Asset finance
Funding equipment on its own facility rather than loading it into the main loan. Done properly it makes a marginal deal work; done carelessly it stacks two sets of repayments on the same profit.
Check it is serviceable
Why equipment gets split out
Buying a business often means buying the trade, the lease, the stock and the equipment in one transaction. Putting all of it on a single term loan is the obvious move and usually the wrong one.
Splitting the equipment onto its own facility does two useful things. It keeps the term loan smaller, which matters when the loan term is already capped by the unexpired lease. And it matches the funding to the life of the thing being funded — a five-year facility against equipment with a five-year life, rather than a fifteen-year loan against a fryer.
The catch is that both facilities are serviced out of the same profit. A deal that clears on the term loan alone can fail once the equipment repayments are added, so run the combined figure through the cover calculator before assuming the split has solved anything.
The three shapes, and what actually differs
Hire purchase — you are buying the asset over time and own it at the end. It sits on your balance sheet and you claim the capital allowances.
Finance lease — you rent it for substantially all its useful life. The risks and rewards sit with you even though title does not.
Operating lease — a genuine rental, with the asset going back at the end and the residual value risk staying with the lessor.
The tax and VAT treatment differs between them and the difference is not cosmetic. Which one is cheaper depends on your tax position, not on the headline rate — so comparing the rates alone will mislead you. Take advice from your accountant on the treatment before choosing on price.
What makes a deal easy to place
New, identifiable, resaleable equipment with a serial number. Lenders are lending against something they could recover and sell. Soft assets — fit-out, signage, anything bolted in and worthless once removed — are much harder, and often need to go on the term loan after all, or against other security.
Franchise resales tend to be the easiest of all, because the franchisor has proven trading results across comparable sites and the lender is underwriting a known model rather than one shop’s accounts.
Where this comes from
Written from twenty years arranging finance at the small end of the market, where equipment was routinely split onto lease purchase to keep the term loan within what the lease could support. This page is experience, not a cited source, and it is not advice. A comparison calculator for the three structures is on the list.