What’s the difference between vehicle finance, equipment/asset finance, invoice finance and working capital loans?
Short answer: the key differences at a glance
Vehicle finance and equipment/asset finance help you acquire a specific asset, using the asset itself as security and spreading the cost over time. Invoice finance unlocks cash tied up in unpaid customer invoices, giving you an advance against money already earned. Working capital loans provide general-purpose funding to support day‑to‑day operations, often unsecured and not tied to a particular purchase.
Put simply: vehicle and asset finance help you buy or refinance things you need, invoice finance accelerates the cash you’re owed, and working capital loans give you flexible funds to manage cash flow or growth. The right option depends on what you need the money for, your sector, assets, turnover, and affordability.
Best Business Loans does not lend directly. We help UK businesses explore suitable finance providers through smart matching, so you can compare routes with confidence.
Vehicle finance — fund cars, vans, HGVs and specialist fleets
What vehicle finance is and how it works
Vehicle finance is funding for cars, vans, trucks, HGVs, and specialist vehicles such as tippers, refrigerated units or plant transport. The finance is usually secured on the vehicle, with the lender’s risk focused on the asset and its resale value. Common structures include Hire Purchase (HP), Finance Lease, Operating Lease and balloon/guaranteed future value options.
Common structures you’ll see
Hire Purchase (HP): fixed term and fixed repayments; you own the vehicle at the end after paying the Option to Purchase fee. Finance Lease: you pay rentals and may share in sale proceeds or extend for a nominal “peppercorn” rental. Operating Lease: rentals typically cover use rather than full asset cost, often aligned to mileage or hours.
Terms typically range from 2–7 years depending on vehicle type, mileage, age and expected residual value. Deposits can be low compared with bank loans, because the vehicle provides security.
When vehicle finance is a good fit
Use it when you want to spread the cost of a specific vehicle or fleet addition without tying up working capital. It can be tax‑efficient depending on structure and your accountant’s advice. Approval focuses on your business profile, sector stability, and vehicle quality and resale strength.
This route is common for logistics, transport, last‑mile delivery, construction, and service businesses with mobile teams. If you operate in haulage or courier services, you may also find our guide to logistics business loans helpful for sector‑specific considerations.
End‑of‑term flexibility varies. With HP you end up owning the vehicle; with leasing you typically return, extend or upgrade, which helps fleet renewal and maintenance planning.
Pros and considerations
Pros: preserves cash, predictable payments, asset‑backed security can aid approval and pricing. Considerations: asset condition and usage caps matter, early termination can carry costs, and insurance/maintenance obligations sit with you.
As with any finance, affordability and suitability assessments apply. Rates and terms vary by vehicle age, your trading history, and provider appetite.
Equipment and asset finance — fund machinery, tech and tools
What equipment/asset finance covers
Equipment and asset finance lets you acquire or refinance business‑critical assets such as CNC machines, printing presses, commercial kitchen equipment, medical devices, IT and software, or renewable energy systems. As with vehicle finance, the asset typically acts as security, which can expand your funding options beyond traditional loans.
Structures include Hire Purchase, Finance Lease, Operating Lease, and Asset Refinance (raising capital against equipment you already own). Terms usually align to useful life and depreciation patterns. Your accountant can advise on VAT, capital allowances and lease accounting.
Asset finance is common across manufacturing, engineering, agriculture, healthcare, hospitality, and professional services. It helps businesses modernise, automate, and improve productivity without a large upfront outlay.
Benefits and watch‑outs
Benefits: preserves cash flow, matches cost to benefits over time, and may open tax efficiencies depending on structure. Watch‑outs: setup fees, documentation charges and end‑of‑term options differ, so compare total cost of ownership, not just the monthly payment.
Eligibility depends on asset type, age, resale value, and your trading performance. New and mainstream equipment often attracts wider lender appetite than highly bespoke kit with limited secondary markets.
If you need to unlock cash from owned equipment, asset refinance can release a proportion of its value. This can help fund growth projects or consolidate short‑term obligations.
When to choose equipment/asset finance over a loan
Choose asset finance when you know exactly what you’re buying and want fixed, asset‑linked funding with residual value taken into account. You may access larger ticket sizes than a comparable unsecured loan without diluting working capital. It can also simplify budgeting for maintenance and upgrades via planned replacement cycles.
If your priority is flexibility for general expenses, a working capital facility may be better. If your challenge is long invoice payment terms, invoice finance will often be more effective than taking on fixed‑term asset debt.
Best Business Loans helps you compare asset‑specific options and providers active in your sector, so you can align funding to how the equipment will be used.
Invoice finance — unlock cash tied up in unpaid invoices
How invoice finance works
Invoice finance advances a percentage of the value of your unpaid customer invoices, giving you faster access to cash you’ve already earned. You raise an invoice, and the funder advances typically 70–95% within days, with the balance (minus fees) released on customer payment. This can be arranged on a whole‑book basis or selective invoices.
Two main types exist: Factoring, where the provider may manage collections and your customers may be notified; and Invoice Discounting, where collections remain with you and the facility is often confidential. Facility limits flex with your sales ledger, so funding can grow as you grow.
Pricing usually includes a service fee and a discount rate (interest) charged on funds advanced. Eligibility hinges on your debtor quality, concentration, contractual clarity, and industry norms for payment terms.
Advantages and considerations
Advantages: turns sales into working cash quickly, reduces reliance on overdrafts, and supports growth without taking on long‑term debt. Considerations: costs depend on ledger quality, customer concentration and dispute rates, and you’ll need strong invoicing and credit control processes.
