Starting a new business comes with a multitude of challenges, and one of the key aspects to consider is how to efficiently manage transportation needs without incurring significant upfront costs. Vehicle leasing presents an attractive solution for start-ups and new businesses.

Who qualifies for business car leasing?

To qualify for a business car lease, the applicant must be either

• Sole Trader: If you have a bank account registered in your sole trading name.

• VAT Registered Companies

• Partnerships: If the business has two or more partners actively involved.

• Limited Companies, including Private Limited Companies (PLCs) and Limited Liability Partnerships.

Leasing Options for Businesses

There are two primary types of car leasing for businesses; business contract hire and business contract purchase:

1. Business Contract Hire (BCH)

Business contract hire (BCH) is a leasing arrangement designed for businesses. It allows them to acquire vehicles without ownership. The company pays fixed monthly rentals over a predetermined period (usually 2 to 5 years). Here's how it works:

• Vehicle Selection: The business chooses the desired make, model, and specifications based on their needs.

• Contract Duration: The business and the leasing company agree on the lease term.

• Mileage Limit: Negotiate the maximum annual mileage limit.

• Monthly Payments: Fixed monthly payments are made based on factors like vehicle price and depreciation.

• Maintenance and Servicing: Some agreements include maintenance packages to cover repairs.

• End of Lease Options: At the lease end, the business can extend the lease, upgrade to a new car or return the car.

The business never owns the vehicle, as the leasing company retains ownership.

2. Business Contract Purchase (BCP)

Business contract purchase (BCP) is similar to BCH in that you pay an initial payment and continue with monthly instalments until the end of the contract.

However the difference is that at the end of the contract, you have the option to purchase the vehicle by paying a balloon payment (the outstanding balance).

Benefits of Business Car Leasing

Business car leasing benefits new businesses in several ways:

• Lower upfront costs: Leasing requires a smaller down payment, preserving capital for other expenses.

• Predictable expenses: Fixed monthly payments aid budgeting and financial planning.

• Tax benefits: Potential tax deductions and VAT reclamation for business use and emissions.

• Ability to drive newer vehicles: Access to advanced vehicles without ownership commitment.

• Limited maintenance costs: Manufacturer's warranty often covers major repairs.

• Flexibility and scalability: Shorter lease terms adapt to changing needs easily.

• Asset management: Leased vehicles are off the balance sheet for financial reporting.

• Reduced depreciation risk: No worries about depreciation impact on resale value.

Challenges Faced by Start-ups and New Businesses

Limited credit history: New businesses have insufficient credit history, affecting their creditworthiness assessment by leasing companies.

• Lack of financial stability: Start-ups without a stable financial track record may face concerns from leasing companies.

• Higher interest rates: Leasing companies may charge higher rates to mitigate perceived lending risks.

• Personal guarantees: Leasing companies may require personal guarantees from directors/owners if credit profile is weak, making individuals liable for defaults.

• Limited vehicle options: Some companies offer basic models or restrict choices for new businesses.

• Length of trading: Leasing companies may demand a minimum trading history before considering lease approval (e.g., 6 months to a year).

• Required documentation: Start-ups may need to provide additional documents, like business plans and financial forecasts, to prove viability.

• Competitive market: New businesses may struggle to secure favourable terms compared to established companies.

To overcome challenges, consider:

• Provide a solid business plan and financial projections to demonstrate potential for success.

• Offer a larger upfront deposit to increase approval chances.

• Seek specialised leasing companies catering to start-ups and new businesses.

The Process of Applying for Car Finance With Poor Credit History

Businesses who lack good credit are unlikely to get finance through mainstream lenders. Thankfully there are some specialist companies who provide bad credit car finance, such as Compass Vehicle Services.

As a start-up or new business you will be expected to provided additional documentation and information when applying for bad credit car leasing:

How do we assess the risks Associated with a company that has no credit history?

• Comprehensive Analysis: We review the company's trading history, management accounts, and bank statements. Examining contracts related to sales and supplier arrangements provides insights into financial performance and operational stability.

• Key Individuals Evaluation: We assess the track record and career history of key individuals responsible for the company's operations. Past business ventures and achievements help gauge their expertise and contribution to the new company's potential success.

• Profitability Forecasts and Cash Flows: Owners' preparedness is evaluated through profitability forecasts and projected cash flows resulting from trading activities. This demonstrates foresight and financial planning.

• Professionalism and Management: A well-structured business plan and management approach instil lender confidence in the startup's potential for success. This increases the likelihood of obtaining necessary support, such as supplying motor vehicles, from the lender to propel the business towards its goals.

By Sarah Portet of Compass Vehicle Services Ltd - Compass Vehicle Services specialise in bad credit car leasing, offering affordable bad credit car finance for businesses and individuals with poor credit.