5 signs it’s time to invest in new equipment and how asset finance can help

Running a business is challenging enough without worrying about whether your equipment will work properly each day. And when it comes to major expenses, investing in new business equipment might be the last thing you want to think about.

It’s estimated that over half of UK SMEs are currently stuck with old equipment, and this could be limiting their growth and profitability. New equipment could boost productivity, reduce costly breakdowns, and help you win more customers.

Yet at the same time, the UK asset finance market reached a record £39.7 billion in 2024, showing that smart businesses are investing in their future.

Fortunately, deciding when to replace your equipment isn’t pure guesswork. There are some clear signs that suggest when it’s time to upgrade. And with equipment finance options specifically designed for UK businesses, you don’t need to drain your cash reserves to make it happen.

In this article, we’ll explain the five warning signs that indicate it may be time to invest in new equipment, and how asset finance could help you fund those upgrades without damaging your cash flow.

Key points:

• Keep an eye on warning signs such as rising maintenance costs and frequent breakdowns to identify when it’s time to consider replacing old equipment

• Asset finance options like hire-purchase, leasing, and refinancing can spread out the cost of equipment and preserve your working capital

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

Sign 1: Are your maintenance costs spiralling out of control?

If the costs of maintaining your equipment start eating into your profits, it’s usually the first sign that replacement time is approaching.

The general rule in the UK industry is simple: when maintenance costs exceed 5-6% of your equipment's Replacement Asset Value (RAV), it’s time to consider upgrading. World-class operations typically maintain their equipment at 2-5% of RAV, so anything above 6% should be taken very seriously.

For example, let’s imagine your production line would cost £100,000 to replace today. If you’re spending more than £6,000 (6% of the replacement value) each year on maintenance, repairs, and spare parts, you’re likely in replacement territory.

It’s not just about the money you’re spending now, though. Ageing equipment often requires increasingly specialised parts that become harder and more expensive to source. And in many cases, equipment will become less reliable as it ages. At some point, the time and cost of fixing problems may become a burden too heavy to bear.

Sign 2: Is equipment downtime costing you money?

Equipment failure could bring your entire business to a halt. In the UK, 3% of working days are lost each year in manufacturing due to faulty machinery, contributing to £180 billion in annual losses across the sector.

When equipment fails, the supply line may stop but your expenses will keep flowing. You’ll still pay wages, and perhaps pay overtime to catch up on missed orders.

Delivery delays can also damage customer relationships and cost you future business. Downtime might mean turning customers away entirely.

And if your equipment fails during your busiest trading period, the impact could be catastrophic.

The warning signs often start small. Your equipment might take longer to get up and running each morning, or you might experience minor glitches that reset themselves but interrupt workflow. But in time, it’s more likely these small problems will grow into bigger issues that could significantly damage your operations.

Sign 3: Is your technology falling behind?

All technology has a lifespan. So while your equipment may have been cutting-edge several years ago, it could now be holding your business back. For example, specialised equipment like ice machines typically need replacing after just six years, and packaging machinery needs replacing after 10-15 years.

Computer technology moves at an even faster pace. As a result, your software or hardware supplier might announce end-of-life support – after which you may not receive further security updates or technical support. Smartphones and tablets tend to slow down over time, and eventually become unsafe when security updates are no longer provided.

If you work in healthcare, finance, or manufacturing, you’ll also need to consider compliance requirements since these industries have regular updates to industry standards that older equipment or software may not meet.

For rapidly evolving sectors, IT equipment finance could help your business stay up to date without making major capital expenditures.

Sign 4: Struggling to keep up with customer demand?

Growth is usually good news, but it can become a problem if your equipment can’t keep pace with demand.

Most equipment operates efficiently when utilisation rates stay between 70-85%. But when utilisation consistently exceeds 85-90%, there’s no capacity for growth, no resilience against breakdowns, and no ability to take on larger contracts.

In this situation, you may find yourself regularly telling customers that delivery will take longer than they’d like. Or you may be turning down inquiries because you simply can’t fit them in. If clients start mentioning delays or asking when you’ll be able to handle larger orders, your capacity constraints have probably already become a competitive disadvantage.

If customer demand is causing issues, consider calculating the revenue you’re losing versus the cost of upgrading. If the return on investment shows payback within 3-4 years, upgrading or buying new equipment could make financial sense. A business expansion loan could help here.

Sign 5: Are competitors leaving you behind?

Sometimes the clearest sign that you might need new equipment comes from looking at what everyone else in your industry is doing. If your competitors are consistently outperforming you on speed, quality, or cost, outdated equipment could be the reason.

Industry benchmarking might reveal these gaps, but sometimes the signs are more obvious. For example, if trade publications are talking about new technologies that you haven’t adopted, if your competitors are marketing capabilities that you can’t, or if customers are asking why you can’t do things that competitors offer, you’re probably falling behind.

Environmental impact is also becoming an increasingly important competitive factor. Many customers, particularly larger corporate clients, are prioritising suppliers who can demonstrate progress towards minimising their environmental impact. So if your equipment is energy-inefficient or produces unnecessary waste, you might be losing business to greener competitors.

This can affect recruitment, too. The best job applicants often prefer employers who invest in modern tools and technology. So if you’re finding it hard to attract or retain talent because your equipment is lagging behind the times, it might be time for an upgrade.

Solving this may involve a more strategic investment in equipment that doesn’t just match current industry standards but positions you ahead of the curve. Plant and machinery asset finance could help you leapfrog competitors rather than just catch up with them.

