Equipment Refinance: Releasing Capital from Owned Assets
Equipment refinance allows UK businesses to sell owned plant, machinery or vehicles to a lender and lease them back, releasing tied-up capital without losing operational use of the asset. Typical advance rates reach 70 to 90 percent of open-market value. The facility suits businesses with strong asset bases but constrained working capital.
What Equipment Refinance Is and How It Works
Equipment refinance, often called a sale-and-leaseback, transfers legal ownership of an asset to a finance provider in exchange for a lump-sum cash advance; the business then leases the asset back under a hire purchase or finance lease agreement, retaining full operational use throughout the term. The transaction is not a loan in the traditional sense: the lender buys the asset outright and the repayment schedule reflects that purchase price plus the lender's margin.
Most UK asset finance providers will consider plant and machinery, commercial vehicles, printing equipment, agricultural machinery, medical and dental equipment, and yellow-plant such as excavators and forklifts. The asset must be clearly identifiable, insured, and free from existing finance charges, or any existing finance must be settled from the refinance proceeds at completion.
How Lenders Value Assets for Refinance
Lenders base advance amounts on the open-market value (OMV) or forced-sale value (FSV) of the asset, not its original purchase price or book value, so a realistic independent valuation is the starting point for any application. Most mainstream asset finance funders advance between 70 and 90 percent of OMV for well-maintained equipment with an active secondary market; specialist or bespoke machinery may attract lower advance rates of 50 to 65 percent.
Age and condition matter significantly. Equipment under five years old with full service records commands the highest advances. Older assets are not excluded, but the lender will typically commission a physical inspection or desktop valuation from an approved valuer. Some lenders apply a haircut if the asset is embedded in a building or difficult to repossess, such as fixed production lines or built-in catering equipment. Businesses should obtain an independent valuation before approaching lenders to set realistic expectations on proceeds.
Hire Purchase vs Finance Lease: Tax Treatment Differences
The structure chosen for the leaseback determines how the business accounts for the asset and what tax reliefs apply, so it is worth understanding the distinction before signing heads of terms. Under a hire purchase agreement, the business is treated as the economic owner from day one: the asset sits on the balance sheet, capital allowances (including the Annual Investment Allowance up to £1 million) are available, and the interest element of each repayment is deductible as a finance charge.
Under a finance lease, the lender retains legal and, in some structures, economic ownership. IFRS 16 and FRS 102 require most finance leases to be capitalised on the lessee's balance sheet, but the tax treatment differs: the business deducts lease rentals rather than claiming capital allowances. For businesses outside the AIA limit or those in a tax loss position, a finance lease can simplify the accounting. Partnerships and LLPs should take specific advice because capital allowance pooling rules interact differently with unincorporated structures. Always confirm the treatment with your accountant before proceeding.
Typical Costs and Rate Benchmarks
Equipment refinance rates in the UK are quoted as flat rates or as APR depending on the lender, and comparison requires care; a 6 percent flat rate on a three-year term converts to roughly 11 to 12 percent APR using the actuarial method, so always ask lenders to quote APR for like-for-like comparison. With the BoE base rate at 3.75 percent as of December 2025, typical refinance rates for creditworthy SMBs with strong assets sit in the range of 7 to 14 percent APR, with specialist or lower-quality credits reaching 18 to 24 percent.
Additional costs to budget for include arrangement fees (typically 1 to 2 percent of the facility), valuation fees (£150 to £500 depending on asset type), and documentation fees. Some lenders impose early settlement penalties, usually calculated as a percentage of the outstanding balance or a fixed number of months' interest. If existing finance is being settled from proceeds, check whether that lender imposes its own early repayment charge before calculating net proceeds.
Eligibility and Credit Criteria
Most UK asset finance lenders require the business to be a registered limited company, LLP, or trading partnership with at least 12 months of filed accounts, though some specialist funders will consider businesses with as little as six months of trading history provided the asset is of sufficient quality and value. The asset itself often carries more weight in the credit decision than the business's credit score, particularly with hard-asset lenders who are comfortable taking security over plant and vehicles.
Personal guarantees from directors or partners are commonly requested, particularly where the business has a thin credit file, adverse payment history, or the advance represents a significant percentage of the business's net assets. County Court Judgements (CCJs) do not automatically disqualify an application: lenders assess satisfaction status, age, and the amount relative to turnover. A CCJ satisfied more than 12 months ago is far less likely to cause a decline than a recent unsatisfied judgment. Lenders will also verify that the asset is not already encumbered via a Companies House or HPI check.
When Equipment Refinance Makes Commercial Sense
Equipment refinance is most appropriate when a business has significant equity tied up in owned assets but cannot access sufficient working capital through unsecured routes, overdrafts, or revolving credit facilities. Common use cases include funding a VAT or corporation tax bill, bridging a gap between invoice payment cycles in sectors such as recruitment or manufacturing, financing a contract deposit, or providing capital for a growth opportunity that cannot wait for organic cash generation.
It is less suitable when the asset is approaching the end of its useful life, when the business's cashflow cannot comfortably service the new lease payments, or when the remaining useful life of the asset is shorter than the proposed finance term. Businesses should also consider whether releasing equity from a core operational asset introduces operational risk: if the lender repossesses the asset following a payment default, the impact on the business could be severe. A stress-test of repayment capacity under a modest revenue reduction scenario is prudent before committing.
