- Equipment finance funds machinery, IT, vehicles and plant over time.
- You can fund new or used equipment, and soft or hard assets.
- It is secured against the equipment, so approval is often easier than a general loan.
- Capital allowances such as the Annual Investment Allowance may apply at a high level.
- Terms usually run from one to seven years, matched to the equipment’s life.
Equipment finance helps UK businesses buy the tools they need to grow without draining their cash reserves. From a single machine to a full production line, it spreads the cost over time while you start using the kit right away. This guide explains how equipment finance works, the difference between new and used and soft and hard assets, how it compares to a general loan, and the tax points to know. It is part of the wider world of asset finance and our full range of business funding options.
☰ On this page
- What is equipment finance?
- How does equipment finance work?
- What equipment can you finance?
- New vs used equipment
- Soft assets vs hard assets
- How equipment finance differs from a general business loan
- Tax and capital allowances
- Typical terms and costs
- Refinancing equipment you already own
- A worked example of equipment finance
- Who uses equipment finance?
- How to apply for equipment finance
- Common mistakes to avoid
- Equipment finance and your cashflow
- Your next step
- Frequently Asked Questions
What is equipment finance?
Equipment finance is a way to fund the physical kit a business needs to operate. It is a form of asset finance focused specifically on equipment rather than vehicles or property. You repay the cost in instalments while using the equipment from day one.
The equipment itself usually secures the agreement. That lowers the lender’s risk, because they can recover the kit if payments stop. As a result, equipment finance is often quicker and easier to arrange than an unsecured loan of the same size.
This security model is the key reason equipment finance is so widely used. The lender is not relying on your business alone, but on a tangible asset with a known value. That shared confidence is what allows competitive rates and fast decisions, even for businesses that are still building their track record.
It covers a huge range of items, from manufacturing machinery and commercial kitchens to IT systems and medical devices. If a business needs it to trade, there is usually a way to finance it.
Like other forms of asset finance, equipment finance can be structured as hire purchase or as a lease. That choice decides whether you own the kit at the end or hand it back. The flexibility means almost any equipment need, from a single laptop fleet to a full factory line, can be matched to a suitable agreement.
How does equipment finance work?
Equipment finance works on a simple model. A lender funds the equipment and you repay over an agreed term. The structure mirrors other forms of asset finance.
The typical steps are:
- Choose the equipment. Get a quote and specification from your supplier.
- Pick an agreement type. Hire purchase to own it, or a lease to use it.
- Agree a deposit and term. Larger deposits and shorter terms cut total cost.
- Take delivery. The lender pays the supplier and you start using the kit.
- Repay in instalments. Fixed monthly payments make budgeting simple.
The agreement type matters. Hire purchase ends in ownership, while leasing keeps the equipment with the lender. Our guide to asset finance vs hire purchase explains which suits different situations.
What equipment can you finance?
Equipment finance covers almost any business kit. Lenders fund equipment across nearly every sector in the UK.
Common categories include:
- Machinery: manufacturing, engineering, CNC and production equipment.
- IT and technology: servers, computers, networking and software-linked hardware.
- Vehicles: vans, trucks, specialist and commercial vehicles.
- Plant: construction equipment, diggers, generators and access platforms.
- Catering and retail: ovens, refrigeration, EPOS systems and fit-out kit.
- Medical and dental: scanners, chairs, imaging and lab equipment.
If the equipment has a clear value and useful life, a lender can usually fund it. Specialist lenders even cover niche sectors such as agriculture, broadcast and renewable energy.
New vs used equipment
You can finance both new and used equipment, but the terms differ. The age and condition of the kit affect what a lender will offer.
New equipment usually attracts the longest terms and best rates, because its value and lifespan are predictable. Used equipment is still very fundable, especially well-maintained machinery with years of life left. Terms tend to be shorter, and lenders may want an inspection or valuation for higher-value items.
For many businesses, quality used equipment offers strong value. A two-year-old machine at a fraction of the new price, funded over a sensible term, can be the smartest way to expand capacity.
