Asset finance has had a strong year. Finance & Leasing Association figures show new business up 15% in June 2026 against the same month a year earlier, with the first half of 2026 running 7% ahead of 2025. Plant and machinery grew 17%, IT equipment 21%, and commercial vehicles 26%. Lending to smaller businesses rose 11% in the month, following a record year in which the sector provided more than GBP 24 billion of new lending to SMEs.
The reason is not complicated. Where working capital is tight and commercial borrowing is priced against a base rate of 3.75%, funding equipment against the equipment itself is often cheaper and easier to arrange than an unsecured facility or an overdraft extension.
The four structures, and when each fits
Hire purchase. The business pays a deposit and instalments over an agreed term, then takes ownership at the end for a nominal option-to-purchase fee. It suits assets the business intends to keep and use for their full working life: machine tools, HGVs, agricultural equipment, manufacturing plant. Capital allowances are generally available from the outset.
Finance lease. The funder owns the asset; the business uses it and pays rentals over a primary period, usually with a secondary rental period afterwards. VAT is charged on the rentals rather than the capital cost, which helps cash flow. At the end, the asset is normally sold and the business receives most of the sale proceeds as a rebate of rentals.
Operating lease. Rentals cover the use of the asset over a period shorter than its economic life, with the funder taking residual value risk. Monthly cost is lower, the asset goes back at the end, and the business avoids obsolescence risk. Appropriate for IT, some vehicles and technology that dates quickly.
Refinance of existing assets, or sale and leaseback. Where a business owns unencumbered equipment, a funder can advance against it and take security, releasing cash without disposing of the asset. This is the least understood of the four and often the most useful when a business needs working capital quickly.
What lenders look at
Asset finance underwriting is a blend of asset risk and credit risk, and the weighting shifts depending on the deal.
- Asset type and resale market. Hard assets with an established secondary market, such as excavators, trailers, CNC machines and tractors, attract better rates and higher advances than soft assets like fit-out, catering equipment or software.
- Age and hours or mileage. Most funders set a maximum age at the end of the agreement rather than at the start.
- Trading history and filed accounts. Two to three years of filed accounts open the mainstream market. Newer businesses can still be funded, typically with a larger deposit or a personal guarantee.
- Affordability. Funders will look at EBITDA against total debt service across all facilities, not just the proposed one.
- Supplier. Funders prefer established dealers and will carry out their own checks before releasing funds, particularly on private sales.
Where asset finance fits alongside other facilities
Asset finance works best as one line in a wider funding structure rather than in isolation. A typical trading business might hold a commercial mortgage on its premises, an invoice finance facility against its debtor book, and asset finance on its plant and vehicles, each secured against a different part of the balance sheet and each priced accordingly.
That separation matters. Funding equipment out of an overdraft consumes the headroom a business needs for wages and stock. Funding it on hire purchase leaves the overdraft free. Similarly, where the constraint is customers paying on 60 or 90 day terms rather than capital expenditure, the answer is a receivables facility rather than asset finance, which we covered in our guide to invoice factoring and turning unpaid invoices into working capital.
Farming businesses in particular tend to run all three, with asset finance on machinery sitting alongside longer-term land debt. We set out how that longer-term side works in agricultural and farm mortgages in 2026.
Cost: what to compare
Headline rates are not comparable across products. A flat rate quoted on hire purchase is not the same as an APR, and a lease rental includes elements a loan repayment does not. When comparing quotes, look at:
- Total amount payable over the full term, including documentation, option and end-of-term fees.
- Deposit or initial rental required, and whether VAT is payable up front.
- Balloon or residual payment at the end, and what happens if the asset is worth less than that figure.
- Early settlement terms, and whether there is a rebate of unearned interest.
- Whether a personal guarantee or debenture is required, and its extent.
Tax treatment
The tax position differs meaningfully between structures. Hire purchase generally allows the business to claim capital allowances on the full cost of the asset, with the interest element deductible. Leasing typically allows the rentals to be treated as a deductible operating expense, subject to restrictions on certain vehicles. Which produces the better outcome depends on the company’s profit position, its capital allowance usage and the timing of the expenditure.
This is genuinely a question for your accountant rather than your broker. Tax treatment depends on individual circumstances and may change, and you should take advice from a qualified tax adviser before choosing a structure on tax grounds.
Arranging asset finance
The asset finance market runs from clearing bank divisions through to specialist funders focused on single asset classes, and rates for the same machine can vary widely between them. Giles Finance arranges facilities across the market, including hire purchase, leasing, refinance of owned assets and sale and leaseback. See our asset finance page for the products we cover, and our commercial and corporate banking hub for how it fits alongside corporate banking and company loans. We act for businesses nationally, and you can see our office locations on the areas we cover page.
Call 0208 088 2211 or use our contact page.
Asset finance, leasing and business lending are not regulated by the Financial Conduct Authority. Where a facility is secured on property, YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS. Assets financed under hire purchase or lease may be recovered if payments are not maintained.
Tax treatment depends on individual circumstances and may change. Nothing here is tax advice; consult a qualified accountant or tax adviser.
Giles Finance is a trading style of Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857).