For businesses of all types, business car leasing – known more formally as business contract hire (BCH) – is an attractive way of acquiring a company car or fleet of cars at a fixed monthly cost. But who actually qualifies for it?
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.
- Partnerships with two or more partners working in the business.
- Limited companies, private limited companies (PLCs) and limited liability partnerships (LLPs).
All of the above have business leasing eligibility and are eligible for business car finance.
So, now you know if you’re eligible, but how do you get a business leasing deal – and what are the things to look out for?
What are the benefits of leasing a car for a business?
There are more benefits to business car leasing than fixed monthly payments. Other reasons for a business to lease a car are:
- Tax isn’t paid on the monthly payments if it’s 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.
- There’s 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 three years old – is that you might well be asked to produce additional paperwork over and above what a more established business may require. This is because the lender will want to check the proposed loan is appropriate and responsible and that the prospects of being paid back on time and in full are good.
It may also mean that the interest (APR) that a new business pays is higher than normal to reflect this reality. Lenders are looking for stability before they lend money, and that’s why they’ll often request bank statements dating back over a considerable period – though this varies by lender.
What affects your monthly payments?
Regarding the monthly payments, businesses have choices to make on how much they’re willing to pay per month.
- Annual mileage allowance: how many miles you expect to drive per year determines part of how much you pay. The higher your mileage, the more your car depreciates in value, thus the more you pay per month.
- Deposit: if you choose to pay a deposit (initial payment) up front, that’ll lower how much you pay per month. The higher your initial deposit, the lower your monthly payments.
- The final balloon payment: if you choose a business contract purchase (BCP), 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.
If you opt for a BCP deal, the final balloon payment is based on the guaranteed minimum future value of the vehicle, which is an estimate of what the vehicle will be worth when your agreement comes to an end. At the conclusion of the deal, you have the option to pay off that value to take ownership of the vehicle. If you don’t wish to make the balloon payment, you can hand the vehicle back.
How does 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. If you apply for a business car lease deal, your business will be subject to a credit check and the lender will look to access one of the “Big Three” credit bureaus to check on the history of your company. Any county court judgements (CCJs) and other credit discrepancies will come to light when they do this, so it’s an excellent idea to check your credit rating before requesting credit to ensure everything’s in order.
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’ll let you know (through us) that your application has been successful and how much credit they’re willing to grant you.
After that, it’s relatively easy. All you need to do is pick out the vehicle that suits you and confirm the finance offered matches your needs.
What types of business car finance are there?
- 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 personal contract purchase (PCP) deal, choose whether to pay off the final balloon payment on the car at the end of the agreement to own it or forego the payment and hand the car back.
- Business 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.
- Business 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 a 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 broker’s lending panel is broad enough.
Your monthly payments and interest rate will be higher. Still, if you successfully pay for the car throughout the agreement, you’re likely to improve your credit rating for the next time you lease through your business, meaning that you’ll probably benefit from better rates on a new deal.
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 payments up front. Bear in mind the more you put down up front, the more you’ll bring down your monthly payment amount.
If you can’t afford a lump sum up front or would rather spread the cost via higher monthlies, you can look for no deposit business lease deals (we offer no deposit options on every single one of our vehicles) that don’t require you to pay anything for the first 30 days.
Get approved for business car finance in just two minutes with Hippo
Is a business lease or business purchase deal right for you? If it is, we can help you get preapproved for finance in just a couple of minutes without affecting your credit score.
Use our free finance check today to see if you qualify for the finance you need. If you have a question you’d like to ask about our business options, don’t hesitate to get in touch with us.
