Home – Business Finance Guides – Asset Finance – Asset Finance vs Business Loans – How Do They Differ?
As you know choosing the right way to fund your business can make a huge difference to how it grows and runs day to day.
Consequently, two of the most common finance options for UK businesses are asset finance and business loans.
However, each comes with its own pros and cons to you, so it is important to weigh up what suits your business needs best.
That is why we have put this guide to them together to explain both of them in plain English to help you make an informed decision one which one is best suited for your situation.
If you are then still not sure, our business finance team is on hand to help you.
What Is Asset Finance?
Asset finance, for example is a way of you getting new or used equipment, vehicles, or other business assets without having to pay the full cost upfront for them.
Here instead, you can use asset finance to access a range of assets like Commercial Vehicles, office equipment, or machinery.
You do so by then paying regular monthly payments over a set period, and at the end of the term, depending on the contract you take out, you might own the asset, return it, or continue to lease it for an extended period of time.
There are also different types of asset finance available, including:
Hire Purchase
Here you make monthly repayments and you can then eventually own the asset at the end of the contract.
Finance Lease
With a finance lease, you then lease the asset instead and pay for it over time but never actually own it.
Operating Lease
Similar to a finance lease, an operating lease tends to be over a shorter term, with the asset being returned at the end of it.
Contract Hire
Contract hire, is then Common with vehicles, as here you rent them for a fixed time and then return them at the end of the contract.
Asset Refinancing
Then lastly, with asset refinancing here you unlock cash that is tied up in your existing assets.
Consequently, many UK businesses will tend to use asset financing because it offers you flexible financing options, while helping you improve your cash flow management at the same time – all while it gives you access to the latest equipment that your company needs as well.
What Is a Business Loan?
A business loan is when you borrow money from a finance company, a bank, or other lender for business purposes, and as a FCA authorised and regulated credit broker, we can help you get the best loans from a wide range of lenders.
Here, the funds can be used for anything from Working Capital Loans to helping you buy essential business assets to fuelling your business growth overall.
There are two main types available, which consist of:
Secured Business Loans
These are backed by specific assets (like property or equipment that you own).
Unsecured Business Loans
Here no security is needed, but they often come with higher interest rates due to higher perceived risk.
There are also schemes like the Recovery Loan Scheme and Growth Guarantee Scheme that help to support small businesses.
Consequently, business loans are often used more for one-off costs or when you need a lump sum to invest in your company’s growth. As a one off finance options, they are often more popular to be used to help to give you more financial stability, but it is important to check your eligibility criteria and consider your credit score here as well – along with if other business loan options may get you better terms and be a better fit for your situation too.
Find out if Asset & Business Finance is right for you
At Business Finance, we make asset finance simple and stress-free. No more worrying about finding the right ideal — we do all the hard work for you. Our team is here to secure the best finance option that suits your business needs.
Want to know how much you could borrow and what your monthly repayments might be?
No problem, Get in touch with our friendly team today, and we’ll be happy to help.
Key Differences Between Asset Finance and Business Loans
| Feature | Asset Finance | Business Loan |
|---|---|---|
| Purpose | Used to acquire specific assets | Used for business purposes (broad) |
| Security | The asset secures the finance | May be secured or unsecured |
| Ownership | Depends on type of asset finance | You keep full ownership of the purchase |
| Repayments | Regular payments tied to the asset | Fixed monthly repayments |
| Flexibility | More flexible financing terms | Can be rigid, depending on lender |
| End of Term | Return, buy, or keep using the asset | Loan ends when it’s paid off |
| Interest Rates | Often lower interest rates | Can be higher, especially unsecured |
Benefits of Asset Finance
Asset finance can then give you many benefits, including, for instance:
✅ Preserves Your Cash Flow
Here, you have no big upfront payments to be made, allowing instead for you to spread the cost of the asset over time.
✅ Access to New Equipment
You can keep your business updated with the latest equipment at an affordable price.
✅ Tax Benefits
There are also some types of finance that can offer you tax relief.
✅ Easier To be Approved
These can often be quicker and easier to get approved than going for traditional bank loans.
✅ Custom Finance Terms
You can also get more tailored payment terms that are more suited to your company’s individual needs as well.
Benefits of Business Loans
Business Loans can then give you many benefits, including, for instance:
✅ Large Lump Sum
This is then more suitable for businesses that need a large amount of cash upfront, which is ideal for big projects or expansions.
✅ Full Control
Here you can spend the money how you like, and have fewer restructuring terms.
✅ Build Credit
They can also help you improve your business’s overall creditworthiness as well.
✅ Variety of Finance Products
Depending on the terms and type you need, here you can also get varying financial products that are more suited to your exact requirements.
A Small Business Decision Case Study, How Do These Funding Methods Work?
So, let us take the example, that you are running a limited company and you need to look to expand your delivery fleet to grow your business.
Here for instance you have multiple options available. For example, you could either take a business loan to buy Commercial Vehicles or go with Hire Purchase through an asset finance provider.
With asset finance, you then would not need to pay the full price upfront.
Instead, the value of the asset would secure the loan, and your monthly payments would then be easier for you to manage, and you could even own the vans at the end as well.
With a traditional business loan, they’d get the full cash up front but you might face a higher interest rate and tighter eligibility criteria to be able to get it.
In the end, you would tend to choose in this situation asset finance, because it will tend to give you the best option for your cash flow while still offering you the funding solution you need to meet your specific needs.
How Do You Choose the Right Finance Option For You?
When it comes to choosing the best financing product for your exact needs, you should always ask yourself:
- Do I need the money for a specific asset?
- How important is cash flow management to me right now?
- Can I meet the repayment terms of a loan?
- Is owning the actual asset essential?
