Sale and leaseback and asset refinance: releasing cash from equipment you own

Most businesses think of asset finance as a way to buy something new. But if you already own valuable equipment, it can work in reverse: the machine on your workshop floor or the lorry in your yard can be turned into cash, while it carries on earning for you.

This is called sale and leaseback, or more broadly asset refinance. It's a well-established kind of business finance, but it has real costs, and you're paying again for something you'd already paid off. This guide explains how it works, what qualifies and when it makes sense.

How sale and leaseback works

The idea is simple. A finance company (we'll call it the funder) buys an asset from your business and immediately lets you carry on using it under a finance agreement. The asset never moves. What changes is who owns it, and that you now make regular payments for it. At the end, depending on the agreement, you either own it again or keep using it for a small ongoing rent.

Leaseback or hire purchase back: the two main versions

The names get used loosely, so it helps to know the two structures you're likely to be offered. Both start with the funder buying your asset. They differ in what happens next.

• Sale and leaseback. The funder leases the asset back to you, usually on a finance lease. The funder stays the legal owner. At the end of the term you can normally keep using it for a small annual rent, or it's sold and you receive most of the proceeds.
• Sale and hire purchase back, often just called refinance. The funder sells the asset back to you on hire purchase (HP). You make fixed instalments, and once you've paid the last one, usually with a small option-to-purchase fee, the asset is yours again.

The question that decides it is whether you want to own the asset again at the end. VAT and tax also follow the type of agreement, and our guide to hire purchase vs leasing explains how each works.

What assets qualify

Funders are lending against the asset, so they care most about whether they could sell it if things went wrong. The easiest assets to refinance are hard assets with an active second-hand market:

• Vehicles: vans, lorries, trailers, tractors and specialist vehicles
• Construction plant: diggers, dumpers, telehandlers and cranes
• Production machinery: CNC machines, presses, printing equipment and packaging lines
• Agricultural equipment and other machinery with a known resale value

Soft assets are much harder. Fit-outs, software, IT, furniture and anything bolted into a building have little resale value, so most funders won't refinance them on their own.

The asset also needs to:

• Belong to your business, with invoices or other evidence to prove it.
• Be in good working order, with enough useful life left to outlast the agreement.
• Be free of other finance, or have existing finance that the new funder can settle as part of the deal (more on that below).

If a lender already holds a debenture over your company, a charge over its assets that banks often take alongside an overdraft or loan, the funder may need that lender's consent or a waiver before it can buy the equipment. You can check what's registered against your company on Companies House.

How funders value your equipment

The single most important point: funders lend against what the asset is worth now, not what you paid for it. A machine that cost £150,000 a few years ago might be worth a fraction of that today.

For larger or specialist assets, expect an independent valuation, often with an inspection. For common vehicles, the funder may rely on trade price guides and a history check. Either way, the value turns on make, model and age, condition, hours or mileage, service records and how easily the asset could be sold.

The funder then advances a proportion of that value, not all of it. The share depends on the asset, the funder and the strength of your business. Assets that hold their value and sell quickly attract a higher proportion than niche kit with few buyers. Some funders value assets at what they'd fetch in a quick sale rather than in an ideal one, which comes out lower.

Assets that are still on finance

You don't have to own an asset outright to refinance it. If you're part-way through an HP agreement and the asset is now worth more than you owe, the difference is your equity. A new funder can pay off the old agreement and release some of that equity to you as cash.

Check the settlement figure on your existing agreement first. Ending finance early can involve charges, and those eat into what you receive.

What businesses use it for

It can make sense for:

• Growth. Funding a new contract, more staff or a second site, using assets you already have rather than taking on unsecured debt.
• Buying more kit. Using the equity in older machines towards new ones.
• A cash flow gap. A big customer paying late, or a seasonal dip, when you're confident the money is coming.
• A tax bill. Releasing cash to pay VAT or corporation tax on time. Compare it against the other routes in our guide to borrowing for a VAT or tax bill, because HMRC's own Time to Pay arrangement is often cheaper.
• Paying off pricier debt. Replacing short-term, expensive borrowing with finance secured on an asset, if the numbers genuinely add up.

The common thread is that the cash should do something that improves the business. If you're refinancing equipment to cover ongoing losses, it buys time but doesn't fix anything, and you'll have one less asset to fall back on.

