Glossary of asset finance terms

8 min read read

You do not need to memorise any of this to arrange finance with us — we will explain anything relevant as we go. But if you like to see the detail in writing, here is a reference you can come back to. Where a term touches on tax or accounting treatment, please confirm the specifics with your accountant, as they will vary with your circumstances.

Balloon payment

A larger, final payment due at the end of a finance agreement, used to reduce the regular payments throughout the term. Common on hire purchase agreements for assets expected to hold their value well.

Residual value

The value a funder expects an asset to be worth at the end of an agreement. It underpins balloon payments on hire purchase and the rental profile on a finance lease.

Documentation fee

A one-off administration charge from the funder to set up a finance agreement, usually added to the first payment or invoiced separately.

Option to purchase fee

A small fee paid at the end of a hire purchase agreement, alongside the final instalment, to formally transfer title of the asset to you.

Flat rate

A simplified interest figure calculated on the original amount borrowed rather than the reducing balance. Useful for quick comparison but not directly comparable to APR.

APR (Annual Percentage Rate)

A standardised measure of the total cost of borrowing, including interest and standard fees, expressed as an annual rate. Allows more like-for-like comparison between offers than a flat rate does.

Deferral

An agreed delay to one or more payments, moving them to a later point in the agreement. Sometimes used to help with a temporary cash flow gap, subject to the funder's agreement.

VAT deferral

A scheme offered by some funders to spread the VAT due on a hire purchase agreement over several months, rather than paying it in full at the outset. Confirm the mechanics and eligibility with your accountant.

Writing down allowance

A UK tax relief that allows a business to deduct a percentage of an asset's value from taxable profits each year. Availability and rates depend on the asset and your circumstances — confirm with your accountant.

Annual investment allowance (AIA)

A UK tax allowance permitting a business to deduct the full cost of qualifying equipment from taxable profits in the year of purchase, up to an annual limit. Confirm current limits and eligibility with your accountant.

Personal guarantee

A director's or partner's personal commitment to cover a company's finance debt if the business itself cannot pay. Often requested for newer companies or larger agreements.

Credit broker

A firm, like Buckingham Leasing, that does not lend money directly but instead arranges finance on a customer's behalf by placing the proposal with a suitable funder.

Lender / funder

The bank or finance company that actually provides the funds and holds the finance agreement with you. We work with a panel of over 40 UK funders.

Hire purchase (HP)

A finance agreement where you pay in instalments to use an asset, and take ownership once all payments (including any option to purchase fee) are made.

Finance lease

An agreement where you pay to use an asset over an agreed term without ever taking ownership, typically followed by a secondary rental period or a sale arrangement at the end.

Operating lease

A shorter-term rental-style agreement, often used for assets with a well-established resale market, where the funder retains more of the residual value risk.

Refinance

Raising funds against an asset you already own outright, releasing capital into the business while continuing to use the asset.

Sale and leaseback

A form of refinance where you sell an owned asset to a funder for a lump sum, then lease it back and continue using it as before.

Primary period

The main term of a finance lease, during which the bulk of the asset's cost is recovered through regular rentals.

Secondary rental

A further period after a finance lease's primary term, typically at a much lower payment, allowing continued use of the asset.

Advance payment

A payment made at the start of an agreement, similar in effect to a deposit, which reduces the amount financed and the size of ongoing payments.

Arrears payment

The standard payment pattern where each instalment is paid at the end of the period it covers, rather than in advance.

Seasonal profile

A payment structure tailored to a business's cash flow through the year, with higher payments in strong months and lower or nil payments in quieter ones.

Funder panel

The range of lenders a broker can approach on a customer's behalf. Ours currently extends to over 40 UK funders across mainstream and specialist providers.

Soft asset

An asset that depreciates quickly or has a limited resale market, such as IT equipment or fit-out works, generally requiring a shorter finance term.

Hard asset

An asset that holds its value well and has an established resale market, such as vehicles, plant or agricultural machinery, generally supporting longer terms and better rates.

Title

Legal ownership of an asset. Under hire purchase, the funder holds title until the final payment; under a finance lease, the funder retains title throughout.

Novation

The formal transfer of an existing finance agreement from one party to another, with the funder's consent, without needing to start a new agreement from scratch.

Settlement figure

The amount required to pay off a finance agreement early, covering the capital still outstanding plus an allowance for the funder's lost interest.

Indicative quote

An estimated figure, based on typical rates and terms, provided before a funder has assessed the specific proposal in full.

Credit acceptance

A funder's formal decision to approve a finance proposal, subject to any final conditions such as documentation or asset checks.

Part exchange

Trading in an existing piece of equipment against the cost of a new purchase, with the agreed value reducing the amount that needs to be financed.

LTV (loan to value)

The amount financed expressed as a percentage of the asset's value, used by funders to gauge their exposure if the asset needed to be recovered and sold.

Term

The agreed length of a finance agreement, typically between 24 and 84 months, chosen to suit the asset and the business's plans for it.