How asset finance could help your business

Once you’ve identified you need new equipment, the next challenge is funding it without damaging your cash flow. And this is where asset finance can become an invaluable resource for UK businesses.

Asset finance lets you use the equipment itself as security for the loan. Since lenders can repossess the asset if you don’t keep up with the repayments, they’re often willing to offer better terms than unsecured business loans. This may explain why asset finance has a 96% approval rate compared to just 44% for traditional bank loans.

The UK asset finance market is large and growing. New business reached £39 billion in 2024 – a 3% increase year-on-year. Asset finance isn’t just for large corporations, with £23 billion of this specifically provided to SMEs.

Your main options fall into several categories, each suited to different business needs and financial situations:

• Hire-purchase agreements let you spread the cost of equipment over 1-7 years while building towards ownership. You’ll typically need a 10-20% deposit, and interest rates generally range from 5-15% APR depending on your business’s credit profile and the asset type.

• Finance leases let you use the equipment without owning it. Monthly payments are often lower because you’re not paying for the full asset value upfront. At the end of the term, you can usually return the equipment, extend the lease, or purchase it at market value. This can work particularly well for technology that becomes outdated quickly.

• Operating leases are the simplest option if you just want to use equipment without ownership responsibilities. Monthly payments are generally the lowest of all options, and maintenance is often included. You simply hand the equipment back at the end of the term. This can work well for vehicles, office equipment, and technology where you want predictable monthly costs.

• Asset refinancing lets you unlock equity from equipment you already own. So if you’ve got valuable machinery, vehicles, or other assets that are paid off, you can borrow against their value (typically 70-85% of current market worth). This provides working capital without losing use of your existing equipment.

Government support is also available through schemes like the Growth Guarantee Scheme, which provides 70% government backing on facilities up to £2 million. The scheme’s designed specifically to help growing businesses access the finance they need for expansion.

A big advantage of asset finance is speed. While traditional bank loans can take weeks or months to arrange, you could get an asset finance decision within 48 hours. This allows you to respond quickly to opportunities or equipment failures and avoid disrupting your business longer than necessary.

Tax benefits also make asset finance an attractive option compared with buying the equipment outright. The Annual Investment Allowance currently lets you deduct the full cost of qualifying equipment up to £1 million in the year of purchase. But different finance structures offer different tax treatments, so it’s worth discussing your specific situation with an accountant.

Is asset finance right for your business?

Choosing the right way to invest in new equipment depends on your specific business situation:

• Cash flow: If holding on to working capital is important, leasing or hire-purchase will help spread your costs over time. But if you have a strong cash balance and want to maximise the tax benefits, purchasing outright with the Annual Investment Allowance might be more suitable

• Ownership: Hire-purchase leads to ownership, making it suitable for equipment you’ll use long-term. But if you want to upgrade assets regularly, operating leases may be the better option. Finance leases offer a middle-ground

• Growth stage: Startups and fast-growing businesses can often benefit from the flexibility of leasing arrangements, while established businesses with predictable finances might prefer the asset-building approach of hire-purchase

• Industry requirements: Fast-changing sectors like technology often suit leasing because it’s easier to upgrade. But industries where equipment doesn’t change too regularly, like manufacturing or construction, might benefit more from ownership

• Tax: Profitable businesses can often maximise capital allowances through hire-purchase or outright purchase, while businesses with variable profits might prefer the steady tax deductions that lease payments provide

To help find out which option may be suitable for your business, calculate the total cost of each type over the period you plan to use the equipment. Include interest, maintenance, insurance, and any tax benefits. Our asset finance calculator can help you compare different scenarios based on your specific requirements.

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FAQs

How do I know if investing in new equipment will actually increase my profits?

Calculate your current equipment’s total costs (e.g. maintenance, downtime, energy, lost opportunities) and compare this to the cost of financing new equipment plus any productivity gains. If the benefits exceed the costs within four years, the investment might make sense.

What’s the simplest way to finance equipment without putting my business at risk?

Asset finance is typically lower risk than unsecured loans because the equipment provides security. But you may want to consider hire-purchase for ownership or operating leases for flexibility. Both help preserve cash flow better than outright purchase.

Can I access equipment finance with limited trading history as a startup?

Some lenders specialise in newer businesses. Asset finance has higher approval rates since the equipment provides security. You’ll need to provide a business plan, cash flow forecast, and possibly personal guarantees.

How do different financing options affect my company’s balance sheet and tax position?

Hire-purchase and finance leases appear on your balance sheet. Hire-purchase allows capital allowances, while lease payments are usually fully tax-deductible. The right choice will depend on your profit levels.

What financing structures allow me to upgrade equipment as my business grows?

Operating leases offer the most flexibility since they usually allow you to upgrade at the end of the loan term. Some finance leases also include upgrade clauses. Consider shorter terms if you expect technology to develop quickly.

How much should I budget for equipment maintenance before considering replacement?

If maintenance costs more than around 5-6% of the equipment’s replacement value, it’s a good time to consider upgrading. You’ll also want to keep an eye out for frequent breakdowns, longer repair times, or difficulty sourcing parts affecting quality or customer service.

What are the true total costs of different financing options?

To find this out, include fees, interest, insurance, maintenance, and tax benefits when calculating the cost. Consider opportunity costs (i.e. what else you could do with the cash you’re not spending upfront) and the residual value for hire-purchase arrangements, and potential upgrade costs for leasing.

How do I avoid overcommitting to equipment that might become unsuitable as my business evolves?

You could choose a flexible option like an operating lease if you’re investing in technology that changes quickly. Consider avoiding long-term commitments for equipment that might become obsolete quickly.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.