Equipment finance for UK businesses explained

Equipment finance is a type of asset finance that helps your business buy vehicles, machinery or technology without paying the full cost upfront. Instead, you spread the cost through regular payments over an agreed term. Depending on the type of agreement, you may own the equipment at the end of the term or return it to the lender.

This guide explains how equipment finance works, its benefits, the types of equipment you can finance, how it compares with a business loan, the different finance options available, what it costs and what lenders look for when assessing an application.

How does equipment finance work?

Equipment finance works by a lender buying or funding a specific piece of equipment on your business's behalf, then charging you fixed installments over an agreed term until it's paid off. Rather than tying up cash in one purchase, your business gets to use the equipment straight away and spreads the cost alongside its other outgoings.

Whether your business or the lender owns the equipment during that term depends on which financing method you choose, hire purchase, finance lease or operating lease, covered in full further down this guide. Equipment finance sits within the broader asset finance category, which also covers vehicles and property related assets financed the same way.

What are the benefits of equipment finance?

The main benefit of equipment finance is that it keeps cash in your business instead of tying it up in one large purchase. Spreading the cost over fixed monthly installments frees up working capital for stock, wages or other day to day costs, which supports your wider cash flow rather than straining it. Fixed, predictable payments also make budgeting easier. You know exactly what the equipment costs your business each month for the whole term, so it's simple to plan around rather than absorbing one unpredictable hit to cash flow.

Which types of equipment can you finance?

Equipment finance covers most tangible business assets, not just heavy machinery. Lenders on Capitalise's panel typically finance:

• Construction equipment, including excavators, cranes and concrete mixers

• Manufacturing machinery, including CNC machines and robotics

• Medical equipment

• Office technology and computers

• Commercial vehicles, from vans to specialist business cars

• Point of sale systems

If the equipment has a clear working life and resale value, it's usually a candidate for equipment finance rather than a general loan.

How does equipment finance differ from a business loan?

Equipment finance is secured against the specific asset you're buying, while a standard business loan is typically unsecured and can be used for a wider range of purposes. Because the lender can recover the equipment itself if repayments stop, equipment finance is often available to businesses that wouldn't get the same size of unsecured loan, or that would only get one at a higher rate. A business loan makes more sense if you need general working capital rather than a named vehicle, machine or piece of equipment, since it gives you cash to spend as your business needs it rather than financing one specific asset.

Which equipment finance options are available?

Equipment finance usually takes one of three forms: hire purchase, finance lease or operating lease. Which one suits your business depends on whether you want to own the equipment outright and how you need the agreement to sit on your balance sheet.

You can apply for hire purchase, a finance lease or an operating lease through Capitalise, matched to the lenders on our panel best suited to your business and the equipment.

What terms are available for equipment finance?

The term available depends on the type, value and expected useful life of the equipment. Longer lasting assets such as vehicles and industrial machinery can often be financed over several years. Technology and other assets that depreciate more quickly may have shorter terms. The lender will consider the equipment's expected working life when deciding how long the agreement can run. This helps ensure the finance term is appropriate for the asset being funded.

How much does equipment finance cost?

The cost of equipment finance depends on factors including the price of the equipment, the term, any deposit and the interest rate or other charges applied by the lender.

For example, financing £30,000 over five years at a 6% annual interest rate, assuming a standard amortising repayment structure and no additional fees, would result in payments of around £580 per month and around £34,800 in total repayments. This is an illustration rather than a quote. The actual cost will depend on the lender, equipment, term, deposit, interest rate and any additional charges.

What do lenders look for when assessing an equipment finance application?

Lenders consider several factors when assessing an equipment finance application, including:

• Your business's financial history and trading performance

• Your business credit score

• The type, value and expected lifespan of the equipment

• The purpose of the equipment and how it will be used by the business

• The level of security available under the agreement

• Your ability to afford the repayments

Apply for equipment finance with Capitalise

Whether you need construction machinery, office technology or a commercial vehicle, Capitalise can help you explore equipment finance options from our panel of 130+ UK lenders. Tell us what you need to finance and a dedicated funding specialist can help you find suitable options for your business and support you through the application process.