With little to no financial history, new businesses face the challenge of getting credit to finance a vehicle.
Regardless, you are eligible for business car leases as a new business. However, there are some requirements you need to fulfill to qualify for a car lease.
This article will explain all the necessary prerequisites and the benefits of car leasing for new businesses.
How to qualify for a new business car lease
For a new business to be eligible for leasing, the owners and the business would have to undergo credit checks. This is done to determine if the new company will be capable of making payments throughout the duration of the lease.
Before you can be eligible for any car leasing offers, the finance company or dealership will review your business history, including its payment history, relevant legal fillings, etc.
Where the finance company is not satisfied, it could request further evidence like:
- Bank statements spanning the past 3 to 6 months
- The personal credit history of the business owners
- The opening balance sheet of the business account
- Management account
This is to establish the creditworthiness of the new business. Without these details, it is unlikely that the finance company will approve your lease. New businesses unable to provide the needed information could be required to pay higher deposits.
The Lease Options Available to new businesses
There are three major types of leasing options available to new companies. Each is designed for specific types of businesses.
- Business contract purchase
This is a finance contract for VAT-registered businesses that wish to own high-value cars while preventing the dangers of asset depreciation.
With this option, a new business can select a brand-new car and make a down payment and pay the agreed monthly installments. The monthly payments are based on the length of the lease contract, the car’s residual value, and the agreed mileage.
VAT-registered businesses can recover between 50% to 100% of VAT payment, according to how much they employ the car for commercial purposes.
- Finance lease
This lease option is available to various new businesses, including sole traders and limited liability companies.
It provides tax advantages and greater flexibility for eligible businesses with no finances for down payments. Under a finance lease contract, you can elect to pay the whole cost of the leased vehicle or make the agreed monthly payments with the final payment, known as the balloon payment, based on the expected resale worth of the car.
- Business contract hire
This sort of lease option is best suited for partnerships and limited companies like private and public limited companies. The duration of the lease is set between 3-4 years.
Unlike a business contract purchase, under a BCH, you are required to return the vehicle at the close of the contract. In a business contract hire, servicing, maintenance, and tire packages are included in the monthly payments.
The Benefits of Leasing for New Businesses
Below are some of the benefits car leasing can offer your new business:
- Reduced costs
Every business needs strong cash flow. While buying a new car can be an option, it can destabilize your balance sheets.
Cars are depreciating assets, and the value falls during use, which will take a considerable toll on your finances.
With car leasing, you get the latest models of cars for an established period and lower monthly payments. This provides you with more capital to invest in your business. It also gives you flexibility over your business’s finances within the short and long term.
- Tax deductions
Another benefit of car leasing for new businesses is tax benefits. Taking a lease on a new vehicle makes you eligible to reclaim VAT on your initial deposit and monthly payments.
However, this is only available for VAT-registered businesses, according to the extent the vehicle is used for business purposes.
If your vehicle is used solely for business purposes, you will be entitled to reclaim 100% VAT. However, if it is used for other purposes outside work, you will be eligible for 50% VAT on your monthly payments.
- Access to the latest brands of vehicles
Businesses strive to maximize profit while lowering expenses. As an owner of a new business, one of the ways to do this is by opting for a car lease.
Newer models of cars are expensive and out of reach of new businesses. However, with a lease, you not only get new cars at affordable rates but also enjoy their latest technologies.
Leasing a vehicle for your new business provides cost-effective measures that boost your business’s cash flow. Also, a lease is convenient for your new business because you don’t have to bother about depreciation or resale costs.