2 min read
Why equipment finance is different from working-capital borrowing
Working-capital facilities are designed to smooth short-term cash-flow gaps — they are drawn, used and repaid within weeks or months. Equipment finance is a longer-horizon decision: you are acquiring an asset that will generate productive output over several years, and the financing should be matched to that lifespan rather than treated as a short-term liability.
Funding a five-year asset from a 90-day working-capital facility creates a mismatch that most lenders will flag. The better structure is a facility whose term reflects the asset's useful life and whose repayments are sized against the revenue or efficiency gains the equipment delivers.
Evaluating the true cost of upgrading versus maintaining
Before funding an upgrade, directors should build a business case that compares the total cost of continuing with existing equipment — including maintenance, downtime, energy cost and lost throughput — against the total cost of the upgrade including finance. This is not just a financial exercise; it is the document a lender will expect to see.
- Obtain at least two supplier quotes for the new equipment
- Estimate downtime cost per day if the existing equipment fails
- Quantify throughput or efficiency gain in units or hours
- Check whether capital allowances or full-expensing apply in the relevant tax year
Preparing the lending conversation
Commercial lenders assessing equipment finance want to understand the asset, its residual value and its role in revenue generation. A CNC machine, a commercial vehicle, a production line and a diagnostic tool are assessed differently because their resale markets and productive lives differ. Being specific about make, model, age and intended use shortens the underwriting process.
Directors should also be clear about whether the equipment is new or used, and whether the supplier offers a part-exchange on existing assets — this can reduce the borrowing requirement materially.
Tax considerations worth raising with your accountant
The Annual Investment Allowance and the full-expensing regime for qualifying plant and machinery can affect whether it is more efficient to purchase outright (with finance) or to use a leasing structure. This guide does not constitute tax advice; directors should confirm the position with their accountant before committing to a structure. The timing of the tax deduction can affect the effective cost of the two routes meaningfully.
Frequently asked questions
Is there a minimum equipment value for commercial lending?
Minimum thresholds vary by lender and facility type. Some commercial lenders will not consider assets below £10,000 because the administration cost relative to the loan size is disproportionate. Credicorp focuses on limited companies and LLPs; eligibility depends on the overall application, not the asset value alone.
Can we fund second-hand equipment through a business loan?
Used equipment can be funded through commercial lending, though lenders will assess residual value more conservatively than for new assets. Providing a recent independent valuation or a documented market price helps the underwriting process.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.