The Application and Drawdown Process
A straightforward equipment refinance application typically completes within five to fifteen working days from submission of a full pack, faster than a commercial mortgage but slower than an unsecured MCA advance. Lenders generally request the last two years' filed accounts, recent management accounts, three to six months of business bank statements, proof of asset ownership (purchase invoices, V5 logbooks for vehicles, or equipment schedules), and details of any existing finance on the asset.
Once credit-approved, the lender commissions or reviews a valuation, issues a formal offer letter, and on acceptance instructs solicitors or in-house legal to draft the asset purchase and lease documentation. Completion involves the lender paying the agreed purchase price directly to the business (net of any settlement of prior finance), with the new lease beginning immediately. Some funders in the commercial vehicle and plant sectors have streamlined this to a largely digital process with faster turnaround for assets below £100,000.
| Asset Type | Typical OMV Advance Rate | Typical APR Range | Max Term | PG Usually Required? |
|---|---|---|---|---|
| Commercial vehicles (HGV, van fleets) | 80–90% | 7–13% | 5 years | Yes |
| Yellow plant (excavators, telehandlers) | 70–85% | 9–15% | 5 years | Yes |
| Manufacturing / CNC machinery | 65–80% | 9–16% | 5 years | Yes |
| Agricultural machinery | 70–85% | 8–14% | 7 years | Yes |
| Medical / dental equipment | 60–75% | 10–18% | 5 years | Yes |
| Printing / packaging equipment | 55–70% | 11–18% | 4 years | Yes |
| Bespoke / specialist machinery | 50–65% | 12–24% | 3 years | Yes |
Step-by-step
- Identify the assets to be refinanced and confirm they are owned outright or calculate the equity above any existing finance balance.
- Obtain an indicative open-market valuation, either from an independent valuer or using recent comparable auction or trade data.
- Prepare a full application pack: two years' accounts, recent management accounts, six months' bank statements, asset ownership evidence, and a summary of how the capital will be deployed.
- Submit to two or three specialist asset finance lenders or via a whole-of-market broker to compare terms, advance amounts, and total cost of finance.
- Review the formal offer letter carefully, paying attention to the APR, early settlement terms, balloon payment if applicable, and any covenants on asset maintenance or insurance.
- Instruct solicitors or review lender documentation, confirm settlement of any prior finance from proceeds, and sign the asset purchase and lease agreements.
- Receive the net cash advance, begin lease repayments on the agreed schedule, and maintain the asset in line with the lease conditions.
Example
A Midlands-based groundworks contractor owned a fleet of three excavators and two dumpers, all purchased outright, with a combined OMV of £320,000. The business needed £200,000 to fund a large contract mobilisation cost. An equipment refinance against the fleet was arranged at 82 percent of OMV, releasing £262,400 gross. After arrangement fees and asset inspection costs, net proceeds were approximately £256,000, repayable over 48 months at 11.2 percent APR. The business retained full use of all five machines throughout the contract.
Frequently asked questions
Does equipment refinance appear as debt on the balance sheet?
Under UK GAAP (FRS 102) and IFRS 16, most finance leases must be capitalised, meaning both a right-of-use asset and a corresponding lease liability appear on the balance sheet. This differs from the pre-2019 treatment where operating leases were off-balance-sheet. Your accountant can confirm the correct classification for your specific agreement.
Can I refinance equipment that still has existing hire purchase finance on it?
Yes, provided there is sufficient equity above the outstanding settlement figure. The new lender will typically require the existing finance to be settled at completion, usually directly from the refinance proceeds. You will need to obtain an up-to-date settlement quote from your current lender and factor in any early repayment charges before calculating net funds released.
How quickly can equipment refinance complete?
For straightforward assets such as commercial vehicles or standard plant, completion typically takes five to ten working days from a full application submission. More complex or high-value assets requiring a physical valuation may take ten to twenty working days. Providing complete documentation at the outset is the single most effective way to accelerate the process.
Will a CCJ prevent us from obtaining equipment refinance?
A CCJ does not automatically disqualify a business. Asset finance lenders weight the quality and value of the asset heavily in their decision. A satisfied CCJ that is more than 12 months old is unlikely to cause a decline on its own, whereas a recent unsatisfied CCJ of significant value may restrict options to specialist or higher-rate funders. Disclosing CCJs upfront and providing context generally produces better outcomes than a lender discovering them independently.
What happens to the asset at the end of the refinance term?
The end-of-term position depends on the structure. Under a hire purchase agreement, ownership transfers back to the business on payment of the final instalment, often a nominal option-to-purchase fee. Under a finance lease, options typically include extending the lease at a reduced peppercorn rental, returning the asset to the lender, or in some cases purchasing the asset at fair market value. Always clarify the end-of-term position before signing.
Is there a minimum asset value for equipment refinance?
Most mainstream asset finance lenders set a minimum facility size of £10,000 to £25,000, though some specialist vehicle funders will consider smaller amounts. At the lower end, arrangement costs as a percentage of the advance become less efficient. For assets below £10,000, an unsecured business loan or MCA may be a more cost-effective route to capital release.
By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-05-26.