What it costs

You're borrowing money, so you pay for it. Costs usually include:

• Interest or finance charges built into your payments
• An arrangement or documentation fee
• A valuation fee, if an independent valuation is needed
• An option-to-purchase fee at the end of an HP refinance
• Charges for settling any existing finance early

As always, ask for the total amount repayable in pounds, and compare that with the cash you'll actually receive. A low monthly payment over a long term can cost more overall than a higher one over a short term.

The risks

Be clear-eyed about what you give up:

• You're paying again for something you'd paid off. Over the term, you'll pay back more than you receive.
• You lose ownership during the term. You can't sell the asset or use it as security for anything else until the agreement ends.
• The asset is at risk if you fall behind. The funder can repossess equipment your business relies on, perhaps kit that was entirely yours before.
• Personal guarantees. Directors are often asked to guarantee the agreement personally. Read our guide to personal guarantees before you sign one.
• Ending early can be expensive. If you later want to sell the asset or clear the agreement, check the settlement terms first.

VAT, tax and your accounts

This is the area to take advice on before you sign, because the treatment depends on how the deal is structured and on your own tax position.

• VAT. Whether VAT applies to the sale to the funder, and to the payments afterwards, depends on the structure. Lease rentals normally have VAT added. Ask the funder to set out how it treats VAT on your deal, and check it with your accountant.
• Capital allowances. Selling an asset you've claimed capital allowances on usually counts as a disposal, which can claw back some of the relief you've had, especially if you deducted the full cost when you bought it. There are specific tax rules for sale and leaseback, so ask your accountant to work out the effect first. HMRC's guidance on capital allowances explains the basics.
• Your accounts. Sale and leaseback can affect how both the asset and the finance appear on your balance sheet, and UK accounting rules for leases changed for many businesses from 2026. Your accountant will know how it affects you.

An illustration, not a quote. A manufacturing company owns a CNC machine it bought outright for £150,000 four years ago. An independent valuer puts its current value at £80,000. The funder agrees to advance 75% of that, £60,000, on a three-year hire purchase refinance.

The company receives £60,000, less any fees, and keeps the machine running. It then makes 36 monthly instalments. If the total repayable came to £70,000, the finance would cost £10,000 over three years, plus fees. After the final payment, and a small option-to-purchase fee, the machine belongs to the company again.

If the company still owed £20,000 on an old agreement for the same machine, the funder would settle that first, and the company would receive around £40,000 instead.

Your own figures will depend on the asset, its value and your business.

What funders will ask for

Expect to provide details of the asset (make, model, serial number, age and location), proof of ownership such as the original purchase invoice, settlement figures for any existing finance, recent business bank statements and, for larger amounts, your latest accounts.

The asset carries much of the decision, but funders still need to see that the business can afford the payments. Our guide to plant and machinery finance covers how lenders assess equipment deals more broadly.

Common mistakes to avoid

• Expecting what you paid. Valuations are based on today's second-hand value. Get a realistic idea of what your kit is worth before you plan around the money.
• Refinancing to cover losses. It delays the problem and adds a monthly payment. Fix the cause, or get advice.
• Ignoring the tax. A capital allowances clawback can arrive in your next tax bill. Ask your accountant before you sign, not after.
• Forgetting your bank. If your bank has a debenture, talk to it early. A surprise consent request can hold up the deal.
• Overlooking regulation. Agreements of £25,000 or less with sole traders and small partnerships are regulated by the FCA. Agreements with limited companies and LLPs generally aren't, so you have fewer statutory protections.

Questions people ask

What is sale and leaseback?

Sale and leaseback means selling an asset your business owns, such as a machine or vehicle, to a finance company, which then leases it back to you. You receive a lump sum and keep using the asset, in return for regular payments over an agreed term.

What's the difference between sale and leaseback and asset refinance?

Both start with a funder buying an asset from you. With sale and leaseback, the funder usually stays the owner and leases it to you. With a refinance on hire purchase, you buy it back through fixed instalments and own it again at the end.

How much can I raise against my equipment?

It depends on the asset's current market value, not what you paid. Funders advance a proportion of that value, and the share depends on how easily the asset could be resold and on the strength of your business. An independent valuation is common for larger or specialist assets.

Can I refinance equipment that's still on finance?

Often, yes, if the asset is worth more than you still owe. A new funder settles the existing agreement and releases the difference, your equity, to you as cash. Check your settlement figure first, as ending finance early can involve charges.

Does sale and leaseback affect my tax?

It can. Selling an asset you've claimed capital allowances on usually counts as a disposal, which may claw back some relief, and the VAT treatment depends on how the deal is structured. Ask your accountant to check the effect before you sign.