Asset, equipment and vehicle finance

Asset finance lets a company spread the cost of equipment, vehicles or machinery over a fixed term, with the asset itself acting as the main security. A lender pays the supplier, the company uses the asset straight away and repays in monthly instalments.

1. You choose the asset and the supplier, and get a quote or pro forma invoice.
2. A lender assesses the asset, the supplier and your company.
3. If approved, you sign the agreement and usually pay any deposit or advance rentals.
4. The lender pays the supplier and the asset is delivered to you.
5. Your company uses the asset and pays fixed instalments over the term, often by direct debit.
6. At the end, depending on the agreement, you own the asset, return it, keep renting it or upgrade.

Lenders are most comfortable with hard assets that hold their value and can be resold, such as vans, HGVs, plant, machinery and construction equipment. Soft assets, such as software, installation costs or shop fittings, are harder to fund because they have little resale value, so lenders may lend less against them or ask for extra security.

The right type depends on whether you want to own the asset, how long you will use it and whether you need new kit or cash from equipment you already have. The four main options are below.

You want to own the asset at the end

Business hire purchase suits long-life assets you expect to keep. You usually pay a deposit, then fixed instalments, and ownership passes to your company after the final payment and any option-to-purchase fee. A balloon payment at the end can reduce the monthly cost.

You want to use the asset without owning it

Equipment leasing suits kit that dates quickly or that you plan to replace. Under a finance lease you rent the asset for most of its working life, and at the end you can often keep renting it or sell it on the lender's behalf and receive a share of the proceeds. Under an operating lease you rent it for part of its life and hand it back.

You need vans, cars, HGVs or a whole fleet

Vehicle and fleet finance covers hire purchase, finance leases and contract hire for company vehicles. Contract hire usually sets an annual mileage allowance and return condition standards, with charges if you exceed them.

You already own equipment and need cash

Asset refinance releases cash from vehicles, plant or machinery your company owns, through a sale and hire purchase back or a sale and leaseback. You keep using the asset while repaying the lender. It can also be used to refinance existing agreements, depending on the lender.

The main differences are ownership, how VAT is paid and what happens at the end of the term. Comparing these points helps you pick the structure that fits how you use the asset.

• Ownership: with hire purchase your company owns the asset after the final payment. With leasing and contract hire the lender keeps ownership.
• VAT: with hire purchase, VAT on the asset is usually paid upfront, often alongside the deposit. With leasing and contract hire, VAT is usually added to each rental. Different VAT recovery rules apply to cars, so check with your accountant.
• End of term: hire purchase ends in ownership. A finance lease often offers a secondary rental period or a sale of the asset. An operating lease or contract hire ends with the asset being returned, subject to its condition.
• Maintenance: under most agreements the company is responsible for insurance and maintenance. Some contract hire agreements include a maintenance package at extra cost.
• Best fit: hire purchase for long-life assets you will keep, leasing for technology and kit you will replace, contract hire for vehicles you want to swap on a regular cycle.

If you are weighing asset finance against borrowing the money another way, our guide to asset finance vs a bank loan sets out the differences in more detail.

The cost of asset finance is the total you pay over the agreement above the price of the asset: the finance charges plus any fees. Comparing that total across offers, rather than the monthly payment alone, gives the clearest picture.

• Finance charges: interest or a finance charge, often fixed for the whole term.
• Deposit or advance rentals: paid at the start, which reduces the amount financed.
• Documentation fee: charged by some lenders when the agreement is set up.
• Option-to-purchase fee: usually a small fee at the end of a hire purchase agreement to transfer ownership.
• Balloon payment: a larger final payment that lowers monthly costs but must be planned for.
• End-of-lease and return charges: for damage, missing items or excess mileage on contract hire.
• Early settlement: settling early may involve a settlement figure that includes some future charges.

Pricing usually reflects the type, age and resale value of the asset, whether it is new or used, the term, the deposit, where it is bought from and your company's financial profile. An asset that holds its value well is usually cheaper to finance than one that loses value quickly.

