Guide To Vehicle Leasing For Start-Ups And New Businesses
The journey to starting a new business comes with a multitude of challenges.
One major challenge is how to meet the businesses transportation needs without incurring significant upfront costs. Business vehicle leasing can present an attractive solution for start-ups and new businesses alike.
Who Qualifies For Business Car Leasing:
Applicants must fall in to one of the following criteria to be eligible for a business vehicle lease:
- Sole Trader: A bank account registered in your sole trading name.
- VAT Registered Company: Businesses must register for VAT if their VAT taxable turnover is more than £85,000. They can also choose to register if their turnover is less than £85,000.
- Partnership: If the business has two or more partners actively involved.
- Limited Company: Private Limited Companies (PLCs) and Limited Liability Partnerships.
New Business Leasing Options
There are two main vehicle leasing options for new businesses and start-ups: business contract hire (BCH) and business contract purchase (BCP).
1. Business Contract Hire (BCH)
Business Contract Hire (BCH) is a leasing solution designed specifically for businesses, allowing them to use vehicles without taking on the responsibilities of ownership. In this arrangement, the company pays fixed monthly rental fees over an agreed-upon period, typically ranging from 2 to 5 years.
Here’s how it works:
- Vehicle Selection: Businesses can choose the make, model, and specifications that best meet their needs.
- Lease Term: The business and the leasing company agree on the length of the lease required.
- Annual Mileage Cap: Negotiate the highest allowable annual mileage.
- Monthly Payments: Fixed monthly payments are calculated based on factors like the vehicle’s cost and depreciation.
- Maintenance and Repairs: Some contracts can include maintenance packages to cover necessary repairs.
- End of Lease Options: At the end of the lease, businesses can choose to extend the lease, upgrade to a new vehicle, or simply return the current one. Ownership remains with the leasing company throughout the lease and after it ends.
2. Business Contract Purchase (BCP)
Business Contract Purchase (BCP) is a financing agreement that allows businesses to lease a vehicle for a set period of time, with the option to purchase it at the end of the contract for a prearranged price.
Here’s how it works:
- Vehicle Choice: The business selects the make, model, and specifications that best suit their operational needs.
- Lease Term: The business and the financing company agree on a contract length, typically ranging from 2 to 5 years.
- Monthly Payment Plan: Fixed monthly payments are made to the financing company based on the vehicle’s purchase price minus any deposit or trade-in value.
- Balloon Payment: At the contract end, a final “balloon payment” covers the remaining vehicle value not paid during the contract, this is based on anticipated depreciation.
- End of Lease Options: At the end of the contract, the business has three options:
- Purchase the Vehicle: Pay the balloon amount for full ownership.
- Return the Vehicle: Give back the vehicle if it meets conditions and mileage limit.
- Part-Exchange or Refinance: Swap for a new vehicle or refinance the balloon payment for continued use.
Checklist To Qualify For Business Leasing
To qualify for a business car lease, you must:
- Be a registered business entity or self-employed.
- Pass a credit check.
- Be able to afford the monthly lease payments.
- Have a valid driving licence.
- Meet the age requirements (some companies may have age restrictions for drivers).
Requirements vary among leasing companies, so do check how car leasing works for each you are considering.
Applying For Business Car Leasing With Poor Credit
Start-ups and businesses with very little or no credit history may have difficulty getting financing from traditional lenders. However, the good news is there are specialist companies that offer car finance to businesses with bad credit. Companies such as Compass Vehicle Services Ltd (CVS) specialise in leasing cars to businesses with poor or no credit, as cost effectively as possible.
When applying for bad credit car leasing, startups and new businesses will typically be required to provide additional documentation and information, such as:
- Trading history
- Management accounts
- Bank statements
- Contracts related to sales and supplier arrangements
- Track record and career history of key individuals
- Profitability forecasts and projected cash flows
- Business plan
This information will help the lender to assess the risks associated with lending to a company with no credit history. The lender will look for evidence of financial stability, operational stability, and management expertise. They will also want to see that the business has a clear plan for success.
Summary
While the world of business car leasing may seem a little intimidating or confusing. With the right knowledge and understanding, you can navigate the process with ease.
Business car leasing has many benefits for new businesses and start-ups:
- Lower Upfront Costs: Business car leasing requires less initial investment, freeing up capital for other business activities.
- Predictable Expenses: Fixed monthly payments simplify budgeting and financial planning.
- Tax Advantages: Potential tax deductions and VAT recovery for vehicles used for business purposes.
- Access to Newer Vehicles: Enjoy the latest models without the long-term commitment of ownership.
- Reduced Maintenance Costs: Major repairs are typically covered under the manufacturer’s warranty.
- Flexibility and Scalability: Leasing arrangements can adapt to the evolving needs of your business.
- Asset Management: Leased vehicles are not listed as assets, so they don’t appear on the balance sheet.
- Reduced Depreciation Risk: You avoid concerns about vehicle depreciation.
Remember, your perfect business vehicle is out there waiting for you; it just takes a little patience and research to find it.
