A Guide To The Best Vehicle And Asset Finance Options For Uk Businesses

As companies grow, so does their need for assets and equipment, including vehicles and machinery for operating business, delivering services or upgrading facilities. However, a big challenge with this is the upfront costs, which is where vehicle and asset finance comes in. Hire or lease agreements can enable business owners to acquire key assets without dipping into emergency funds or causing cash flow issues.

In this article, we discuss the benefits of vehicle and asset finance, the available options and what to consider when seeking a finance provider.

What is vehicle and asset finance and how does it work?

Vehicle and asset finance is a form of business finance that allows companies to access vital vehicles and equipment that would otherwise be out of their reach. So, whether your business needs vans for distributing goods or delivering services, company cars for employees or machines for construction projects, vehicle and asset finance agreements can make this a reality. 

These agreements usually involve hiring or leasing equipment and vehicles in exchange for a deposit and a pre-agreed set of monthly instalments but terms vary to accommodate different needs. The assets typically act as the agreement’s security.

In most asset finance agreements, you’ll pay a fixed interest rate – usually between 4-9% APR – as part of monthly payments in a primary leasing period. This primary period ends when you reach a certain percentage of the asset’s value (usually around 75%). After this, you may have options to buy, sell or hand back the asset, depending on the agreement chosen, or continue to use it in a secondary leasing period, where payments are nominal, partly due to value depreciation.   

What types of vehicle and asset finance are available?

There are several types of vehicle and asset finance for different business requirements, such as a hire purchase, lease finance or contract hire. They help companies spread the cost of key business assets and preserve working capital, but each product offers varied benefits and features. Some offer options to return assets, sell them on behalf of the provider or buy them outright at the end of the term – often as a balloon payment.

What are the main benefits of vehicle and asset finance?

• Spreading vehicle or equipment costs to avoid large upfront purchase costs
• Easing cash flow issues during key seasons, periods of investment or when corporate taxes are due
• Protecting working capital for other operational needs
• Providing access to assets only required in the short-term for, say, events or high seasonal demand
• Enables businesses to acquire new assets in line with growth

However, there are some drawbacks, like restrictions on usage, such as how much you can alter a vehicle’s look (for branding) or enhance its performance. Plus, bear in mind the various costs beyond monthly repayments, such as fees for going over agreed mileage limits or charges for early repayments.

Consider using a flexible business loan as an alternative to support your business equipment or commercial vehicle needs. This can help you purchase assets outright, gain full control over their use and still enjoy manageable monthly repayments – for the loan, rather than the asset.

How to choose between hire purchase, leasing or contract hire agreement

Your vehicle and asset finance option choice should be based on your cash flow, short- and long-term growth plans and any asset depreciation strategies. Let’s explore each of the main options, their key features and the businesses they suit:

Hire purchase

A hire purchase agreement allows you to spread the cost of assets with a pre-agreed set of monthly payments before owning them outright at the end of the term. 

Main features/benefits

• Guaranteed ownership of the vehicle or asset after an agreed period
• Fixed monthly repayments to support cash flow management
• VAT is paid upfront and can be reclaimed by VAT-registered companies, while lease payments are tax-deductible, reducing your corporation tax bill
• Options to minimise monthly costs by putting down a higher initial deposit

Who is a hire purchase agreement best suited to?

New businesses and SMEs who need long-term use of assets with predictable monthly payments and the option to own them as the company grows. 

Lease finance

In a lease finance agreement, you make monthly payments to the leasing provider (lessor) for using the vehicle with an option to buy it at the end of your contract. 

Main features/benefits

• Low initial costs for entering a lease agreement
• No obligation to purchase the asset at the end of the primary leasing period
• A variety of options at the end of this term, such as selling or exchanging the asset or extending the lease
• You can offset your lease payments against your profits for tax benefits
• Usually greater flexibility of asset use, i.e., you may not have mileage or maintenance limits if leasing a commercial vehicle 

Who is a lease finance agreement best suited to?

