Buying equipment outright can strain your cash flow. A new CNC machine, a fleet of vans, or a commercial kitchen – whatever your business needs, paying the full cost upfront is not always practical.
Equipment finance lets you spread the cost over time while using the equipment from day one. It is one of the most common ways UK businesses fund machinery, vehicles, and technology.
In this guide, we explain how equipment finance works, what types are available, and how to choose the right option for your business.
What Is Equipment Finance?
Equipment finance is a type of funding where the equipment you purchase acts as security for the loan. Instead of paying the full cost upfront, you make regular payments over an agreed term.
This differs from a standard business loan because the funding is tied to a specific asset. If you stop making payments, the lender can repossess the equipment. This makes equipment finance less risky for lenders, which often means more accessible approval for businesses.
Typical loan-to-value ratios range from 70% to 100% of the equipment cost. Some lenders may ask for a deposit, while others fund the full amount.
Types of Equipment Finance
There are several ways to structure equipment finance. The right option depends on whether you want to own the equipment at the end and how you prefer to manage tax and payments.
Hire Purchase
Hire purchase is the most common type of equipment finance. You pay an initial deposit followed by monthly installments over an agreed term, typically 12 to 60 months. Once all payments are made, you own the equipment outright.
Best for: businesses that want to own the asset at the end and can manage fixed monthly payments.
Finance Lease
With a finance lease, the lender buys the equipment and leases it to you. You make monthly payments for the use of the equipment, but you never own it. At the end of the term, you may have the option to extend the lease or return the equipment. Some leases also allow you to share in the proceeds if the equipment is sold.
Best for: businesses that need to use equipment without committing to full ownership, or where the equipment may become obsolete quickly.
Equipment Refinancing
If you already own equipment outright, you can release the equity tied up in it. Equipment refinancing involves taking out a loan secured against equipment you already own. This can free up working capital without selling the asset.
Best for: businesses that own valuable equipment and need immediate cash flow.
Operating Lease
An operating lease works like renting. You pay for the use of equipment over a short period, and the lender retains ownership and responsibility for maintenance and disposal. Payments are typically lower than hire purchase or finance lease.
Best for: short-term needs or equipment that requires regular upgrades, such as IT and technology.
What Equipment Can Be Financed?
Most tangible business assets can be financed. Common examples include:
- Manufacturing machinery – CNC machines, presses, production line equipment, packaging machinery
- Vehicles — vans, lorries, HGVs, trailers, company cars
- Construction plant – excavators, dumpers, telehandlers, site equipment
- IT and technology – servers, networking equipment, telecoms systems, software licences
- Medical and dental equipment – chairs, scanners, X-ray machines, diagnostic equipment
- Agricultural machinery – tractors, harvesters, irrigation systems, grain storage
- Hospitality equipment – commercial kitchens, refrigeration, furniture, laundry systems
- Office equipment – printers, copiers, furniture, security systems
If the equipment has an identifiable value and a working life of more than one year, it can probably be financed.
Equipment Finance vs Business Loan
Many business owners wonder whether equipment finance or a standard business loan is the better choice.
| Factor | Equipment Finance | Business Loan |
| Security | The equipment itself serves as security | Maybe unsecured or require a personal guarantee |
| Ownership | Ownership at the end of the term (hire purchase) or no ownership (lease) | Immediate ownership of purchased assets |
| Typical APR | Usually lower, as the finance is secured against the asset | Often higher, especially for unsecured loans |
| Approval | Often easier due to reduced lender risk | Depends on business credit profile and revenue |
| Use of Funds | Restricted to purchasing specific equipment | Can be used for almost any business purpose |
| VAT | VAT may be reclaimable on payments, subject to eligibility | VAT treatment depends on the loan structure and use of funds |
| Term | Typically aligned with the useful life of the equipment (1–5 years) | More flexible repayment terms available |
Choose equipment finance if you know exactly what equipment you need and want lower rates. Choose a business loan if you need flexibility in how you use the funds.
How to Qualify for Equipment Finance
Qualification criteria vary by lender, but most look for:
- Minimum 6 months trading – lenders want to see an established business
- Monthly revenue – typically £4,000 or more through a business bank account
- Affordability – the payments must fit within your existing cash flow
- Business bank account – needed for verification and payment collection
- UK registration – your business must be registered in the UK
Credit score matters less for equipment finance than for unsecured loans because the equipment itself acts as security. This makes equipment finance accessible for businesses with imperfect credit.
