Equipment Refinance for Capital Release: UK SMB Guide

What Equipment Refinance Is and How It Works

Equipment refinance, often called a sale-and-leaseback arrangement, converts a hard asset your business already owns into immediate cash while you retain operational use of that asset under a new finance agreement. The lender purchases the asset at an agreed value, typically 70 to 90 per cent of its current open-market worth, and you pay monthly rentals under either a hire purchase or finance lease structure for a term of 12 to 60 months.

Ownership transfers to the lender on completion, though under hire purchase terms you reacquire title at the end of the agreement by exercising an option to purchase. Under a finance lease, the lender retains ownership throughout and you may extend or terminate at the end of the primary term. The lender registers its interest at Companies House and, where the asset is vehicle-based, on the DVLA record.

Which Assets Are Eligible

Most lenders will refinance assets that have a verifiable second-hand market, a clear title and a remaining useful life that comfortably exceeds the proposed finance term. Eligible categories typically include CNC machinery, agricultural equipment, printing presses, yellow plant, HGVs, refrigeration units and professional catering equipment.

Ineligible assets usually include bespoke or single-purpose items with no secondary market, assets subject to a prior charge from another lender without consent, stock, consumables and intangible property. The asset must be owned outright or have a settlement figure low enough that refinance proceeds clear the existing agreement and still release a meaningful net sum. Lenders will ask for proof of ownership, purchase invoices, service records and a current valuation, often conducted by an independent asset appraiser they appoint.

Typical Pricing and Advance Rates

Advance rates and interest costs depend on asset type, age, condition, your business credit profile and whether the agreement is structured as hire purchase or finance lease. As a broad guide, newer assets attract advances closer to 85 to 90 per cent of open-market value, while assets over five years old may attract only 60 to 70 per cent.

Interest rates are quoted as flat rates or APRs depending on lender. With the BoE base rate at 3.75 per cent as published by the Bank of England, typical refinance facilities price at 6 to 14 per cent APR for well-secured, creditworthy borrowers, rising above that for higher-risk profiles. Arrangement fees of 1 to 2 per cent of the facility value are common. Some lenders apply a documentation fee and an end-of-term option-to-purchase fee, so always request a total cost of credit figure in writing before signing.

Tax Treatment for UK Businesses

The tax position differs between hire purchase and finance lease, and it changed materially following HMRC's updates to capital allowance rules, so taking accountant advice specific to your situation is important. Under a hire purchase refinance, you are generally treated as the owner of the asset for tax, so you can continue to claim capital allowances on it and deduct the interest element of your payments. The sale element of a sale and hire purchase back can trigger a balancing charge, so your accountant should model the net position before you proceed.

Under a finance lease, rental payments are typically fully deductible as a business expense against profits, which can produce a more tax-efficient outcome than ownership where the asset no longer qualifies for the Annual Investment Allowance or full expensing. VAT is charged on each rental payment and can be reclaimed by VAT-registered businesses in the normal quarterly cycle. Any gain arising on the sale element of a sale-and-leaseback may be a taxable event depending on the asset's carrying value versus the sale price, so your accountant should model the net position before you proceed.

When Refinance Makes Sense Versus Other Options

Equipment refinance is worth considering when you have equity locked in assets, need working capital quickly and want to avoid diluting ownership or raising unsecured borrowing at higher rates. It is particularly useful for businesses facing a large one-off cash need such as a corporation tax payment, a contract deposit or a payroll strain during a slow trading period.

Compare it honestly against alternatives. A revolving credit facility or overdraft may cost less if you only need capital for a short period, since a refinance agreement typically runs 24 to 60 months and carries early settlement charges. A commercial mortgage makes more sense if the asset in question is property. An unsecured term loan may complete faster with less documentation if your balance sheet is strong. The key question is whether the monthly rental payments are comfortably serviceable from operating cash flow after the capital release is deployed productively.

The Application Process

The process from enquiry to payout typically takes five to fifteen working days, faster than most commercial mortgages but slower than an MCA or unsecured loan, largely because an independent asset valuation is required. Having documents prepared in advance shortens the timeline meaningfully.

Lenders will ordinarily request two to three years of filed accounts, your most recent management accounts, bank statements for three to six months, proof of asset ownership (purchase invoice or V5 for vehicles), a current valuation and details of any existing finance on the asset. The credit team will assess your ability to service the new rentals based on EBITDA and existing debt commitments. For limited companies, a personal guarantee from directors holding more than 20 per cent of shares is standard, though a minority of lenders will waive this for strong balance sheets. The facility offer sets out advance rate, rental schedule, term, fees and balloon payment if applicable.

Post-Decline Routes if Refinance Is Refused

If a mainstream asset finance lender declines, the most common reasons are insufficient asset value relative to the advance requested, a thin credit file, CCJs on the business or director, or an asset category the lender does not fund. Each of these is addressable through the right channel.

Specialist second-tier lenders and independent asset finance brokers have access to funders who accept older assets, assets with lower secondary-market values, or borrowers with impaired credit, though pricing will be higher and advance rates lower. If CCJs are the barrier, settling them and obtaining a certificate of satisfaction from the court improves credit profile for a reapplication within three to six months. If the asset simply does not support sufficient value, consider whether a smaller facility releasing less capital at a lower loan-to-value clears the lender's criteria. A whole-of-market broker can run a soft-search assessment across multiple lenders before any hard credit footprint is placed on the file.

Step-by-step

1. Identify the assets you own outright or with a low outstanding settlement and obtain current purchase invoices or V5 documents.
2. Request an indicative valuation from an independent asset appraiser or ask a broker to commission one on your behalf.
3. Prepare two to three years of filed accounts, recent management accounts and six months of business bank statements.
4. Approach a whole-of-market asset finance broker for a soft-search across multiple lenders to identify the best advance rate and pricing.
5. Review the facility offer in full: check the total cost of credit, balloon payment, early settlement terms and any personal guarantee requirement.
6. Instruct your accountant to confirm the VAT and tax implications before signing, particularly if the asset has a significant carrying value on your balance sheet.
7. On completion, ensure the lender's registration at Companies House or DVLA is noted and retain a copy of the agreement for your records.

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Frequently asked questions

By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-07-05.