Asset finance vs an unsecured business loan: which to use, and when you need both

If you're buying one machine and keeping it for years, asset finance is usually the cheaper way to pay for it. The finance company owns it until you've finished paying, so the machine is its security and the rate reflects that. An unsecured business loan costs more, and it asks a director to guarantee it personally. A loan goes where the asset deal won't: the deposit, the VAT before you reclaim it, delivery, installation, training, and the wages while it beds in. That is why plenty of businesses use both on the same purchase. We lend unsecured and don't offer asset finance, so you know which side we're on. Asset finance wins on the asset itself anyway.

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Who owns the asset is the whole difference

Asset finance is secured on the thing you're buying. An unsecured loan is secured on a director's signature instead.

Under hire purchase or a lease the finance company owns the machine until the agreement ends. As the British Business Bank puts it, 'until the lessee fully pays off the asset, the ownership remains with the finance provider'. Miss the repayments and that 'could result in the finance provider repossessing the asset'. Recourse like that is worth a great deal to a lender, and it is why the rate is lower.

An unsecured business loan has no asset pledged to it, so the lender asks a director to stand behind the loan instead. Every new iwoca Flexi-Loan needs a personal guarantee from at least one director. Not every director has to sign, but someone does. The Insolvency Service is blunt about what that means in its guidance on personal guarantees on GOV.UK. A guarantee is 'a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations'. Personal assets 'such as your home, car, savings and investments could be used to settle that company debt'.

So 'unsecured' doesn't mean nobody is on the hook. It means the security is a signature rather than a machine. That is the trade you're making, and it's worth being clear about before anyone starts quoting rates.

Side by side, on the points that change what you sign:

None of which makes asset finance a fringe option. Finance & Leasing Association members wrote £41.7bn of new business in the 12 months to July 2026, around a third of all UK investment in machinery, equipment, and purchased software.

Asset finance comes in a few shapes: hire purchase, a finance lease, an operating lease, or refinancing kit you already own. Which one you use changes the ownership and the tax, and our guide to how asset finance works covers them.

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Which is cheaper, and why the answer depends on who's writing

Search this question and you'll get both answers. One broker in Google's top ten says asset finance 'can come with higher interest rates than bank loans, making it a more expensive option in the long run'. The pages either side of it say the opposite. They aren't being careless. They're quoting different kinds of number.

Asset finance is often priced as a flat rate, and brokers quote figures like 3% to 8% a year. A flat rate is charged on the whole sum you borrowed for the whole term, not on the balance as it falls. Since you pay that balance down every month, you end up paying interest on money you've already repaid. Convert a flat rate to an APR and it roughly doubles. So 4% flat is around 8% APR, and a page setting 4% flat against a 12% APR has made asset finance look about three times cheaper than it is.

It is still cheaper. Just not by that.

Here's ours, so you can do the sum yourself. Our representative rate is 3.33% per 30 days, and our business loan calculator shows likely repayments for your own amount before you apply. For the other side there is no published figure to use. The Finance & Leasing Association publishes volumes but not rates, and the British Business Bank publishes rates for bank lending but not for asset finance. The high-street lenders we checked in October 2026 all price on application. So the comparison below assumes 9% a year, which is roughly what a 4% to 5% flat rate works out at. That is an assumption, not a quote.

On a £30,000 machine, with £27,000 financed over four years at that assumed 9%, the interest works out at roughly £49 for every £1,000 borrowed, per year. The same money at our representative rate of 3.33% per 30 days costs about £229 per £1,000 per year. Asset finance is around a fifth of the price. That gap isn't a rounding error and it isn't a sales argument; it's what the security is worth.

Two things still cut the other way, and they're the reason the rate on its own tells you very little.

The first is the term. You can spread an asset finance agreement over a longer period, which the British Business Bank notes is much of its appeal for an asset you'll keep. But four or five years of interest at a low rate can still add up to more in pounds than one year at a higher one. Compare the total you'd repay over the period you expect to hold the money, not the headline rate.