Illustrative example only: actual costs depend on the lender and your circumstances. A company buys a machine for £50,000 plus £10,000 VAT on hire purchase. It pays a £5,000 deposit and the VAT upfront, and finances £45,000 over 48 months. Total finance charges are £9,000, so it repays £54,000, or £1,125 a month. The total cost of credit is £9,000, and the VAT may be reclaimable if the company is VAT registered.

The amount is mainly set by the value of the asset, the deposit and whether the company can afford the repayments. For refinance, it is based on a valuation of equipment you already own.

Lenders often limit the age of an asset at the end of the term, so older used equipment may only be financed over a shorter period. They also consider how easily the asset could be resold, your company's existing commitments and its trading record. Larger amounts may need more detailed accounts, management information or a site visit.

We arrange asset finance for UK limited companies, LLPs and partnerships of four or more partners. Each lender sets its own minimum trading period and turnover requirements.

As well as a quote, accounts and bank statements, lenders may ask for:

• details of the asset, such as make, model, year and serial number
• a valuation or inspection for used, specialist or high-value equipment
• details of the supplier, and extra checks if the asset is bought privately or at auction
• copies of any existing finance agreements, especially for refinance
• proof of insurance before the asset is released

Because the asset provides security, some lenders may consider companies with adverse credit, a short trading history or lower profits, sometimes with a larger deposit, a shorter term or a higher cost. Each lender decides for itself, so options vary.

The biggest risks are committing to payments you cannot reduce later and misunderstanding what happens at the end of the term. Read the agreement in full before you sign.

• Payments continue regardless: the agreement is with the lender, not the supplier, so payments are usually still due if the asset breaks down or the supplier has problems.
• Repossession and guarantees: the lender can take the asset back if payments are missed, and directors may be liable under a personal guarantee.
• Termination sums: ending an agreement early can mean paying a large share of the remaining rentals.
• Balloon payments: make sure the company can pay or refinance the final sum.
• Return conditions: on operating leases and contract hire, check the condition, mileage and return requirements.

Asset finance for limited companies, LLPs and partnerships of four or more partners is generally not regulated by the FCA, and Consumer Credit Act protections generally do not apply. Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. Take independent advice if any term is unclear.

Welcome Finance is a broker, not a lender. Your dedicated relationship manager, a real person available by phone, email and chat, works with you from your first enquiry until the lender pays the supplier.

1. Check eligibility in about 60 seconds without affecting your credit score.
2. Tell your relationship manager about the asset, the supplier and how long you will use it.
3. We explain the options and identify suitable lenders on our panel.
4. If you decide to apply, lenders run their own credit checks and may ask for documents.
5. We help you compare offers on total cost, deposit, end-of-term terms and any guarantee.
6. Once you sign, the lender pays the supplier and the asset is released to you.

We do not charge you a fee. The lender pays us a commission when the finance completes. You can ask how much it is, and it can differ between lenders. Lenders make their own decisions, so approval is never certain.

Can we finance an asset bought privately or at auction?

Some lenders may, with extra checks on ownership, condition and value. Expect the process to take a little longer than buying from an established dealer.

Can the VAT be funded as well?

Some lenders may fund the VAT on a hire purchase for a short period, to be repaid when the company reclaims it from HMRC. Availability and terms vary between lenders.

Do we always need a deposit?

Not always. Some lenders may finance the full cost for strong applications and assets that hold their value, while others ask for a deposit, particularly for used or specialist kit.

Can we settle an agreement early?

Usually, yes. Ask the lender for a settlement figure, which may include some future charges or a fee, and check the agreement before you sign.

What happens at the end of a finance lease?

It depends on the agreement. Common options are a secondary rental at a reduced rate, returning the asset, or selling it on the lender's behalf and receiving a share of the sale proceeds.

Does an eligibility check affect our credit score?

No. Our check takes about 60 seconds and does not affect your credit score. Lenders carry out their own credit checks later, after you decide to apply.