Unfortunately, because you are a new business then it is going to be more difficult to get a business lease than if you were an established company. However, don’t be put off or let that deter you, you can still qualify for a lease. This is what we are going to talk about in our article.
Can I get a business lease?
Firstly, let’s have a look at whether you qualify for a business lease. You are eligible for business leasing if you;
- Are Self-employed
- Are in a Partnership
- Have a limited company
- Are a charity
- Are part of Central Government
- Are a PLC
- Are a Limited Liability Partnership
- Have a VAT registered business
- Are a Local Authority
- Are an Embassy
So the chances are that if you are reading this article, you are eligible for a business lease.
What is the criteria for vehicle leasing for new businesses?
When you lease a car, you have to go through a credit check. This is to ensure that you can make the monthly payments.
However, when you are a business, established or otherwise, you have to go through additional checks by the finance house. This is standard practice, and is just to ensure that your business and yourself can make the monthly payments.
You will provide bank statements showing a positive net worth, these usually need to be from the past three months. You will also have to provide proof of address and ID. Your business and the Directors (in most cases) will also have to go through a credit check.
If all of this checks out and you are shown to have a strong credit score and a positive net worth, then there is no reason why you shouldn’t qualify for vehicle leasing.
There is just one minor problem, and that is that you are a new company. This means that it is more difficult for the finance house to know you are going to be able to make the payments in the future.
This means that you will have to provide more to show to the finance house that you are confident you can make the payments. You will need to show a plan to the finance house to prove that you can afford to make the payments, and this may include providing a cash flow forecast. Of course, this has to be realistic, if it isn’t then the finance house might not take it seriously. But, the more you are willing to present the finance house the more convincing your argument that you will be able to make the monthly payments.
If you are a Limited Company, then the finance house may ask you to provide a Director’s Personal Guarantee (DPG). This is where you say that you will take on the monthly payments should the business fail to make them. It’s basically an extra assurance for the finance house
This doesn’t always mean you cannot get a vehicle lease through your business. There is still a chance that you will qualify if the Directors have a very strong credit score and the bank statements that your new business has been very strong. However, there is a chance that the monthly payments will be higher, because you are more of a risk to the finance house.
What are the alternatives to vehicle leasing for new businesses?
If you are unsure whether you will qualify for vehicle leasing, then there are other options.
You could look at cash purchase, which is buying the vehicle outright either with cash or via a bank loan. Alternatively, you could look at buying a used car which is more affordable.
Another option is looking at personal leasing. If you have a strong individual credit score, then there is no reason why you cannot lease a car personally rather than through your business. This is a very viable option, and you can discover more options via the link below.
What business leasing options are there?
If you do qualify for business leasing, then you will want to know what options are available to you.
Business Contract Hire
Business Contract Hire is the most common form of leasing and is often what people are talking about when they discuss leasing.
When you have a Business Contract Hire, you pay a monthly fee for a set period of time, usually 2-5 years. Once that time is up, you hand the car back with nothing more to pay. When you get a Business Contract Hire you agree to a set mileage and are obliged to keep the vehicle in a condition that is in line with the BVRLA Fair Wear and Tear Guide. If you do not, then you will be subject to extra charges. You can read more about excess mileage charges here and what happens if you damage your lease car here.
A Finance Lease is the more traditional form of leasing, but is designed more towards the vehicles that are going to be doing high mileage or are at risk of getting damaged beyond Fair Wear and Tear. This is because there are no mileage or condition restrictions on a Finance Lease.
It works the same way as a Business Contract Hire where you make monthly payments for a set period of time. At the end of the contract, you will sell the car to pay off the final payment, otherwise known as the balloon payment. Alternatively, you can pay a peppercorn rental (a small payment, usually one monthly payment) to keep the vehicle for another year. You can do this for as long as you want (as long as the finance house agrees) but you will still have to make the final payment.
You can read more about Finance Lease here or watch the Finance Lease video below
Business Contract Purchase
Business Contract Purchase is the more flexible leasing option, and is great for those who aren’t sure what they want to do with their vehicle at the end of the contract.
It works in the same way as the other two in that you make monthly payments for a set period of time. Once that time is up, you have three options;
- Hand the car back
- You are still subject to mileage and condition restrictions
- Part-exchange the car
- Buy the car for a pre-agreed value
- This is called the Minimum Guaranteed Future Value and is agreed at the start of the contract and stays the same throughout the contract
In conclusion, you can get a vehicle lease if you are a new business. However, it is going to be slightly more difficult. This is because you need to provide bank statements showing a positive net-worth and have a strong credit score and as a new business, you might not be able to show that. This is by no means your fault, but the finance house need to know that you are going to be able to make the monthly payments. An alternative is to lease privately, as long as you have a strong credit score then there is no reason why you cannot do this. You could also look at buying for cash. If you do qualify, then there are plenty of options for you to choose from in terms of business leasing. Hopefully this article has cleared a few things up about vehicle leasing for new businesses.