- What are the pros and cons of each for my business growth?
- Look at the total cost of the finance to you – not just the interest.
As a result, you should think about these financial products in a way that will suit your type of business and your future plans – then if you are still not sure, our team is on hand to help present you with the options to hand as well.
How Does the Application Process Tend to Differ Between Asset Finance and Business Loans?
Understanding what you need when you actually apply for each of these funding options is also one of the most important parts of helping you decide on how to choose the right finance option for your situation.
For instance, this will tend to be based around the following:
Asset Finance Application Process
As you can see, when you use asset finance, you are essentially borrowing to fund a specific piece of equipment or vehicle, and the asset usually secures the finance, which can add a few steps to the application process.
The process is relatively straightforward though, often revolving around:
✅ Get in touch
- The first step involves you getting in touch, and we can then help you find the right asset finance provider for your exact requirements.
- When you do, we will discuss the type of asset finance you are after (e.g., Hire Purchase, finance lease, operating lease, or Contract Hire),
- We will then go to our providers to find you the best deal for your exact requirements, where we can then offer you quotes based on your asset choice, business profile, and repayment preferences.
- At this stage, a soft credit check may be needed.
✅ Submit Application
Next, you will tend to need to complete a detailed application form, including info about your business and the specific assets you want to finance.
✅ Documentation Review
Once this comes back, it will then be checked against your financial records, and you may be asked for more details.
✅ Credit Check & Risk Assessment
Your business’s creditworthiness, trading history, and value of the asset then tend to be reviewed.
✅ Offer Issued
Then, if approved, a formal finance agreement is sent to you outlining your monthly payments, payment terms, and conditions for you to review and sign.
✅ Asset Purchase and Funds Release
The finance provider then pays the supplier for the asset you are after, and you then receive the asset for business use.
The asset then usually serves as security throughout the set period of your contract.
Then at the end of the contract the asset is picked up and taken away, or if you have opted for hire purchase it is now yours.
Business Loan Application Process
A business loan application process, on the other hand, is generally more flexible but can involve more paperwork and different requirements.
For instance, here you can tend to see
✅ Loan Enquiry or Pre-Qualification
When you contact us, we will discuss what finance options are most suitable for you, such as a term loan, a Working Capital Loan, or even a Growth Guarantee Scheme application.
✅ Document Submission & Application
Next, we will look to require documentation from you to assess your financial stability, income, and cash flow management abilities to help find you the best rate and loan for your requirements.
✅ Credit Check
A hard credit check is then performed, and collateral may also be required depending on the loan you are going for, but we can talk you through your options here.
✅ Offer and Loan Terms
Then, once approved, you are given a loan offer showing the repayment term, interest rates, and lump sum amount.
✅ Fund Disbursement
Once you are happy and accept this, the funds are transferred, and your monthly repayments begin as per the finance agreement you have taken out.
Required Documentation & Security
| Documentation | Asset Finance | Business Loan |
|---|---|---|
| Financial Accounts | Business financial statements | Full financial accounts |
| Business Plan / Forecast | Not typically required | Business plan and cash flow forecast |
| Bank Statements | Business bank statements | Personal and business bank statements |
| ID Documents | ID for directors/owners | Company ID documents (e.g., incorporation certificate) |
| Asset / Equipment Details | Asset quotes/spec sheets | Not applicable |
| Proof of Trading | Proof of trading (e.g., invoices) | Not always required |
| VAT Documents | VAT returns (if applicable) | Not typically required |
| Security Information | The asset usually acts as security | Security details (if required) |
| Existing Agreements | Sometimes reviewed if refinancing | Existing loan agreements (if any) |
What Common Factors Can Affect Your Approval?
Whether you are applying for asset financing or a traditional business loan, a few everyday things can make or break your application.
For instance, here you have:
Things That Help:
- Good credit history
- Strong, consistent cash flow
- Clearly documented business assets
- A well-defined financial purpose
- Matching the loan or asset type to your specific needs
Things That Might Delay or Block Approval
- Poor or patchy credit
- Missing documents or unclear business plans
- Incomplete application forms
- Applying for finance, you’re not quite eligible for
- Over-borrowing based on weak revenues
Taking a bit of time to gather everything up front can really improve your chances, and if this is a concern to you, talk to our finance team, because we have multiple lenders we can go to, with varying eligibility criteria.
Eligibility Criteria & Approval Speed
| Criteria | Asset Finance | Business Loan |
|---|---|---|
| Trading History | 6–12 months typically | Often 1–2 years (more for banks) |
| Credit Score | Moderate to strong required | Strong preferred, especially for banks |
| Type of Asset/Use Case | Must be used for a specific asset | Used for general business purposes |
| Collateral/Security | Asset usually secures the finance | May need existing assets or guarantees |
| Approval Speed | 2–7 working days (sometimes quicker) | 1–3 weeks for banks; faster with alt lenders |
Asset Finance vs Business Loans – How Do They Differ Overall
As you can see both asset finance and business loans have their own place.
However, which one is right for you depends on what your business needs, how much flexibility you want, and what kind of repayment suits you best.
There really is no one-size-fits-all financing option, but knowing what finance options is available to you, will really help you make the right choice for your requirements.
So, explore your choices, and talk to our finance experts, as we will take time to help you understand each financing solution that could be right for you to allow you to have an informed decisions before you commit to one.
Find out if Asset or Business Finance is right for you
At Business Finance, we make asset finance simple and stress-free. No more worrying about finding the right ideal — we do all the hard work for you. Our team is here to secure the best finance option that suits your business needs.
If you liked this Comprehensive Guide to Asset Finance in the UK, and you now want to know how much you could borrow and what your monthly repayments might be?
No problem, get in touch with our friendly team today, and we’ll be happy to help.
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