Explained : Just what is asset finance?
What is Asset Finance?
Asset finance is a specialised way for businesses to obtain and use assets (equipment, vehicles, machinery, etc.) without having to purchase them outright. Essentially, it allows a business to spread the cost over time, making large, necessary investments more manageable and accessible.
It’s a broad term that primarily covers financial solutions like leasing and hire purchase.
How Does It Work?
Instead of taking out a traditional loan (where the money is borrowed and repaid), asset finance uses the asset itself as the primary form of security for the funding.
The Basic Process:
- A business identifies an asset they need (e.g., a new company vehicle, new delivery van, printing press, or IT equipment).
- They approach an asset finance specialist broker such as Evogo Asset Finance
- The provider either purchases the asset and rents it to the business (leasing) or provides the funds to purchase it and retains ownership until the final payment is made (hire purchase).
- The business makes regular, fixed payments over a set contract term.
The Main Types of Asset Finance
The two most common forms are Leasing and Hire Purchase, which differ mainly in who owns the asset and when.
- Leasing (Finance Lease & Operating Lease)
In a lease agreement, the finance company retains ownership of the asset throughout the agreement. The business pays for the right to use it.
| Feature | Finance Lease | Operating Lease |
| Ownership | Stays with the finance company. | Stays with the finance company. |
| Purpose | To acquire the asset for most or all of its useful life. | To use the asset for a short period (often less than its economic life). |
| The End | The business usually has the option to buy the asset, extend the lease, or sell it to a third party. | The asset is returned to the finance company (similar to renting). |
| Best For | Assets the business wants to keep long-term. | Assets that depreciate quickly or need frequent upgrades (e.g., IT equipment, company cars). |
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- Hire Purchase (HP)
Hire Purchase is an agreement where the business pays for the asset in instalments and only takes legal ownership once the very last payment (often a small ‘Option to Purchase’ fee) is made.
- Ownership: The finance company owns the asset until the final instalment is paid.
- Best For: Businesses that want to eventually own the asset, such as heavy machinery or long-life vehicles.
Key Benefits for Businesses
Asset finance is popular because it offers several strategic advantages:
- Preserves Working Capital: Businesses can acquire essential, expensive assets without depleting their cash reserves, keeping that money free for day-to-day operations.
- Fixed Payments: Most agreements have fixed interest rates and payments, making budgeting and financial forecasting easier.
- Tax Efficiency: Depending on the type of finance, payments may be treated as a business expense, potentially offering tax deductions. (Always advise readers to consult an accountant for specific tax advice).
- Improved Cash Flow: The cost is spread out over the asset’s useful life, aligning the outgoing payments with the revenue the asset helps to generate.
Who Uses Asset Finance?
Virtually any business that relies on physical equipment, from a small sole trader to a large corporation, can use asset finance.
Common examples include:
- Construction Companies: Excavators, cranes, dump trucks.
- Manufacturing: Production lines, robotics, CNC machines.
- Logistics & Transport: Commercial vehicles, fleet cars, forklifts.
- Retail/Hospitality: Commercial kitchen equipment, shop fittings, point-of-sale systems.
- Directors of Ltd entities: Luxury, sports, 4×4 and prestige vehicles
