If you own assets outright — a commercial property, a fleet of vans, machinery that’s been paid off for years — there’s value sitting there doing nothing but depreciating on paper. Equity release finance is simply a way of turning that locked-up value back into working capital, without selling the asset itself.
It’s not free money, and it’s not right for every business. But used properly, it’s one of the more underused tools available to SMEs who’d rather borrow against what they already own than take on unsecured debt or give away a slice of the company to an investor. This guide covers how it works, what it does to your balance sheet, whether the interest is tax-deductible, how easy it actually is to get, and whether it’s worth doing at all.
What “equity release” means for a business
For a limited company or sole trader, this usually takes one of two forms:
Commercial property refinance. If you own your premises outright, or have paid down a chunk of an existing mortgage, a lender will value the property and let you borrow against the difference between its value and any existing debt — either as a further advance from your current lender or a full remortgage elsewhere.
Asset refinance (including sale-and-leaseback). For equipment, machinery or vehicles you own outright, a lender values the asset and releases a lump sum secured against it, with the asset itself as security. Sale-and-leaseback goes a step further: you formally sell the asset to the lender for a cash sum, then lease it back and keep using it as normal.
Both routes free up cash without you having to give up use of the asset day-to-day — the difference is what’s on the other end of the risk: with a secured loan, you owe the debt and could lose the asset on serious default; with sale-and-leaseback, you no longer own it and are committed to lease payments for the term.
The benefits
- Cash without dilution. Unlike bringing in an investor, you keep full ownership and control — you’re borrowing, not selling equity in the business.
- Often cheaper than unsecured borrowing. Because the lender has a tangible asset as security, rates are typically lower than unsecured business loans or credit cards.
- Speed relative to selling. Releasing equity is usually faster than selling an asset outright and buying time or specification back, particularly for property.
- Flexible use of funds. Unlike some asset finance products tied to a specific purchase, equity release cash can typically be used for whatever the business needs — stock, wages, expansion, another asset entirely.
- You keep using the asset. The building stays open, the van stays on the road, the machine stays on the shop floor — the finance sits behind the scenes.
What it does to your balance sheet
This is where it’s worth slowing down, because the two routes behave differently:
- Secured loan / further advance: the asset stays on your balance sheet at its existing value, but a new liability appears — the loan. Your gearing (the ratio of debt to equity) increases, which can make the business look more leveraged to future lenders, credit insurers, or anyone assessing risk. It doesn’t change your profit and loss directly beyond the interest cost, but it does reduce net assets.
- Sale-and-leaseback: the asset comes off your balance sheet (you no longer own it), replaced by a lease liability under current lease accounting rules, alongside the cash received. Depending on your accounting framework, most leases now have to be capitalised, so the balance sheet impact is often closer to a straight loan than businesses expect — worth raising with your accountant before assuming it’s “off balance sheet” in the way it used to be.
Either way, expect a lender assessing you for other finance afterwards to factor in the new debt when calculating what else you can service.
Can you claim the interest as relief?
Limited companies: interest on a loan taken out wholly and exclusively for business purposes is generally an allowable expense, deductible against profits before corporation tax. For most SMEs, the corporate interest restriction rules (which can limit relief for very large borrowers) simply won’t come into play — they’re aimed at much bigger companies. Lease payments under a sale-and-leaseback arrangement are typically deductible too, though the exact treatment (interest element vs capital element) depends on how the lease is structured — this is one to run past your accountant rather than assume.
Sole traders: the same principle applies but with an apportionment step. If the asset and the finance are 100% business use, the interest is fully deductible against your business profits for income tax purposes. If there’s any private use mixed in — a van that’s also the family car at weekends, for instance — you can only claim the business-use proportion, and you’ll want a reasonable basis for that split (mileage records, time-use, whatever’s defensible) rather than a guessed percentage.
In both cases, it’s the interest that’s relievable as a cost of finance — the capital repayment itself isn’t a deductible expense, it’s just paying back what you borrowed.
Is it easily available, and what’s involved?
Availability is generally good — high street banks, specialist commercial mortgage lenders, and asset finance companies all operate in this space, often via brokers who can shop the deal around multiple lenders at once. That said, “available” doesn’t mean “quick and simple”:
- Valuation. The lender will need an independent valuation of the property or asset — you pay for this upfront regardless of whether the deal completes.
- Loan-to-value limits. Lenders won’t release 100% of the asset’s value; expect meaningful headroom to be left in, often 60–75% loan-to-value for property, sometimes less for depreciating equipment.
- Credit and affordability checks. For a limited company, expect scrutiny of both the business’s accounts and, very often, a personal guarantee from directors — particularly for younger or smaller companies without a long trading history. Sole traders are assessed as individuals, since there’s no separate legal entity to check.
- Legal and administrative costs. Property refinance in particular involves solicitors on both sides, land registry checks, and existing charge-holders (if any) needing to consent — this adds weeks and cost, not days.
- Timescales. A straightforward asset refinance on equipment can sometimes complete in a couple of weeks; commercial property refinance is more commonly measured in one to three months once valuation and legal work are factored in.
Is it worth it?
That depends entirely on what the money’s for and what it costs to get it. A few questions worth being honest with yourself about before signing anything:
- Will the return from what you’re funding (new equipment, stock, a hire, an expansion) exceed the cost of the finance over its term? If not, you’re just paying to move cash forward in time.
- What happens if trade dips and you can’t service the new debt? With the asset as security, a serious default risks losing it — including, in the worst case, the premises you operate from.
- Does taking on more secured debt now limit your options later — for example, would it make it harder to get a mortgage extension, an overdraft, or another finance facility down the line because the asset’s already leveraged?
- Have you compared it against the alternatives — an unsecured loan, invoice finance if you’re sitting on unpaid invoices, or simply saving up and buying outright over a longer period?
Equity release finance is a genuinely useful tool for funding growth without diluting ownership, but it converts an asset you own outright into an asset you owe against. That trade-off is worth making with eyes open, not just because a lender says you’re eligible.
Limited Company and Sole Trader Perspectives
Limited company example: a haulage firm with a fleet of six HGVs owns two of them outright, each valued at around £45,000 with no finance against them. It refinances one HGV to release £28,000 at roughly 60% loan-to-value, secured against the vehicle, to cover a driver shortage bonus scheme and a deposit on a seventh truck. The loan sits as a new liability on the balance sheet against an asset that stays exactly where it is — on the road, earning; interest is deductible against corporation tax as a normal trading expense, and directors provide a personal guarantee as part of the lending terms.
Sole trader example: a self-employed owner-driver owns his HGV outright, fully paid off after five years on the road, and uses it 100% for haulage work with no private use. He takes an asset refinance loan against the truck to cover a VOSA-flagged engine rebuild and a few months of tighter cash flow while a major client is slow to pay. Because the vehicle is wholly business-use, he can claim 100% of the interest as an allowable business expense against his income tax.
Checklist before you release equity
- Know exactly what the funds are for and what return you expect
- Get an independent read on the asset’s current value before approaching lenders
- Compare at least two or three lenders or go via a broker rather than accepting the first offer
- Ask specifically how the deal will be treated on your balance sheet — loan vs lease can differ
- Confirm with your accountant what proportion of interest is genuinely deductible
- Understand exactly what you lose if you default — the specific asset, not just “the loan”
- Check how the new debt affects your ability to borrow elsewhere afterwards
The Gaffer’s take: this is a solid option for businesses with real, unencumbered value in their assets and a clear plan for what the cash will do — it’s a much worse idea as a way of papering over an underlying cash flow problem you haven’t otherwise solved.