Companies in need of high-value assets without wanting to commit to purchasing them and businesses requiring widespread allocation of equipment and vehicles, with flexible terms, such as transport/logistics, construction and manufacturing. 

Contract hire 

A contract hire finance agreement is a more rigid offering, taking the form of a long-term rental. You never own the vehicles or assets, you simply pay for their use, meaning less control but usually lower costs and fewer liabilities.

Main features/benefits

• Fixed monthly costs, including maintenance, for hassle-free asset/vehicle use
• Significant tax benefits – businesses can reclaim 100% of VAT on rented assets, 50% if equipment/vehicles are for business and personal use 
• Access to a wider range of vehicles/equipment and options to upgrade, helping you keep up with the competition without investing huge sums of money
• No concerns over depreciation, as your business is not responsible for ownership and future resale

Who is a contract hire agreement best suited to?

Large corporations that require regular equipment upgrades, simplified fleet management (for commercial vehicle needs) and fixed leasing costs without ownership obligations.

Other vehicle and asset finance options to consider

You can find variations of these vehicle and asset agreements, with bespoke terms or combined contracts. For example, if you want to acquire/lease multiple vehicles, most providers have fleet leasing options. You can consolidate them into one contract for greater cost-efficiency, simplified management and better rates and benefits.

Also, asset refinancing is another option. It enables you to release equity from existing equipment, freeing up capital for other operational needs or to acquire new assets. Refinance agreements see you pay back the funds released in monthly instalments, plus interest.

Exploring the best vehicle and asset finance options for UK businesses

Most high-street banks in the UK offer asset finance solutions, covering a wide range of business equipment, technologies and vehicles, and there are numerous specialist brokers and alternative finance lenders who can fund vehicle and equipment needs.  

It can take longer to arrange finance agreements through banks due to lengthy application processes and more stringent eligibility requirements. While bank interest rates are usually lower than private lenders, the latter often provide options for businesses with poorer credit ratings. 

Most finance applications with alternative lenders can be done entirely online. With iwoca, our process takes just minutes, with minimal documentation and approvals often confirmed within 24 hours.  

Check interest rates, eligibility criteria and agreement structures for different providers, including monthly costs and balloon payment options, to determine the best vehicle and asset finance options for your needs. Look for hidden fees, as some providers charge early repayment and arrangement fees, affecting your total cost of borrowing.

Can you get vehicle and asset finance with bad credit?

Yes. You can get vehicle and asset finance with bad or poor credit, but your options will be more limited. Certain banks and lenders may reject applications from businesses with poor credit scores. Or they may request a personal guarantee to recoup the asset’s value if your business defaults on any repayments.

This can also apply to new businesses and start-ups, which don’t have the financial track record to prove responsible debt management. Therefore, a personal guarantee is often requested for start-ups. 

If you apply for a small business loan, rather than vehicle or asset finance, your credit rating is less of an issue. For example, iwoca offers loans to businesses with low or limited credit ratings, as we look beyond scores, focusing on factors like your business plans, profitability and future revenue potential.

Green vehicle finance funding electric and sustainable fleets

There are various benefits to enjoy if you’re seeking electric vehicles (EVs), thanks to government incentives for sustainable business practices. While EVs may have higher upfront costs, vehicle finance agreements help you overcome this issue, giving you access to EVs without the large outlay.

Here are the main reasons to consider green vehicle finance to fund EVs and sustainable fleets:

• Future-proofing: Asset finance allows you to get around the issue of high upfront and can help you future-proof operations.
• Cost-efficiency: Financing electric vehicles is cost-efficient, due to reduced fuel and maintenance costs and the lower Benefit-in-Kind (BiK) rates.
• Capital allowances: Businesses can deduct the entire cost of EVs from profits in the year of purchase.
• Eco-incentives: EV purchases are incentivised by the UK government, including grants, reduced road tax and capital allowances.
• ESG considerations: Financing EVs enable organisations to meet ESG goals and objectives

As the UK government encourages businesses to adopt electric and low-emission vehicles, it’s worth considering vehicle asset finance to take advantage of the benefits. Additionally, you may receive more favourable terms from some business loan providers, like iwoca, who support green investments.

