributors.

The short depreciation cycle of IT equipment means operating lease is often more appropriate than hire purchase. A business that finances a server estate on a 36-month operating lease can return the equipment at term end and finance new hardware, keeping its technology current without the residual value risk of older equipment on its books.

Software licences and intangible assets are generally not eligible for asset finance because they have no recoverable physical value. Some specialist lenders offer software finance through unsecured business loan structures rather than asset finance, but the rates and terms differ from hardware finance.

Catering and medical equipment finance

Catering equipment finance is widely used in the hospitality sector to fund commercial kitchens, refrigeration, cooking equipment and food preparation machinery. The hospitality sector has historically had higher SME failure rates than other sectors, so catering equipment is treated as a soft asset with higher residual value risk. Aldermore Bank and Nucleus Commercial Finance both accept catering equipment as eligible assets, with Nucleus having the most accessible eligibility criteria for hospitality businesses.

Medical equipment finance is an established category covering diagnostic imaging equipment, dental chairs, surgical instruments, patient monitoring systems and clinical IT. Close Brothers Asset Finance operates a dedicated healthcare division. Novuna Business Finance also covers medical equipment. Decision timescales and eligibility criteria are broadly similar to other equipment categories, though the high unit values of imaging equipment mean larger facilities are common.

Frequently asked questions

Can I finance software alongside hardware?

Most asset finance lenders will not finance pure software licences because they have no physical recoverable value. Hardware and software bundles are sometimes accepted where the hardware element is the primary asset and the software is ancillary. Some lenders offer software finance through unsecured business loan structures rather than asset finance. If software finance is required, it is worth discussing the full bundle with a specialist asset finance broker who can identify lenders with appropriate appetite.

What is vendor finance and how does it work?

Vendor finance is an asset finance arrangement where the equipment dealer or manufacturer partners with a lender to offer finance directly to their customers at point of sale. The customer applies for finance through the dealer, who passes the application to the lender on their panel. Novuna Business Finance operates a large vendor finance network with technology and equipment dealers. The terms and rates available through vendor finance may differ from those available direct to the lender or through a broker, so it is worth comparing before accepting a vendor finance offer.

Can a startup get equipment finance?

Startups with no trading history face the most restricted access to equipment finance. Bank lenders including Shawbrook, Aldermore and Close Brothers typically require a minimum of 12 to 24 months trading history. Nucleus Commercial Finance has the most accessible criteria and can consider businesses from 6 months trading. For startups with no trading history, options include putting up a larger deposit, providing additional personal security, or working with a specialist startup lender. Some equipment dealers also offer extended credit terms directly to new businesses.

Is there VAT on equipment finance?

VAT treatment depends on the finance product. Under hire purchase, VAT is charged on the full asset price upfront at the start of the agreement, not spread over the term. The business can reclaim input VAT on the full purchase price in the VAT return covering the purchase date, subject to normal VAT recovery rules. Under finance lease and operating lease, VAT is charged on each rental payment as it falls due. The VAT treatment should be factored into cashflow planning, particularly for large asset purchases on hire purchase where the full VAT amount is due at the start.

How does equipment finance affect my balance sheet?

Hire purchase creates both an asset and a liability on the balance sheet from day one. The asset is depreciated over its useful economic life and the liability reduces as payments are made. Finance lease also creates an on-balance-sheet asset and liability under FRS 102, using the present value of the minimum lease payments. Operating lease was historically off-balance-sheet but under IFRS 16 most leases must now be recognised on the balance sheet for larger businesses. Smaller businesses using FRS 102 apply a different standard. The balance sheet treatment affects gearing ratios and financial covenants and should be considered before selecting a finance product.