The second is what happens when you can pay it off. We charge interest on your outstanding balance for the days you use the loan. You choose a fixed term of between 12 months and five years, so you know the repayment schedule from the outset. Because there's no fee for repaying early, you can clear it as soon as the cash arrives – many of our customers only take out our finance for a few weeks, or even days. A business hire purchase agreement with a limited company generally sits outside the consumer credit rules, so early settlement costs whatever the contract says. Read that clause before you sign. It decides whether paying the machine off early saves you anything at all.

Before you compare us with anyone, our terms in full:

• How much: £1,000 to £1 million.
• Rate: from 1.5% per 30 days, charged on your outstanding balance for the days you use the loan.
• Term: a fixed term of 12 months to five years, with no fee for repaying early.
• Fees: none on a 12-month loan. Longer terms may carry a fee, typically 5% for 13 to 24 months and 6% beyond that.
• Personal guarantee: every new Flexi-Loan customer needs to sign one from at least one director, though not every director has to sign.
• Who we lend to: UK limited companies.

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For tax, a loan and hire purchase land in the same place

Asset finance has no tax advantage over buying the same kit with a loan. Capital allowances follow ownership, not the way you paid. gov.uk puts it plainly: you cannot claim plant and machinery allowances on 'things you lease (unless you have a hire purchase contract or long funding lease) – you must own them'.

Hire purchase is one of the exceptions in that sentence. HMRC treats you as the owner from the start of the contract, so you 'can claim for all payments you'll make under the contract' – though not the interest.

So a loan purchase and hire purchase land in the same place. Both make your company the owner for this purpose, and both let it claim. If the machine is new and unused, full expensing lets a company deduct 100% of the cost from its profits in the year it buys it. If it's second-hand, the annual investment allowance does the same job, up to £1m an accounting period.

Leasing is the one that's genuinely different, and it isn't better. The lender keeps ownership, so you deduct the rentals as a running cost instead of claiming allowances. You spread the relief rather than taking it up front, which may or may not suit your profits this year. If you're weighing leasing it instead, that comparison goes into it, including the long funding leases taxed the other way round.

VAT is where the routes really part company, and it's about timing rather than relief. On hire purchase the VAT falls due at the start, on the asset's full price, not spread across the payments. On a lease it's charged on each rental. Buy with a loan and the VAT sits on the supplier's invoice, which you pay now and reclaim on your next return. All three end up in the same place. One of them wants far more cash in month one.

Tax rules move, and the Budget on 28 October 2026 may change some of these figures. Check your own purchase with your accountant rather than with us.

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Often the honest answer is both

Asset finance pays the supplier for the asset. That is all it pays for.

Go back to that £30,000 machine. The British Business Bank describes hire purchase as starting with a deposit, so say the lender wants 10%, which is £3,000. The VAT is £6,000. That's £9,000 of your own cash leaving the business on day one, before the agreement has saved you anything. Then there's delivery, the power supply it needs, someone to install it, two days of training, and the wages you'll pay while it runs at half speed. An asset finance lender funds none of that, because none of it is something it could repossess.

That gap is what an unsecured loan is for, and it's the argument for using both on the same purchase. Finance the machine on hire purchase at the lower rate. Cover the deposit, the VAT, and everything around it with a loan you can clear in weeks rather than years.

So we aren't cheap against asset finance. We're cheap for the short, awkward part of the bill, and asset finance is cheap for the long part. Reading those three figures as a single ranking is the mistake worth avoiding.

Borrowing unsecured also means the kit is yours from the start. You can use a Flexi-Loan to buy or replace a van or other work vehicle, and because it's unsecured, we don't take a charge over it.