How to find the best vehicle and asset finance provider

Finding the best vehicle and asset finance provider depends on your business requirements, existing financial situation and future growth plans. If your needs are temporary, you don’t want to be tied into a long contract. On the other hand, if you need assets long-term but have temporary cash flow issues, you may want an option to own them outright at the end of the term when your financial position improves. 

Consider the following factors when comparing vehicle and asset finance options:

• Speed of arrangements and access to funds.
• Transparency of fees and costs
• Flexibility of agreements, including vehicle/asset use and options for early repayment or outright ownership.
• Ease of application – determine whether applications can be done online, how long it takes, what information is required and approval time frames.
• Interest rates and conditions – while some providers offer lower fees, lenders like iwoca have flexible draw-down conditions, meaning interest is only charged on the funds you use.
• Level of customer support and solution tailoring – find out whether you can renegotiate terms to accommodate changing business needs and growth.

The key steps to applying for vehicle and asset finance

Once you’ve explored different finance options, define your asset needs and financial position and compile the documentation required before starting an application.

Here are the key steps involved in applying for vehicle and asset finance:

• Review your financial health, cash flow and affordability.
• Decide on the assets required and the most suitable finance option.
• Gather all relevant financial information to support your application – most lenders request recent bank statements, tax liabilities, cash flow statements, forecasts and details of other credit facilities.
• Apply online or via consultations with banks, brokers or finance providers and wait for approval decisions.
• Once approved*, manage repayments responsibly, monitor mileage/maintenance (if leasing vehicles) to stay within agreed limits and consider options in your agreement to buy, exchange or sell assets.

*If using a business loan rather than asset finance, draw down funds as needed, make repayments promptly and consider whether to repay your remaining balance early to reduce costs (if, like iwoca, early repayment is free of charge).

Is vehicle and asset finance a better option than a business loan?

Vehicle/asset finance and business loans are both great ways to access equipment and vehicles that can enhance your operations. Which option is better for your business depends on your particular situation. While vehicle and asset finance is secured against the asset, often making it easier to access than unsecured loans, it’s purpose-specific. Whereas using a business loan offers more flexibility of use.

Vehicle and asset finance agreements often impose various usage restrictions unless/until you own the asset outright, which can be frustrating. With a short-term, flexible business loan, like iwoca’s Flexi-Loan, you can cover the upfront cost of the asset’s purchase, tailor your monthly repayments to your cash flow and enjoy the freedom to use assets as you choose. Plus, you can leverage additional working capital from the amount borrowed for other operational needs and investments. 

Learn more about iwoca’s Flexi-Loans

Iwoca’s Flexi-Loan solution is designed to meet the needs of UK start-ups, SMEs and companies looking to build business credit. At iwoca, we understand the catch-22 situation businesses face; you need certain assets to grow but you don’t have the accessible capital to acquire these assets.

Our affordability assessment model is based on numerous factors beyond your current credit score, meaning greater access to finance for businesses with minimal credit history or previous financial issues. Enjoy a smooth online application process and expect approval decisions within 24 hours, with funds often transferred on the same day.

You can borrow between £1,000 and £1,000,000 for as little as a few days or up to 60 months, with affordable monthly repayments. We don’t charge fees for early loan repayment and you only pay interest on the funds you draw down. 

Find out how to get a business loan with iwoca to acquire the assets or vehicles you need to expand, grow and modernise operations.

Sources:

• Finance Leasing Explained: An Alternative Solution to Borrowing [iwoca]
• Environmental Taxes, Reliefs and Schemes for Businesses [Gov.uk]
• HMRC Claim Capital Allowances [Gov.uk]
• Finance Lease vs Hire Purchase: Which Option is Best for Your Business? [iwoca]
• Balloon Payments Explained [iwoca]
• Asset Finance Explained [iwoca]
• Understanding Business Car Loans and Vehicle Financing [iwoca]

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