Growing a business often requires investment before the benefits are realised. Whether you need new machinery, updated IT systems, specialist beauty equipment or additional vehicles, choosing the right type of funding can support your next stage of growth and help you manage cash flow.
Two of the most common funding routes for UK and Irish businesses are asset finance and small business loans. Both provide financial support, but they work in different ways and suit different priorities. Understanding the distinction can help you make a more cost-effective decision.
As an independent broker with over 35 years of experience, Kane Financial Services matches businesses with competitive lenders across a wide range of industries. With our guidance, you can find the right finance option for your long-term goals.
Apply for asset finance online today to explore available opportunities.
How asset finance and small business loans differ
Asset finance allows you to spread the cost of equipment, machinery or vehicles. It is linked to a specific asset, which keeps repayments predictable and protects your working capital.
Small business loans provide a flexible lump sum that can be used across your operations, from hiring staff to purchasing stock or funding marketing activity.
Both options support growth, but the right one depends on how you plan to use the funds.
What is asset finance?
Asset finance explained
Asset finance is a funding method that allows you to acquire equipment without paying for it up front. Instead, the cost is divided into regular monthly instalments. This makes it possible to access essential assets while keeping cash reserves available for other business needs.
It is widely used in asset-heavy industries such as agriculture, marine, construction, beauty aesthetics, IT and technology.
How asset finance works
Depending on your agreement, you may pay a deposit or an initial rental fee followed by fixed monthly repayments. Options include hire purchase, finance leasing and operating leasing. Your end-of-term outcome varies based on the product, and may include owning the asset, returning it or renewing your lease.
What can asset finance be used for?
Many businesses rely on asset finance to access essential equipment without interrupting cash flow. Common examples include:
- Cars, vans and other fleet vehicles for transportation or travel
- Marine equipment such as engines, navigation tools and safety systems
- Beauty and aesthetic equipment used in clinics and salons
- IT and telecoms devices, including servers, computers and networking hardware
- Agricultural machinery such as tractors, trailers and harvesting equipment
- Office equipment, from printers and photocopiers to workplace furniture
- Construction and plant equipment, including excavators, loaders and generators
Pros and cons of asset finance
Advantages include:
Fixed and predictable monthly repayments
Repayments remain the same throughout the agreement, which supports accurate budgeting and cash flow planning.
Lower upfront costs compared to full purchase
You avoid a large initial outlay, which helps you retain capital for other operational needs.
Protection of working capital
Asset finance prevents large cash withdrawals and keeps your reserves available for emergencies or strategic investment.
Access to high-value assets that may otherwise be unaffordable
You can use essential machinery or equipment that would be expensive to buy outright, helping you maintain productivity.
Potential tax advantages depending on the agreement
Hire purchase agreements may qualify for capital allowances, while lease rentals are usually deductible as business expenses.
Ability to upgrade equipment when needed
If technology or equipment evolves quickly in your sector, asset finance makes it easier to switch to newer models.
Disadvantages include:
You may not own the asset in certain agreements
With leasing options, ownership stays with the lender, which may not suit businesses that prefer long-term asset control.
Responsibility for maintenance and insurance
Most agreements require you to maintain and insure the equipment, which can increase ongoing costs.
Depreciation risk if you choose ownership
With hire purchase, the asset may fall in value more quickly than anticipated, reducing resale potential.
Early repayment charges in some contracts
If you settle your agreement early, the lender may apply a fee, which limits flexibility.
Asset finance tax considerations
Hire purchase agreements are often treated as purchases for tax purposes, which means you may be able to claim capital allowances such as the Annual Investment Allowance. With leasing, your monthly rentals are usually deductible, but you cannot claim capital allowances because you do not own the asset.
What is a small business loan?
Small business loans explained
A small business loan provides a lump sum that can be used across a wide range of commercial needs. It is not tied to a specific asset, which makes it a flexible option for businesses looking to invest in growth or manage short-term challenges. Loans may be secured against collateral or unsecured based on creditworthiness.
How small business loans work
You receive the full loan amount upfront and repay it through fixed monthly instalments over an agreed period. Loan terms typically range from one to seven years, depending on the lender and your financial profile.
Businesses commonly use loans for:
- Increasing stock levels
- Renovating or expanding premises
- Hiring staff
- Funding marketing activity
- Managing seasonal cash flow
- Launching new products or services
Pros and cons of small business loans
Advantages include:
Freedom to use funds however you choose
Loans are flexible and can be used across your organisation rather than being linked to one asset.
Structured repayments
Fixed monthly instalments help you plan long-term financial commitments.
Access to larger lump sums
Loans can support significant investment projects that require more immediate funding than asset finance.
No requirement to purchase equipment
You can use the funds for multiple needs rather than committing to a single asset.
Useful for strategic growth
Loans help businesses expand into new markets, take on larger contracts or respond quickly to new opportunities.
Disadvantages include:
Higher interest costs in some circumstances
Loans can be more expensive than asset finance because the borrowing is not supported by a specific asset.
Stricter eligibility criteria
Lenders may require strong financial records, healthy credit and a detailed business plan.
Secured loans require collateral
This places certain assets at risk if your business cannot meet repayments.
Unsecured loans rely heavily on creditworthiness
Newer businesses or those experiencing fluctuations may find it harder to secure favourable rates.
Tax considerations for small business loans
Interest on loan repayments is usually tax-deductible. However, loans do not qualify for capital allowances because they are not connected to acquiring a specific asset.
Choosing the right option for your business
To decide between asset finance and a small business loan, consider what the funds will be used for, how quickly the investment will generate returns, your working capital position, your preferred repayment structure and the tax implications of each option.
Asset finance is often the best choice when your business relies on specific equipment or machinery. Loans may be more suitable when you need broader financial flexibility.
Access tailored finance options with Kane Financial Services
Kane Financial Services has more than 35 years of industry experience and works with a wide network of lenders who offer competitive terms for a range of industries. With our support, you can find a finance structure that helps your business grow without creating unnecessary financial pressure.
Apply online today or contact our team for expert advice tailored to your business needs.