Invoice finance suits B2B firms that issue invoices on credit terms, especially in manufacturing, distribution, logistics, staffing and professional services. If you sell to consumers, this solution is less applicable.
Some facilities include bad debt protection (non‑recourse elements) to reduce the impact of customer insolvency risk. Always review terms and coverage limits carefully.
When invoice finance beats a loan
If slow‑paying customers are your core cash‑flow problem, invoice finance targets the root cause by accelerating receivables. Unlike a fixed loan, it can flex up with your turnover without renegotiation. This can be more sustainable than stacking short‑term loans to bridge gaps.
For project‑based or seasonal businesses, selective invoice finance can fund specific contracts while keeping costs aligned to usage. Strong processes for proof of delivery and sign‑off will support approvals and pricing.
If you do not trade on credit terms, consider working capital loans or asset finance instead.
Working capital loans — flexible funds for everyday operations
What a working capital loan is
Working capital loans provide general‑purpose cash to manage everyday expenses, replenish stock, handle seasonal dips, or seize short‑term opportunities. Funding can be structured as a fixed‑term unsecured loan or as a revolving line of credit, depending on the provider. Security may be unsecured or involve personal or debenture‑style guarantees.
Terms range from a few months to several years, with fixed or variable rates. Lenders assess trading history, profitability, bank statements, and existing commitments to gauge affordability. Some facilities specialise in specific use cases such as stock finance or card revenue‑linked advances.
These loans are not tied to a specific asset, so they offer flexibility at the cost of potentially higher rates than asset‑backed funding. Early settlement and drawdown rules vary by provider.
When working capital loans make sense
Choose a working capital solution when you need speed, flexibility, and control over how funds are used. It can help smooth cyclical cash flows, fund marketing pushes, or bridge to a larger investment round. It’s also a common way to consolidate multiple small obligations into a single, planned repayment schedule.
Consider the impact on monthly outgoings and ensure repayments fit your projected cash‑flow profile. If you have a defined asset purchase, asset finance is often more cost‑effective, and if receivables are the pain point, invoice finance may deliver better value.
Best Business Loans helps you explore appropriate providers and facility types, so you can compare terms that match your purpose and budget.
Which option should you choose? A simple comparison and next steps
Side‑by‑side comparison
| Funding type | Best for | Security | Repayment style | Cash‑flow impact |
|---|---|---|---|---|
| Vehicle finance | Cars, vans, HGVs, specialist vehicles | Secured on vehicle | Fixed rentals or instalments | Predictable; aligned to asset life |
| Equipment/asset finance | Machinery, tech, tools, renewable systems | Secured on equipment | Fixed rentals or instalments | Predictable; potential tax advantages |
| Invoice finance | B2B invoices with credit terms | Secured on receivables | Fees + discount on funds used | Flexible; scales with sales |
| Working capital loans | General cash flow and short‑term needs | Unsecured or supported by guarantees | Fixed term or revolving | Flexible; not asset‑linked |
How to decide, step by step
Define the purpose: asset purchase, faster cash collection, or general operations. Map the cash‑flow impact: fixed repayments, pay‑as‑you‑use, or flexible credit. Compare total cost, not just the rate: include fees, early settlement rules and end‑of‑term options.
Check eligibility signals: sector, trading history, customer base, and asset quality. Consider risk and security: are you comfortable with asset‑backed facilities or guarantees. Choose a route that complements your growth plan and accountant’s advice on tax treatment.
If you’re short on time, complete a Quick Quote. Our AI matching helps introduce you to providers active in your sector and suited to your use case.
How Best Business Loans helps
We do not provide loans directly or give financial advice. We use data‑led matching to help you explore suitable lenders and brokers for vehicle, asset, invoice and working capital solutions.
Submit one free enquiry, then review options from professionals who are currently lending in your industry. You stay in control of your decision and are under no obligation to proceed.
Ready to start. Complete your Quick Quote for an eligibility check and indicative options.
Quick FAQs
Is invoice finance a loan?
Invoice finance is a funding facility secured against your receivables, not a traditional lump‑sum loan. You draw funds as invoices are raised and repaid when customers pay.
Do I need a deposit for asset or vehicle finance?
Some providers offer low‑deposit options, but deposit levels depend on asset type, age and your credit profile. A contribution can improve terms and monthly affordability.
Can I use a working capital loan to buy equipment?
You can, but asset finance may be more cost‑effective because the equipment serves as security. Compare both routes and assess total cost and flexibility.
Will customers know if I use factoring?
In factoring, customers are usually notified because collections may be handled by the funder. With invoice discounting, the facility can often be confidential.
Important information and compliance
Information on this page is general and for UK businesses; it is not financial advice. Best Business Loans operates as an independent introducer and does not provide credit or make lending decisions.
Any finance is subject to status, affordability checks, provider criteria and terms, which can change. Rates, fees and advance levels vary and are not guaranteed.
We aim to ensure promotions are clear, fair and not misleading in line with FCA and ASA principles. If you proceed, your chosen lender or broker will provide the required disclosures for their regulated activities.
Next steps: check eligibility in minutes
Tell us about your business and funding purpose via the Quick Quote form. Our system analyses your profile and introduces you to suitable lenders or brokers.
Compare options and decide what fits your cash flow, assets and goals. There is no obligation to proceed, and submitting an enquiry is free.
Updated October 2025. For sector‑specific guidance across manufacturing, logistics, construction, healthcare and more, explore our industry pages.