Who qualifies for business vehicle leasing?
- Who qualifies for business vehicle leasing?
- What financial requirements do I need for a business vehicle lease?
- Advice for new businesses
- What is fleet leasing and how does it work?
- What business vehicle lease options are there?
Who qualifies for business vehicle leasing?
There are a few business types that qualify for a business vehicle lease.
If you’re a sole trader, then you can get a business lease. In the case of business leasing, a sole trader can be anyone who has a bank account in a sole trader name.
For example, if you have a private bank account in your name and you also have a bank account trading in your name then, in the eyes of the Finance House, you’re classified as a sole trader. This can be as simple as having a separate account for your eBay or Etsy sales.
If you’re registered with HMRC, then you can get a business vehicle lease.
VAT registered companies
If you’re a VAT registered company then you’re eligible to get a vehicle on a business lease. You’ll be VAT registered if your VAT taxable turnover is more than £85,000 over a 12-month period.
If your business has more than two partners working in it then you can get a business car lease.
A Limited, PLC or LLP company
A Limited company registered to a specific address that has a Limited Company Registration Number can also get a vehicle on a business lease.
You’re also eligible for business vehicle leasing if your business is a PLC or you’re in a Limited Liability Partnership (LLP).
Essentially, if your business is making money, chances are that you’re eligible to get a business vehicle lease.
What financial requirements do I need for a business vehicle lease?
There are other requirements that you need to meet in order to qualify for a business vehicle lease.
Whether you’re applying for private or business leasing, you will need to qualify financially. This is due to the fact that you will be making monthly payments for a high-value item – in this case, a vehicle.
The Finance House that will be lending you the vehicle will have to be reassured that you can make the monthly payments. In order to do this, they need to see your financial history.
If you’re looking at a private lease then the Finance House will carry out a credit check in order to confirm that you are able to meet the monthly payments.
If you are getting a vehicle lease through your business then it will be the company that undergoes the check.
First and foremost it’s important that your business has a strong credit score as it will be checked automatically, looking at your score and approving or declining your application for a business lease solely based on that.
What if my business has a bad credit score?
There is still a chance that you will be able to get a vehicle lease even if your business has a weak (low) credit score. However, you may find that you need to submit more data to the Finance House.
There are several things that the Finance House may request, including:
Bank statements for your business. Hopefully, these should show a positive net worth from the last three months. Ideally, your credit check won’t show any CCJs.
If your business has an opening balance sheet then you may be asked to present that, accompanied by the current addresses and valid ID of all company directors.
It’s possible you may also be asked to provide a Director’s Guarantee. This will be if your business has a bad credit score, but a company director has a strong credit score. If this proves to be the case then the Finance House might ask the director to promise that they will take on the business lease payments if the business proves unable to make them at any point.
Advice for new businesses
If your business is relatively new then you will find that getting a vehicle lease may be a little trickier due to the fact that your business might not have much of a credit score. If this is the case the Finance House won’t be able to get the same reassurances that you will be able to meet your monthly payment commitments.
If this is the case you will need to be prepared to provide evidence that you can make the monthly payments, which will likely include presenting them with a cash flow forecast showing that you will be able to meet future monthly payments. You need to bear in mind that this forecast must be realistic as overestimating could well hamper your chances of getting finance.
What is fleet leasing and how does it work?
If you’ve been researching business vehicle leasing for a while then it’s highly probable that you’ve come across the term ‘fleet leasing’.
Fleet leasing is common in businesses that want to offer employees company cars. Company cars have proved to be a great benefit to employees, often attracting highly qualified staff to companies that offer them. In fact, in 2021 we conducted a small survey and 64% of those who responded stated that they would be more likely to apply for a role if a company car was offered.
Essentially, fleet leasing is where the business leases a group of vehicles, vans or cars, for the business and then they are given to employees to use for business and everyday tasks.
Fleet leasing is a highly popular option with many businesses as there aren’t many companies that would prefer to purchase a large number of vehicles in one go. Leasing them is the best, most cost-effective option.
What business vehicle lease options are there?
The most common business vehicle lease is Contract Hire. If you’re thinking of leasing a car, or multiple cars through your business, then the chances are you’re considering Contract Hire.
Contract Hire, otherwise known as Business Contract Hire BCH, is where you have a vehicle, or multiple vehicles, for a set period of time, usually between two and four years, though it can be as long as five or as short as one. During this time, you are responsible for paying a fixed monthly fee. Part of the agreement will also include pre-agreed mileage and keep the vehicles in a condition that is in line with the fair wear and tear standards set by the British Vehicle Rental and Leasing Association (BVRLA).
Once your agreement comes to an end you will hand the vehicle(s) back with nothing more to pay. You can then get a brand new vehicle or a new fleet of vehicles.
Your other option is a Finance Lease. This is a popular choice if a business or sole trader is looking to lease a van as there are no associated mileage restrictions or fair wear and tear standards to adhere to. If you get your vehicle on a finance lease you will have it for a set period of time, making fixed monthly payments plus a balloon payment at the end. You can have your Finance Lease for up to five years.
Once your contract comes to a close, you have two options:
- You can either sell the vehicle to a third-party buyer to cover the remaining balloon payment – if you sell the vehicle on and you get less than the value of the balloon payment you owe then you will be responsible for paying the rest. If you sell it for more, then you get to keep the equity – which you can put towards the price of a new vehicle
- You can pay a small fee (often referred to as a Peppercorn Rental) to keep the vehicle for another year.
As long as you have a business that is making money, you can qualify for a business vehicle lease, even if you’re a sole trader and simply have a separate bank account that you trade from.
However, there are some financial qualifications that you have to consider, which we have mentioned in this article.
We work with businesses every day, helping to walk them through the qualification process and find the right vehicle or vehicles for their business needs.
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