How asset finance can help your company grow
Asset finance can make more sense than a bank loan for a small business – but seek advice before signing on, says David Prosser
Asset finance is seeing a huge surge in demand, according to new data from the Finance & Leasing Association, while bank lending to small and medium-sized enterprises (SMEs) remains more or less flat
Asset finance advances to SMEs grew 8% year-on-year in April, the FLA's figures reveal, with lending across the first four months of the year up 6% compared with the same period of 2025. Firms across the UK took on almost £11 billion worth of asset finance between January and April.
The figures suggest that SMEs may be more optimistic about their short- to medium-term prospects than recent surveys of business sentiment have suggested. Asset finance is typically used to fund the cost of investment in business assets – plant and machinery, IT equipment or transport, for example – often as firms seek to expand or diversify their activities. The business takes out a loan to fund the purchase, with the asset then used as collateral against the lending; repayments are made over the lifetime of the asset.
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Certainly, this type of finance has notable advantages over other forms of credit. It enables businesses to make major asset purchases without having to find significant amounts of capital on their balance sheets or to fund the investment from trading. The firm can put the asset to work at once, but spread the cost of financing it – typically over terms ranging from one to seven years. The impact on cash flow should therefore be manageable and any pots of capital can be deployed elsewhere in the business.
Often, the finance company – which may be a subsidiary of the business selling the asset – will also take on responsibility for maintaining the asset. There may be a regular servicing contract or access to specialist support if a repair is required. The finance provider may even promise to provide a replacement if the asset develops a fault that can't be quickly fixed.
The downsides of asset finance
Another plus point is that businesses don't have to find additional collateral to set against the finance. The lender has recourse to the asset itself if the business defaults on repayments, but no other security is needed. For early-stage businesses and those with relatively few tangible assets, this can be particularly useful.
Secured credit of this type will also usually be cheaper than, say, taking out a business loan from the bank. Since the lender has a claim on a fixed asset, such loans represent less of a risk and can be priced accordingly.
One potential downside is that the business may not enjoy full ownership of the asset until the end of the term. There may even be usage restrictions – a mileage cap on a vehicle, for example. And firms will also need to be prepared to commit to a relatively long-term agreement, even though they may not have a good idea of what the trading environment will look like in a couple of years' time.
Overall, however, asset finance can work very well for SMEs – in asset-intensive industries, but in service sectors too, where firms need to invest in technology or logistics, say. That said, the terms and conditions of asset finance vary significantly and are often bespoke. Take professional advice from a finance broker with expertise in this area before committing your business to a particular finance agreement.
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