Soft assets vs hard assets
Lenders split equipment into soft and hard assets. The category affects rates, terms and how much you can borrow.
Hard assets
Hard assets hold their value and are easy to resell. Think manufacturing machinery, plant and commercial vehicles. Because the lender can recover strong value if a deal fails, hard assets get the best rates and longest terms.
Soft assets
Soft assets lose value quickly and have limited resale appeal. Think IT hardware, software, office furniture and security systems. They are still fundable, but terms are usually shorter and rates a little higher, reflecting the faster fall in value.
Knowing which category your equipment falls into helps set realistic expectations on cost and term before you apply.
How equipment finance differs from a general business loan
A general business loan gives you cash to use however you like. Equipment finance is tied to a specific item and secured against it. That difference shapes approval, cost and risk.
Because the equipment acts as security, equipment finance is often easier to approve than an unsecured loan. The lender takes less risk, so they can say yes to younger businesses or those a bank might decline. It also keeps your other facilities, such as an overdraft, free for working capital.
A general loan can be more flexible if you need cash for mixed purposes. But for a single, clear equipment purchase, equipment finance is usually cheaper and faster. To weigh the options, read our guide on how business loans work and our overview of secured vs unsecured business loans.
Tax and capital allowances
Equipment finance can carry tax benefits, but the rules are detailed. This is a high-level overview, not tax advice, so confirm your position with your accountant.
UK businesses can often claim capital allowances on qualifying equipment, which reduce taxable profit. The Annual Investment Allowance (AIA) lets businesses deduct the full cost of qualifying plant and machinery up to a set limit in the year of purchase. How and when you can claim depends on the agreement type.
With hire purchase, you are buying the asset, so capital allowances may be available even before you own it outright. With a lease, the treatment is different, because the lender owns the asset and the rentals are usually treated as a business expense. The right structure can change your tax position, so it is worth planning with your accountant before you commit.
Timing matters too. The AIA limit and the rules around it can change with each Budget, so the allowance available in one tax year may differ from the next. Bringing forward or delaying a purchase to fall in the right tax year can affect what you can claim. This is exactly the kind of decision to take with your accountant rather than guessing.
Typical terms and costs
Equipment finance terms are matched to the working life of the kit. That keeps you from paying for equipment long after it has stopped earning.
Typical features include:
- Term length: usually one to seven years, depending on the asset.
- Deposit: often a few months’ payments, though some deals need none.
- Repayments: fixed monthly instalments in most agreements.
- Rates: driven by your business profile, the asset type and the term.
- Balloon payment: some deals end with a larger final payment to lower monthly costs.
To see how monthly payments stack up across different terms, use our business loan calculator. Comparing several structures before you apply helps you find the cheapest overall route.
The right term is the one that matches the asset’s working life. Funding a five-year machine over two years strains cashflow with high payments, while funding a fast-dating laptop over five years means you are still paying for kit long after it should be replaced. Getting that match right is one of the simplest ways to keep the deal efficient.
Refinancing equipment you already own
Equipment finance is not only for new purchases. You can also release cash from equipment you already own, through asset refinance.
The lender advances a lump sum against the value of your existing kit, and you repay over an agreed term while continuing to use it. It works in two main ways. Under sale and leaseback, the lender buys the equipment from you and leases it back. Under a refinance loan, they simply lend against the asset’s value.
This is a useful way to free up working capital from machinery sitting on your balance sheet. A manufacturer with paid-for machines, for example, can raise cash for stock or expansion without selling anything or taking an unsecured loan. The equipment keeps working throughout.
Refinancing can also help restructure existing finance. If you bought equipment on an expensive agreement, refinancing it onto better terms can lower your monthly cost. The value released depends on the age and condition of the kit and how much you still owe on it, if anything.
A worked example of equipment finance
A simple example shows the cashflow benefit. Imagine an engineering firm buying a £60,000 CNC machine.
Paying cash removes £60,000 from the business at once. With equipment finance, the firm might pay a deposit, then fixed monthly instalments over five years. The machine begins producing parts and earning revenue from day one.
