Farm equipment finance: how UK farming companies fund machinery

Farm equipment finance spreads the cost of a tractor, combine or other machinery over a set term. UK limited companies usually choose hire purchase (in which you own the machine at the end), a finance lease or an operating lease (where you don't) or a business loan. This guide compares terms, repayment profiles, how tax is dealt with, asset security and grants.

Worth knowing before you choose: Defra's Farming Equipment and Technology Fund (FETF) 2026 didn't fund items bought on hire purchase or lease, or second-hand items – and it closed on 12 May 2026 (gov.uk, checked 12 October 2026). If you're counting on a grant, check its rules before you pick a way to pay.

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The main ways to finance farm equipment

There are four main routes: hire purchase, a finance lease, an operating lease or a business loan. What matters most when choosing a format is whether your company wants to own the machine at the end, because that influences the VAT, the tax relief and what happens when the agreement ends.

Here's a comparison table to give you an idea of considerations involved:

Machinery is one of farming's biggest costs. Defra estimates UK agriculture used up £2.7bn of equipment through wear and age in 2025 (Agriculture in the United Kingdom 2025, updated 3 September 2026).

To summarise, here's an overview of each option for farming asset financing:

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Hire purchase

With hire purchase, you pay a deposit and regular instalments, then own the machine once the final payment (and any option-to-purchase fee) is made. Your company is treated as the owner for tax, so it can usually claim capital allowances from the start.

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Finance lease

A finance lease never makes your company the owner. If an agreement gives you an option to buy the machine, HMRC treats it as hire purchase or lease purchase instead (HMRC Business Leasing Manual BLM32225). At the end, you usually extend the lease, return the machine or sell it on the lender's behalf and keep a share of the sale price.

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Operating lease

An operating lease works more like long-term hire. The lender takes the risk on what the machine is worth at the end, and you hand it back. Check any limits on hours or wear before you sign.

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Business loans and credit lines

A business loan gives you the money to buy the machine outright. A credit line isn't really a way to buy a machine: it's working capital for shorter-term costs, which we cover below when discussing when a working-capital loan fits better.

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How long can you finance farm equipment?

Lenders usually match the term to the machine's working life. For example, Lloyds Bank lists hire purchase and finance leases over 12 to 60 months (Lloyds Bank asset finance, checked 12 October 2026).

Lloyds Bank funds up to 90% of the price on hire purchase and up to 100% on a finance lease, for new or used items. Some agricultural lenders offer longer terms on machines that hold their value. Ask each lender how the machine's age affects the term.

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Seasonal and balloon repayments: a worked example

Many farm lenders will shape repayments around when money comes in, for example one payment a year after harvest. A balloon lowers regular payments by leaving a lump sum to pay at the end.

Say your company finances a £50,000 machine over five years. To keep the shape clear, this example ignores interest and fees, which every real quote adds.

The annual profile costs the same here, but it keeps cash in the business through the months you're buying seed, feed or fertiliser. Once interest is added, any profile that pays later – an annual payment or a balloon – usually costs more in total, because you owe more for longer.

A balloon still has to be paid, refinanced or covered by selling the machine. Only choose one if you're confident about what the machine will be worth. For more detail, see how balloon payments work on hire purchase.

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VAT and tax relief on financed machinery

With hire purchase, VAT is usually paid upfront and your company can usually claim capital allowances. With a lease, VAT is added to each rental and the rentals are usually a business expense instead.

You can't claim plant and machinery allowances on things you lease "unless you have a hire purchase contract or long funding lease" (gov.uk). The Annual Investment Allowance lets a company deduct up to £1 million a year of qualifying plant and machinery from its profits (gov.uk, checked 12 October 2026).

If your company is VAT-registered, you can usually reclaim it on your VAT return. On hire purchase, though, you may have to fund the VAT until the reclaim comes through. Check the right treatment for your business with your accountant before you sign.

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What lenders ask for: security, guarantees and documents

Asset finance is secured on the machine, so the lender can take it back if payments stop. A lender may also ask a director to sign a personal guarantee, which makes that director personally liable if the company can't repay.

