If you are a business, you might be looking at getting a car, or perhaps a fleet of cars.
There are a few ways you can do this;
- Buy outright in cash
- Go through a purchase scheme such as a Hire Purchase
- Lease the vehicles
Leasing is very popular for businesses as it frees up cash and means you do not have your cash tied up in a depreciating asset (more on that later).
So, you might be considering leasing. But, where do you start?
In this article, we look at how to start leasing through a business including what leasing options are available to you and how to qualify for business leasing.
How to start leasing through a business
1. Choose your contract
There are three different options for you when you lease through your business;
- Contract Hire
- Contract Purchase
- Finance Lease
Contract Hire is the most common form of business leasing. When you have a Contract Hire you have the vehicle for a set period of time while paying a monthly fee. You also have to stick to a pre-agreed mileage and keep the vehicle in a condition that is in line with the BVRLA Fair Wear and Tear Guide. If you go over that mileage or your car is judged to be in a condition that is outside of the Fair Wear and Tear Guide, then you will be subject to extra charges.
Once the time on your Contract Hire is up, you hand the car back with nothing more to pay, subject to mileage and condition as we mentioned earlier.
You can read more about Contract Hire here or watch our video below.
Contract Purchase works in a similar way for the duration of the contract. However, at the end of the contract you have three options;
- Hand the car back with nothing more to pay
- Subject to mileage and condition restrictions
- Part-exchange the vehicle
- Buy the car for a pre-agreed value
- This is called the Minimum Guaranteed Future Value and is set at the start of the contract. It does not change for the duration of the contract.
So there is a degree of flexibility when it comes to Contract Purchase. You can read more about Contract Purchase here or watch our video below.
Finance Lease is more suited to vans, as there are no mileage or condition restrictions with a Finance Lease. You pay a fixed monthly fee for a set period of time. You will also set a balloon payment for the end of the contract. This is a larger payment and does not change for the duration of the contract.
When the contract comes to an end you have two options. You can either find a buyer to purchase the vehicle. The money from this will then pay off the balloon payment. If you sell the vehicle for more than the balloon payment then you get to keep the equity but if you sell it for less, you will have to top it up.
Or, you can pay something called a peppercorn rental. This is usually one monthly rental, and you get to keep the vehicle for another year. You can do this as long as the finance house agrees to it, but you will have to pay the balloon payment at some point.
You can read more about Finance Lease here or you can watch our video below.
2. Choose whether you are going to go through a vehicle broker or a dealership
Both have their merits and are suited to different people and different situations.
A dealership is the more traditional way of getting a new vehicle, regardless of whether you are leasing or buying. Dealerships are good if you know exactly which vehicle you want. However, you are limited to one brand, and you might not get the best deal for you. That said, dealerships can access deals for fleets that may not be available to others.
A vehicle broker is perfect for you if you are not sure what vehicle you want, or have a range of options that you want to narrow down. Vehicle brokers are often independent and therefore can offer you an unbiased opinion as they are not tied to one brand or one funder. If they are an experienced vehicle broker then they will have relationships with a variety of finance houses and therefore have a better chance of getting the best deal for you.
However, whichever one you choose is down to what you think is best for you and which you prefer.
3. Go through a credit check
When you get a lease, you will have to go through a credit check. This is because the finance house needs to know that you will make the monthly payments, and they do this by looking at your credit score and your credit history.
When you get a business lease, you will have to be prepared to show the following to the finance house;
- 3 years of address history
- No current CCJ’s
- Proof of positive trading
- For at least three months
- Proof of UK residency
- Opening balance sheet
- If available
- A Director that can act as a guarantor
- A full UK driving licence
You might not be asked to present all of the above to the finance house. If your business has a very strong credit history then they may not ask to see anything. However, you should be prepared to show these to the finance house in order to improve your chances of getting approved for credit.
Can I get a business lease if my business has bad credit?
If your business has bad credit, then there is still a chance that you can lease a vehicle. However, to do this, they may ask you to give a Director’s guarantee.
This is where the Director or the Directors of the company will guarantee that they will take on the responsibility of the monthly payments should the business fail to make them. The Director/Directors will also have to go through a credit check at this point.
If you personally have bad credit but your business has a strong credit score, then you should not be subject to a credit search. Therefore, it should not affect your chances of getting approved for a business lease if you have bad credit but your business does not.
Can I get a business lease if I am a new company or a start-up?
Getting a business lease if you are a new company then it is possible but it may be slightly more difficult. This is because you haven’t been around long and therefore might not have a positive net worth (though we hope you do). Your business also won’t have much of a credit history. Therefore, the finance house can’t guarantee that you will make the payments.
In this case, the finance house may ask you to give a Director’s guarantee. This will greatly improve your chances of getting a business lease.
If you are a start-up, then we recommend you talk to an experienced vehicle broker who will be able to advise you on what you have to provide and the best way to get approved for a business lease.
4. Understand how company car tax works
Once you have been approved you will sign all the paperwork and your vehicles will be delivered. Everything should go smoothly after that.
However, when you lease through your business, the chances are you will have to pay company car tax. And it’s important that you understand how this works before you start leasing through your business.
You will have to pay company car tax if you use your car for personal use. This includes travelling to and from work. You will not have to pay company car tax if your car is kept on site overnight and at weekends, and used by multiple employees for business purposes only (such as travelling to meetings or training days).
However, if you do have to pay company car tax then this is how it works;
How much you will pay in company car tax depends on your personal tax bracket, how much the car itself is worth and how much CO2 it emits. The general rule is the more CO2 the vehicle emits, the more you will have to pay in company car tax.
So if you have a car that is worth a lot of money and emits a lot of CO2, then you will be paying more in company car tax. However, if you have a zero-emission car, then you will be paying very little.
If you have a van, then this is calculated differently. Instead, you have a fixed rate and you will pay a percentage depending on your personal tax bracket. You can read more about company car tax for vans here.
So that’s how you start leasing through your business. It’s very straightforward, and we’re sure that you can understand why it has been so popular and is growing in popularity. Once you have chosen your options for a vehicle and you have chosen whether you are going through a vehicle broker or a dealership then you will have to go through a credit check. This is because the finance house needs to make sure you can make the monthly payments. Once they have the assurance that you will be able to do that, there is no reason why you should not be able to get a business lease. At OSV, we work with business customers all the time, so know the process inside out. Therefore, if you have any questions please don’t hesitate to get in contact with us and we will be happy to help.