Benefits and Drawbacks
Benefits
- Preserves working capital – you keep cash in the business for other needs
- Fixed payments – predictable monthly costs make budgeting easier
- Tax efficient – payments may be deductible as a business expense
- Easier approval – lower risk for lenders means more businesses qualify
- Access to better equipment – you can afford higher-quality assets
Drawbacks
- Equipment is at risk – if you stop paying, the lender can repossess it
- Depreciation risk – you may owe more than the equipment is worth
- Not suitable for intangibles – software, branding, and goodwill cannot be financed
- Long-term commitment – you are locked into payments for the term
Industries That Use Equipment Finance
Manufacturing
Manufacturers regularly need new machinery, production line upgrades, and factory equipment. Asset finance helps them spread the cost while keeping production running. A manufacturer in Sunderland needing a £45,000 CNC machine can use equipment finance to pay over 24 months rather than depleting cash reserves.
Construction
Construction companies rely on expensive plants and vehicles. Excavators, dumpers, and site equipment can be financed to avoid large upfront costs. This allows contractors to take on bigger projects without tying up capital.
Logistics and Transport
Vans, HGVs, and trailers are essential for logistics businesses. Equipment finance lets fleet operators upgrade vehicles gradually while matching payments to contract revenue.
Hospitality
Restaurants, hotels, and pubs need commercial kitchens, furniture, and laundry equipment. Finance spreads the cost of fitting out or refurbishing premises.
Agriculture
Farmers use equipment finance for tractors, harvesters, and grain storage. The seasonal nature of farming makes spreading equipment costs over the year particularly useful.
Healthcare
Dental and medical practices finance chairs, scanners, and diagnostic equipment. This allows them to offer advanced treatments without large capital investment.
How to Apply for Equipment Finance
The application process is straightforward:
1. Choose your equipment – decide what you need and get a quote from the supplier
2. Check eligibility – confirm you meet the lender’s trading and revenue requirements
3. Submit your application – provide business details, bank statements, and the equipment quote
4. Receive a decision – many lenders respond within hours
5. Get funded – approved funds go directly to the equipment supplier
6. Start payments – begin monthly instalments as agreed
The whole process can take as little as 24 to 48 hours from application to funding.
Frequently Asked Questions
Do I need a deposit for equipment finance?
Not always. Some lenders fund 100% of the equipment cost, while others may ask for a 10-20% deposit, especially for hire purchase agreements.
Can I get equipment finance with bad credit?
Yes. Because the equipment acts as security, lenders are often more flexible with credit history. Approval depends more on affordability and trading performance than credit score alone.
Is VAT included in equipment finance?
VAT treatment depends on the finance type. With hire purchase, you typically pay VAT upfront and can claim it back. With a finance lease, VAT is included in the monthly payments.
What happens if the equipment breaks down?
With an operating lease, the lender typically handles maintenance. With hire purchase or finance lease, maintenance is usually your responsibility. Check the agreement carefully.
Can I finance used equipment?
Yes. Many lenders finance second-hand equipment, as long as it has a identifiable value and an expected working life that covers the repayment term.
How long does equipment finance take to arrange?
Applications can be approved within hours. Funding typically takes 24 to 48 hours from approval. Some lenders offer same-day funding for straightforward cases.
What is the difference between hire purchase and leasing?
With hire purchase, you own the equipment at the end of the term. With a lease, you never own it – you pay for the use of it. Hire purchase usually has higher monthly payments but you end up with an asset.
Can I settle equipment finance early?
Most agreements allow early settlement. You may receive a rebate on interest charges, but some lenders charge an early settlement fee. Check the terms before signing.
Why SimplyFunded?
SimplyFunded provides equipment finance and business loans for UK SMEs. We assess applications based on business performance, not just credit scores. Funding from £3,000 to £100,000 is available, and approved applications can receive funds within 24 hours.
If you are looking to finance equipment for your business, we can help. Visit our asset finance page to learn more, or check your eligibility with no impact on your credit score.