Expect to share recent accounts, business bank statements and the dealer's quote or invoice. Before you sign, check:

• The total amount payable, not just the monthly payment.
• The fees, including any arrangement fee, the option-to-purchase fee on hire purchase and early settlement charges.
• Whether the rate is fixed or variable.
• The end-of-term terms, such as usage limits on an operating lease or your share of the sale price on a finance lease.
• Who pays for insurance and maintenance.

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Are there grants for farm equipment?

Defra's main equipment grant isn't open as of 12 October 2026. The Farming Equipment and Technology Fund (FETF) 2026 opened on 17 March 2026 and closed at midday on 12 May 2026, and Capital Grants 2026 is also closed (gov.uk funding for farmers, updated 1 October 2026).

Here's what the 2026 round looked like, from the gov.uk FETF 2026 guidance:

• It applied to businesses based and registered in England.
• Each application was for £1,000 to £25,000 per theme, with a grant of 40% or 50% of Defra's expected cost for each item.
• Items bought on hire purchase or lease, and second-hand items, weren't eligible.
• Grants were paid on a claim backed by bank statements, so your company had to fund the purchase first.

Defra called FETF 2026 the final standalone round and plans to bring its grant schemes together from 2027 (Defra farming blog). So a grant and asset finance don't usually mix for the same machine. If you farm in Scotland, Wales or Northern Ireland, check your devolved government's schemes instead.

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Who offers farm equipment finance?

Several kinds of provider offer farm equipment finance, such as banks' asset finance arms, specialist lenders and brokers, manufacturers' finance companies and dealers.

It's a good idea to get at least two quotes to compare the total amount payable. For example, Lombard has an agriculture team and funds new or used farm machinery on hire purchase or leasing (Lombard, checked 12 October 2026). Manufacturer finance can come with promotional deals on specific models, so compare the deal against the price you'd pay without it.

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When a working-capital loan might be a better fit (and when it might not)

For the machine itself, asset finance is usually the better fit. The finance agreement is secured on the asset, so it's often cheaper than an unsecured, working capital loan, and its term can match the machine's working life.

However, an unsecured loan makes more sense for the costs around a purchase: the VAT on hire purchase until you reclaim it, the gap before a grant pays out, repairs or seasonal inputs. For land, buildings or longer-term borrowing, see farm loans and agricultural finance.

iwoca lends to UK limited companies. Our Flexi-Loan lets you borrow £1,000 to £1 million over terms up to five years, and it's a business loan with flexible repayment options. You can repay early with no penalty.

You'll get a decision within 24 hours, but it might be longer depending on the complexity of the request. To see what a Flexi-Loan would cost, try our business loan calculator.

Because a Flexi-Loan is unsecured, it will usually cost more than asset finance secured on the same machine. That's why we'd point you to asset finance for the machine and a Flexi-Loan for the costs around it.

Be aware that every new Flexi-Loan needs a personal guarantee from at least one director.

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Frequently asked questions about farm equipment financing

Can I finance used farm machinery?

Yes, many lenders fund used machinery – Lombard and Lloyds Bank both say they fund new or used assets. Grants work differently: FETF 2026 didn't fund second-hand items.

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Can I refinance farm machinery my company already owns?

Often, yes. Some lenders will release cash from machinery you already own – Lloyds Bank, for example, says asset finance can release money from recent purchases. You'll then repay it like any other agreement, secured on the machine.

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What happens if I want to upgrade before the agreement ends?

You can usually settle early and finance the new machine, but check the early settlement terms first, because some agreements charge for interest you'd have paid. On a lease, ask the lender whether it offers upgrades at the end of the term.

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Can a new farming company get equipment finance?

Yes, some lenders work with newer companies. Start-up farms may need to show a business plan and financial projections, and some lenders ask for a larger deposit or a personal guarantee.

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Can I get farm equipment finance quickly?

Decision speed varies by lender. Lombard says a member of its team will contact you within four working hours of a quote, while if using a Flexi-Loan from iwoca, you get a decision within 24 hours.

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Is farm equipment finance tax-deductible?

Usually, in some form. A hire purchase agreement lets your company claim capital allowances on the machine, and lease rentals are usually a business expense. Your accountant can confirm the right treatment.