There are a surprising number of ways in which businesses can finance the acquisition of a new company vehicle, although these options are more restrictive if yours is a new business or a start-up. New businesses do not have the operating capital of existing organisations, and they are also free of any trading and credit history, which makes getting finance a lot more challenging.
Effectively, the acquisition of a company vehicle for your new business is likely to come down to two options – buy a vehicle outright or take advantage of car and van lease options that currently exist. In this article we look at vehicle leasing, highlight the potential benefits and pitfalls of this method of accessing a new company vehicle, and help you decide whether it is the right option for you and your business.
Leasing A Company Vehicle
Leasing is similar, in some respects, to business vehicle rental. It does allow you access to a car, van, or other company vehicle, that you can use for the daily running and operation of your business and it doesn’t require the initial outlay associated with buying a vehicle.
You will need to pay a deposit, usually equivalent to around 3 months of lease payments, but this is still substantially less than the cost of buying a vehicle outright. There is also a very wide range of vehicles that can be acquired in this way, including cars, vans, and specialist vehicles. There are restrictions on how the vehicles can be used, and if you cover a lot of miles then you may find that you have to pay a premium to cover this kind of mileage.
The Benefits
The biggest benefit of leasing a vehicle, compared to buying one, is that you don’t have to pay the full cost of the vehicle upfront. You will be asked to pay a deposit, in most cases, but this is still substantially less than the cost of buying.
You don’t suffer depreciation to the same extent as you would if you purchase the vehicle, although depreciation is obviously taken into account by the leasing company when calculating costs.
Choose from a large selection of vehicles and vehicle types. Motorbikes, cars, vans, removal lorries, shipping trucks, and even specialist vehicles like waste removal vehicles, are available to lease.
Lease terms are usually quite flexible, and you can tailor the terms of a lease to your specific requirements. Choose whether you want a one year, two, or three year lease. You may even be able to have some say in the size of the deposit that you pay up front, and some agreements include servicing and other costs too.
You will always have access to a new, or nearly new vehicle. Once the lease agreement ends, you may have the choice of returning the vehicle, paying a fee to own it outright, or swapping it for another vehicle and starting a new lease agreement. The constant cycle of selling your old vehicle and buying a new one is much more difficult and will cost you more in the long run, making leasing a better option if you want short lease agreements and access to the latest vehicles.
The Pitfalls
There are many benefits to leasing cars, but there are potential pitfalls too. A company vehicle is a financial asset, but only if it is owned outright. If you lease a vehicle, then you never own it, and some businesses and managers consider this to be lost money.
A lease agreement is, effectively, a form of credit. New businesses struggle to acquire almost any form of credit, except for the smallest amounts. As a new business, with no credit history or trading history, you could find that you are heavily restricted with regards to the vehicles that you are able to lease and to the terms of the agreement that you are offered. It is likely that you will have to pay a higher rate, too, which could mean that a lease is too financially restrictive for you.
Other restrictions may also be found in lease agreements. An agreement might cover you to cover a set number of miles and if you intend to drive more than this, then you will pay a premium rate for the privilege.
You will be expected to provide details about your business. You will have to show up to three months’ accounts, and if you do not have this because your business is so new, then you might not be able to get a vehicle lease at all. A financing company may also request details of previous business ownership and management experience, as well as the trading history of that organisation. You will have to provide a lot of paperwork if you want the lease.
Other Options
Leasing a vehicle is just one option and one potential means of acquiring a car or van for your business, but it is considered one of the most beneficial.
Buying a vehicle outright means finding the capital to make the purchase, or taking out finance. In the same way that finance for a lease agreement can be difficult to acquire, so too is finance used for buying a vehicle. In fact, if you have to approach a bank or major lender, you could find it even more difficult.
You could use your own, existing vehicle, if it is suitable. This means placing additional wear and tear on your family car, and if it breaks down, then you are not only without a company but without a family car too. Check your existing car insurance policy because it would be unusual if it incorporated business use alongside personal use.
Public transport may be a viable alternative to a company vehicle. Getting a train even enables you to do some work on the way to meetings or on the way to a job, but if you travel to multiple sites over the course of a day then this is a highly inconvenient mode of transport for business use.