If the machine adds more monthly profit than the instalment costs, it pays for itself while the firm keeps its cash. With hire purchase, the firm owns the machine at the end and can run it for years more. With a lease, it returns or upgrades the machine instead. Either way, the business expanded capacity without a large upfront hit. That is the core appeal of equipment finance.
Who uses equipment finance?
Equipment finance suits any business that depends on kit to trade and wants to protect its cash. It is used across the whole economy.
Typical users include:
- Manufacturers funding production lines and machinery.
- Construction firms buying plant and heavy equipment.
- Tech and creative businesses upgrading IT and studio kit.
- Healthcare practices investing in diagnostic and treatment equipment.
- Hospitality fitting out kitchens, bars and dining areas.
Growing businesses use it to scale capacity without a cash hit. Younger businesses use it because the equipment security makes approval more achievable. Even cash-rich businesses often choose it, preferring to keep their reserves working on growth rather than locked up in a single machine.
How to apply for equipment finance
Applying for equipment finance is usually fast. The equipment gives the lender confidence, so decisions can come within days.
To prepare:
- Get the supplier quote. Include the specification and price.
- Gather recent accounts. Filed accounts and management figures help.
- Check your cashflow. Lenders want to see repayments are affordable.
- Decide your deposit. Know how much you can put down.
- Compare lenders. Rates and terms vary widely across the market.
Using a broker speeds this up. As an FCA-authorised commercial finance brokerage, we match your business and equipment to the right lender on our panel, so you do not waste applications on the wrong fit.
Common mistakes to avoid
A few avoidable errors raise the cost of equipment finance or leave you with the wrong deal.
- Taking the supplier’s first offer. In-house finance is rarely the cheapest option.
- Matching the term badly. Funding soft assets over too long a period, or hard assets over too short.
- Ignoring used options. Quality used equipment can deliver the same output for far less.
- Forgetting the tax angle. The agreement type affects capital allowances, so plan with your accountant.
- Focusing only on the monthly cost. Always check the total amount repayable across the term.
Equipment finance and your cashflow
The biggest reason businesses choose equipment finance is to protect cash. Spreading the cost keeps money free for the things that grow the business.
Fixed monthly payments also make planning simple. You know exactly what leaves the account each month, so you can forecast with confidence. Because the facility is tied to one asset, it does not eat into your overdraft or general loan headroom, leaving those free for stock, wages and unexpected costs.
Used well, equipment finance lets you match the cost of an asset to the income it generates. The kit earns while you pay for it, rather than forcing you to save up first and miss the opportunity. To see how monthly payments compare across terms, model the figures with our business loan calculator before you commit.
Your next step
Equipment finance gets the machinery, technology or vehicles your business needs while keeping cash free for everything else. The best structure depends on the kit and your goals. As an FCA-authorised brokerage, we compare the market for you. Start on our business loans page to see what your business could fund.
Frequently Asked Questions
Equipment finance is a type of asset finance used to fund the machinery, technology, vehicles and tools a business needs to trade. You spread the cost over time and the equipment usually secures the agreement. It lets you start using the kit immediately without paying the full price upfront.
Yes. Lenders fund both new and used equipment, although used kit usually comes with shorter terms. Well-maintained machinery with plenty of life left is very fundable, and higher-value items may need a quick inspection or valuation.
Equipment finance is tied to a specific item and secured against it, while a business loan gives you cash to spend on anything. Because the equipment reduces lender risk, equipment finance is often easier to approve and keeps your other credit lines free.
Often yes, particularly with hire purchase, where you are buying the asset and may claim allowances such as the Annual Investment Allowance. Lease treatment differs because the lender owns the asset. The rules are detailed, so confirm your position with your accountant.
Hard assets, such as machinery and vehicles, hold their value and are easy to resell, so they get the best rates and longest terms. Soft assets, such as IT and furniture, lose value quickly, so terms are shorter and rates slightly higher.
Equipment finance terms usually run from one to seven years, matched to the working life of the equipment. Longer-lived hard assets support longer terms, while soft assets that date quickly are funded over shorter periods.
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