For businesses of all types, car leasing is an attractive way of acquiring a company car or fleet of cars at fixed monthly payments. So, who actually qualifies for business car leasing, sometimes also referred to as business contract hire?
Business car finance is aimed at the following entities:
- Sole traders: Provided you have a bank account in the sole trading name
- VAT Registered companies
- A Partnership: With 2 or more partners working in the business
- Limited Companies, Private Limited Companies (PLC’s) and Limited Liability Partnerships
All of the above have business leasing eligibility and are eligible for business car finance.
So, now you know if you are eligible, but how do you get business leasing or business contract hire and what are the things to look out for?
What are the benefits of leasing a car for a business?
There are more benefits than simply fixed monthly payments. Other reasons for a business to lease a car are:
- Tax is not paid on the monthly payments if it is a company expense.
- The cost of the vehicle is spread over a period of time
- If the lease is contract hire, the business can upgrade its fleet periodically at the end of the relevant contract
- No commitment to own the vehicle at the end of the contract
How can a business qualify for car finance?
A note for new businesses – especially those less than 3 years old – is that you might well be asked to produce additional paperwork over and above what a more established business may need to do. This is because the lender will want to check that the loan is appropriate and responsible and that there are excellent prospects that they will be paid back.
It may also mean that the interest or APR that a young business pays is higher than normal to reflect this reality. Lenders are looking for stability before they lend money, and that is why they will often request bank statements going back some time though this varies by lender.
What affects your monthly payments?
Regarding the monthly payments, businesses have choices to make on how much they are willing to pay per month.
- The annual mileage allowance –how many miles you want to drive per year determines how much you may pay. The more mileage you drive, the more your car depreciates, the more you pay per month.
- Deposit – If you choose to pay a deposit, that will lower how much you pay per month.
- The GMFV balloon payment – if you choose a Business Contract Purchase, you have the option to pay a balloon payment at the end of the agreement to take ownership of the car. This lowers your monthly payments as well.
The GMFV is the Guaranteed Minimum Future Value, which is the estimated value the car will be worth when your lease agreement comes to an end. When a Business Contract Purchase comes to an end, you have the option to pay off that value to take ownership of the car. If you do not wish to pay that balloon payment, you can hand the car back.
If you are a business looking for affordable ways of acquiring a fleet of cars, business car leasing is the way to go. You pay low monthly payments, and you have no obligation to purchase the car at any point. If you realise that your fleet is too big, you can hand the cars back. Please enquire with us about the cars you want for your business, and our dedicated team will work on finding you the best deal available.
How car finance for business actually work?
With personal car leasing, the individual applying for the car must go through a hard credit check. This gives the lender an idea of the individual’s history with credit and can decide if that person is a safe customer to lease a car to for a long period of time.
This is the same for businesses. The business concern will be subject to a credit check, and the lender will look to access one of the Big 3 Credit Bureaus to check on the history of your company. Any County Court Judgements and such will come to light when they do this, so it’s an excellent idea to check on your credit rating before requesting credit to ensure that it is indeed correct.
Assuming your credit check is acceptable, the lender is then likely to ask for proof of your entity, such as bank statements and your companies house number (if applicable). Should all be in order, they will advise as much (through Hippo) and how much credit they will grant.
After that, it’s relatively easy. All you need to do is pick out the vehicle that suits you and confirm the finance that matches your needs. At Hippo Motor Finance, we have over 900 cars in stock of all makes and models and more on the way, so the choice is rarely an issue. Your friendly, helpful and dedicated account manager will then help you decide which type of finance is best for you depending on your needs, and these could include:
- Business Contract Hire (BCH)– lease for an agreed period and hand the car in at the end, within the agreed mileage terms. No depreciation or reselling issues.
- Business Contract Purchase (BCP)- Just like a PCP, choose whether to pay off the “balloon payment” on the car at the end of the agreement or hand the car back.
- Lease Purchase – similar to BCP but without the option to hand the car back, so you will need to make provision for the balloon payment once the lease term expires.
- Hire Purchase – Pay off the car in equal instalments over an agreed period. This form of finance means you don’t need to worry about excess mileage charges.
Can I still get business lease or business finance if my business credit history is poor?
Yes. If the results of the credit check result in a bad or poor credit rating, there are other deals and specialist lenders in place that allow businesses to acquire cars through bad credit car leasing, provided your brokers lending panel is broad enough.
The monthly payments and interest will be higher. Still, if you successfully pay for the car throughout the agreement, you are likely to improve your credit rating for the next time you lease through your business, meaning that you will benefit from preferred rates.
Fortunately, Hippo Motor Finance has a huge panel of prime, near-prime and specialist bad credit lenders to cater for most credit needs.
Do I need a deposit for a business car lease?
When leasing or financing a car for private individuals and business alike, most brokers and leasing companies will ask for a deposit. This can be as little as one month’s payment to several month’s initial payments and has the benefit of bringing down your monthly payment.
At Hippo Motor Finance, we know businesses need to get on the road as quickly as possible, and that’s why all our deals are available as no deposit deal. With a no deposit leasing deal, payments are not as low as with a deposit, but you don’t pay anything for the first 30 days, and once you find a car within your monthly budget, you can get behind the wheel immediately.