Equipment finance and leasing: how to fund machinery and kit

Equipment finance is a way of paying for machinery, vehicles or technology over time instead of buying it outright. The Finance & Leasing Association, the trade body for the sector, uses the broader term asset finance for leasing and hire purchase solutions for businesses.

The provider pays for the equipment or owns it, and you make regular payments while you use it. Our guide to asset finance covers the wider category, including property and other assets.

Either way you are committing to regular repayments for a set period, so it is borrowing and should be planned like any other finance.

Neither is better in every case: hire purchase suits equipment you want to own, and leasing suits equipment you want to use for a period. The British Business Bank says the principal difference between leasing and hire purchase is who owns the asset.

We cover each route in more detail in what is hire purchase and in finance lease vs operating lease.

There are two broad types of lease: a finance lease, where you take on most of the responsibilities of owning the asset, and an operating lease, where you lease it for part of its useful life. The British Business Bank defines a finance lease as an arrangement where a leasing company grants a business usage of an asset for a predetermined timeframe.

The Finance & Leasing Association says an operating lease suits a business that does not need the equipment for its whole working life, with the leasing company taking it back at the end and being responsible for maintenance. For vehicles, see contract hire.

In principle, equipment with a clear value and a practical working life can be financed, and the provider decides what it will accept. That ranges from production machinery to vehicles and technology.

• Manufacturing kit: production lines, tools and plant. See manufacturing finance.
• Construction plant: excavators, access equipment and tools. See construction finance.
• Workshop equipment: lifts, diagnostic and testing equipment. See workshops and garages.
• Healthcare equipment: clinical and diagnostic kit. See healthcare finance.
• Vehicles: see van finance and business vehicle finance.

New and used equipment can both be considered in principle, but the age and condition of the asset may affect what a provider will fund.

Tax treatment depends on the type of agreement, mainly because capital allowances follow ownership. GOV.UK says you cannot claim plant and machinery allowances on things you lease, unless you have a hire purchase contract or a long funding lease.

For hire purchase, GOV.UK says that when you start using the item you can claim for all payments you will make under the contract, but not the interest payments. The annual investment allowance lets you deduct the full value of qualifying items from your profits before tax up to £1 million as of October 2026, though business cars do not qualify. Our guide to capital allowances explains the basics.

VAT depends on the structure too. HMRC’s manual says goods supplied on hire purchase are generally treated like an outright sale, whereas where an optional final payment equals or exceeds the anticipated market value the supply is leasing services and the whole of each instalment is subject to VAT.

Most equipment finance for limited companies is not regulated by the FCA, but some business credit to sole traders and small partnerships is. The FCA says business lending of £25,000 or less to sole traders and small partnerships, but not limited companies, falls within its consumer credit perimeter, and business lending above £25,000 would generally fall outside it.

That can change the protections that apply, so ask the provider whether your agreement is regulated. If you are a sole trader, our guide to start up business loans is also worth a look if you are early in your trading history.

The main risk is that you commit to payments for the full term whether or not the equipment keeps earning for you. If you miss payments the provider can take the equipment back, and your credit file can suffer.

• Payments are fixed, so a slow period still means a full payment.
• Ending early can carry settlement charges under the agreement.
• With a lease you may have nothing to sell or keep at the end.
• A director may be asked for a personal guarantee.
• Equipment that loses value or becomes obsolete can leave you paying for something you no longer use.

Read personal guarantees for business loans before you agree to one, and a cash flow forecast will show whether the payments fit.

The alternatives are paying from cash, a business loan to buy the kit outright and, if you already own equipment, raising cash against it. Each changes who owns the asset and how the cost is spread.

• Paying from cash: no finance cost, but it can drain working capital.
• A business loan: you own the equipment straight away. See secured vs unsecured loans.
• Sale and leaseback: release cash from kit you own. See sale and leaseback.

Capzy is a credit broker, not a lender, and is paid by the lender. We introduce businesses to asset finance providers, which you can browse in our lender directory, and set out what comes back so you can compare it.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.