# Asset finance explained.

Asset finance spreads the cost of business equipment over its working life, instead of paying for it all at once. This is a general explainer of a finance type **Credicorp Limited does not offer**. It is here so directors can tell it apart from short-term working capital and choose well.

## First, a clear note

Credicorp Limited does not provide asset finance, hire purchase or leasing. This guide is purely educational: it sets out how equipment finance works in the wider market so you can compare it, on even terms, with the short-term products Credicorp does offer. We are not steering you toward anything here. What Credicorp does provide is on the [products page](/products/).

## What asset finance is

Finance shaped to a thing — a machine, a vehicle, a fit-out — that the business will use for years.

Asset finance is a way of acquiring or using business equipment without paying the full price up front. Rather than a lump sum passing through the company's account, the finance is tied to a specific asset, and the cost is spread across regular payments over a term that roughly tracks how long the asset will be used. The asset itself usually provides the security, which is what distinguishes asset finance from unsecured working capital.

The two broad families are **hire purchase**, where the business is buying the asset over time and owns it at the end, and **leasing**, where the business pays to use the asset and may or may not own it at the end. Within leasing there is a further split between a finance lease and an operating lease, which differ in who carries the asset's residual value and risk.

## Hire purchase against leasing

The headline difference is ownership: hire purchase ends in ownership; leasing is a paid right to use.

|  | Hire purchase | Leasing |
| --- | --- | --- |
| Ownership | The business owns it at the end | The provider usually retains ownership |
| What you are paying for | To buy the asset over time | To use the asset over a term |
| Deposit | Often an initial deposit, then instalments | Often little or no deposit |
| End of term | Final payment, then the asset is yours | Return, renew, or sometimes buy |
| Suits | Assets you want to keep long term | Assets that date quickly or you may replace |

A finance lease puts most of the risks and rewards of ownership on the business even though the provider holds title; an operating lease keeps the asset more clearly the provider's, and tends to suit equipment that ages fast. Definitions for these terms are in our [glossary](/glossary/). Tax and accounting treatment varies between the forms, and is a matter for your accountant rather than this guide.

## How it differs from short-term working capital

The cleanest way to think about it: match the length of the finance to the length of the need.

|  | Asset finance | Short-term working capital |
| --- | --- | --- |
| What it funds | A long-lived asset | A short, timing-driven gap |
| Term | Years, tracking the asset's life | Days to weeks |
| Security | Usually the asset itself | Often none |
| Repayment source | The income the asset helps generate | A specific, near-term event |
| Example fit | A van, a machine, an IT refresh | Buying stock against a confirmed order |

Funding a five-year asset with days-long credit, or covering a two-week gap with a multi-year agreement, both create a mismatch that costs money or ties up commitment unnecessarily. A [short business bridge](/guides/business-bridging-loans-explained/) is built for the timing gap; asset finance is built for the long-lived purchase. Our [working capital vs a term loan](/articles/working-capital-vs-term-loan) article works through the matching principle in more depth.

## Who asset finance suits
- **Businesses buying equipment they will use for years.** Vehicles, plant, machinery, IT and fit-out are the classic cases.
- **Companies that would rather not tie up cash in a single purchase.** Spreading the cost preserves working capital for day-to-day needs.
- **Firms replacing assets on a cycle.** Leasing can suit equipment that dates quickly and is swapped out regularly.

It suits less well where the need is short-term cash rather than a thing to own or use — that is the territory of [a revolving facility](/guides/revolving-credit-facilities-explained/) or a bridge. And it is distinct again from [invoice finance](/guides/invoice-finance-explained/), which raises cash against unpaid sales rather than against an asset.

## What to weigh before choosing a form

Hire purchase and the various leases are not interchangeable. A few questions usually point to the right one.
- **Do you want to own the asset?** If keeping it at the end matters, hire purchase points that way; if you would rather hand it back, a lease may suit.
- **How fast does the asset date?** Equipment that is quickly superseded — much IT, for instance — can favour leasing, so you are not left holding an asset worth little.
- **What does the term need to be?** The finance should track the asset's useful life, not run well beyond it or fall well short.
- **What is the all-in cost?** Compare the total paid across the term, including any deposit, balloon payment or end-of-term fee, rather than the monthly figure alone.
- **What is the accounting and tax treatment?** This varies between hire purchase, finance leases and operating leases, and is a question for your accountant.

Whichever form you land on, the discipline is the same one any director should apply to a finance offer — our [borrower due-diligence checklist](/articles/borrower-due-diligence-checklist) sets it out, and the [glossary](/glossary/) defines the terms used here.

## Where to go next
- [Invoice finance explained](/guides/invoice-finance-explained/) — another option Credicorp does not offer
- [Merchant cash advances explained](/guides/merchant-cash-advances-explained/)
- [Business bridging loans explained](/guides/business-bridging-loans-explained/) — for a short, timing-driven gap
- [What Credicorp does offer](/products/)
- [Working capital vs a term loan](/articles/working-capital-vs-term-loan)
- [Glossary of the terms used here](/glossary/)

[See what Credicorp offers at credicorp.co.uk →](https://credicorp.co.uk/what-we-offer/)