What types of assets can be financed?

Asset finance is a broad term covering financial products designed specifically to help individuals and businesses acquire necessary resources without needing to pay the full cost upfront. Understanding what types of assets can be financed is key to choosing the right financial solution, whether you are buying a new home, upgrading business equipment, or expanding a commercial property portfolio.

In the UK, financing options are flexible and depend heavily on the nature, value, and liquidity of the underlying asset itself. Assets used for financing can generally be categorised into property, vehicles, machinery and equipment, and intangible assets.

Understanding What Types of Assets Can Be Financed in the UK

Financing an asset typically means using the asset itself as collateral (security) for the loan, or acquiring the asset via a specific leasing arrangement, such as Hire Purchase or Lease Finance. The viability of financing an asset often relies on its expected lifespan, market value, and ability to generate income.

Property and Real Estate Assets

Property is perhaps the most common type of asset financed, given its high value and stability. Financing property usually involves mortgages or short-term secured loans, such as bridging finance.

Residential Property

This includes financing primary residences, buy-to-let investments, and second homes. Standard residential mortgages are the primary tool, but complex financing solutions might be needed for non-standard construction or portfolio landlords.

• Standard Mortgages: Long-term financing secured against the property structure.
• Buy-to-Let Mortgages: Specifically designed for properties intended for rental income generation.
• Bridging Loans: Used for short-term gaps, such as buying a new property before an existing one sells, or financing auction purchases.

It is crucial to remember the risks associated with securing finance against property. If you take out a loan secured against your home or other property, the consequences of defaulting can be severe, including increased interest rates, additional charges, and legal action.

Your property may be at risk if repayments are not made. If you are concerned about your financial obligations, you should seek independent financial guidance, such as that provided by the UK Government’s MoneyHelper service.

Commercial Property and Land

This category covers assets used purely for business purposes, such as offices, warehouses, retail units, and development land. Financing can be more complex than residential finance, often requiring detailed business plans and valuation reports.

• Commercial Mortgages: Long-term financing for premises used by the business or leased to commercial tenants.
• Development Finance: Short-to-medium-term loans specifically structured to cover the costs of building or renovating commercial properties or housing developments.

Business Assets, Plant, and Machinery

For businesses, financing essential equipment is often achieved through specialised asset finance products rather than standard secured loans. This allows companies to maintain capital liquidity while acquiring assets necessary for operation or growth.

Equipment and Machinery

Almost any tangible item with a determinable lifespan and resale value can be financed, including:

• Heavy plant (e.g., cranes, excavators, agricultural machinery).
• Manufacturing equipment (e.g., CNC machines, printing presses).
• Office technology (e.g., servers, large IT infrastructure).
• Specialist medical or scientific equipment.

Common financing methods here include:

• Hire Purchase (HP): The business pays instalments and owns the asset outright once the final payment is made.
• Finance Leasing: The business rents the asset for a fixed period; ownership remains with the lender (lessor), often offering lower initial payments.

Vehicle Assets

The financing of vehicles is highly structured, catering to both personal and commercial requirements.

• Personal Vehicles (Cars and Motorbikes): Typically financed through Hire Purchase, Personal Contract Purchase (PCP), or specific secured/unsecured loans.
• Commercial Fleet and HGV Financing: Businesses frequently use contract hire or leasing arrangements to manage large vehicle fleets, allowing them to budget accurately for maintenance and replacement cycles.
• Specialist Vehicles: Assets such as buses, coaches, maritime vessels, or aircraft often require bespoke secured loans tailored to their unique regulatory and depreciation profiles.

Intangible and Liquid Assets

Not all assets are physical. Financing can also be secured against items that represent value or future income streams. This is particularly relevant in working capital finance.

• Invoice Finance: A business can secure funding against the value of its outstanding customer invoices (debtors). This includes ‘invoice factoring’ (selling the debts) or ‘invoice discounting’ (using the debts as collateral).
• Stock and Inventory: Financing can sometimes be arranged against high-value, fast-moving inventory, although this is usually coupled with other forms of security due to the fluctuating value of stock.
• Intellectual Property (IP): Highly specific finance can occasionally be obtained using valuable patents, trademarks, or copyrights as security. This is often complex and reserved for established businesses with provable IP value.

Eligibility and How Lenders Evaluate Assets

Lenders determine whether an asset can be financed based on several factors, primarily focusing on risk mitigation. They evaluate:

1. Resale Value (Liquidity): How easily and quickly the asset could be sold to recover the outstanding debt if the borrower defaults. Assets like property and common machinery are generally highly liquid.
2. Depreciation: How quickly the asset loses value over time. Lenders prefer assets that retain value relative to the loan term.
3. Asset Condition and Age: Older or poorly maintained assets pose higher risks and may be difficult or impossible to finance through standard means.
4. Borrower Creditworthiness: Regardless of the asset’s value, the borrower must demonstrate the ability to service the debt.

Understanding Credit Assessments

When applying for finance, your personal or business credit history plays a vital role in determining eligibility, interest rates, and overall loan terms. Lenders review your financial track record to assess the likelihood of successful repayment.

Before applying for any significant finance package, it is always beneficial to review your credit profile to ensure accuracy and address any potential issues.

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People also asked

Can I finance assets that are already owned (refinancing)?

Yes, refinancing or “asset equity release” is possible for many high-value assets, particularly property and high-value machinery. This process involves taking out a new loan secured against an asset you already own outright or have substantial equity in, typically to free up capital for other uses.

Are intangible assets harder to finance than tangible assets?

Generally, yes. Intangible assets like intellectual property are harder to value, liquidate, and insure compared to tangible assets like property or machinery, which makes lenders more cautious. Financing is usually reserved for robust, high-value IP held by established businesses.

What is the difference between leasing and hire purchase?

In Hire Purchase (HP), you gain ownership of the asset after all repayments are completed. In contrast, Finance Leasing typically means the lender retains ownership, and you pay for the right to use the asset over a specific period, often returning it at the end of the contract.

What assets are typically considered non-financeable?

Assets that are too small in value, highly volatile, or those with extremely rapid depreciation are often difficult to finance independently. Examples might include standard office supplies, perishable goods, or highly specialised software with no residual market value. Personal unsecured loans may cover these items instead.

Do I need a large deposit to finance an asset?

The required deposit varies significantly by asset type and lender. For property, deposits are substantial (typically 10% to 25%). For business equipment financing via HP or leasing, the deposit may be lower, often equivalent to one or two months’ payments, or sometimes no deposit is required for highly creditworthy borrowers.

Conclusion: Choosing the Right Asset Finance Solution

From bricks and mortar to complex machinery, the variety of assets that can be financed offers extensive opportunities for both personal consumers and growing businesses in the UK. The key to successful asset finance lies in accurately matching the asset’s characteristics (its lifespan, value, and liquidity) with the appropriate financial product (mortgage, bridging loan, hire purchase, or lease).

Always seek professional advice and ensure you fully understand the repayment structure and potential risks involved, especially when securing a loan against your home or primary business assets.