Flexi-Loan in action: TDSS UK Morris Yudu ships containers from the UK to West Africa. Six weeks used to pass between loading a container and being paid for it. He now uses his Flexi-Loan to pay upfront to clear and store the goods, loads the container, and sends the invoice the same day. The turnaround on payment dropped from weeks to days, and he repays early with no fee. Read Morris's story

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What each lender checks before saying yes

Your credit record matters to both, but the two lenders are looking at different things.

An asset finance lender underwrites the asset as much as the business. It wants to know what the machine is, who's selling it, and what it would fetch second-hand if it ever had to sell it. A strong, liquid asset – a van, a tractor, a CNC machine – does a lot of the work. That is why asset finance is sometimes available to a company whose own numbers wouldn't support an unsecured facility. If a bank has said no on your accounts, the asset route is worth asking about before the unsecured one.

We're underwriting the business, so there's no machine to lean on. Our credit models assess a wide range of information from just a few documents, and our underwriting experts take on the larger or more complex applications.

A thin track record isn't the same as bad credit, either. Your business might be trading well and still lack the long financial history a risk-averse lender wants to see.

If you'd rather know where you stand before applying to anyone, iwoca Credit Compass is free. It shows your Equifax business credit score alongside four more scores, what's affecting them, and the areas worth working on.

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Which one to choose

Asset finance usually wins when you're buying one thing, it has a long working life, and you intend to keep it. It's cheaper for exactly that job. It also leaves your unsecured borrowing alone, which matters more than people expect. Spend your loan headroom on a van in March and it isn't there for the corporation tax bill in January. Asset finance is secured on the van, so it doesn't touch that headroom. For something high-value, like an HGV, production machinery, or a fleet, start with commercial asset finance.

A loan usually wins when the money isn't going on one asset, or the asset isn't one a finance company will touch. Second-hand kit from a private seller or an auction is the common case, and many asset finance lenders won't fund it at all. So is a fit-out, software, a deposit, or anything that can't be repossessed and resold. A loan is also quicker, because there's no supplier quote, no inspection, and no vendor checks. A decision is made within 24 hours, but it might be longer depending on the complexity of the request.

Neither is right if the repayments only work on the optimistic version of your forecast. We wouldn't lend to a business unless we were confident it could meet its minimum repayments, and that's a fair test to apply to yourself. Work out what the asset will actually earn you, then compare it with the total you'll repay.

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Common questions

Is asset finance cheaper than an unsecured business loan?

For the asset itself, usually yes, because the lender holds the asset as security and prices accordingly. Watch how the rate is quoted, though: a flat rate works out at roughly double the equivalent APR. If you are using both routes on one purchase, tell each lender about the other, because both will count the commitment when they work out what you can afford.

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Can I use a business loan to buy equipment?

Yes. The money goes into your business account and you buy the equipment yourself, which means you own it outright from day one with no charge over it. You can also buy used or private-sale kit that an asset finance lender might not fund. It costs more than financing the asset directly, so it's worth being clear about why you're choosing it.

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What happens if I can't keep up the payments?

Under hire purchase or a lease the finance company owns the asset, so it can repossess and sell it, and you may still owe the shortfall. On an unsecured loan there's no asset pledged to the agreement, so the lender can call on the director's personal guarantee instead. Talk to your lender early either way, before a missed payment becomes a default.

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Sources

• Capital allowances, the annual investment allowance, and full expensing: Claim capital allowances on GOV.UK, checked 14 October 2026.
• Personal guarantees: Director information hub: personal guarantees on GOV.UK, The Insolvency Service, updated 20 May 2026.
• VAT on hire purchase and on leasing: HMRC VAT Notice 700 and VAT Notice 701/49.
• Ownership, repossession, and how hire purchase and leasing compare: British Business Bank guidance on asset finance, checked 14 October 2026.
• Asset finance market size: Finance & Leasing Association, 23 September 2026.
• Our own rates, representative rate and terms: iwoca business loans, checked 14 October 2026.

iwoca is one of Europe's leading non-bank lenders. Since 2012, we've lent over £5bn+ to 100,000+ small and medium-sized businesses in the UK and Germany.