Can A New Business Lease A Car?
New businesses can lease a car, even without having a long financial history. As long as a finance provider can see proof that shows the company can afford the monthly rentals, it won’t matter if you’re a start-up or well-established.
Business leasing is a great way for start-up companies to cut costs by not having to invest in a depreciating asset. For fixed monthly payments, you can get a leased vehicle which is brand-new and does what you need it to, without having to worry about overspending company cash.
Although new businesses tend not to have much in the way of financial history, there are a few options available which mean they can still lease one or more vehicles. Read on to find out what these are and the documentation you’ll need for each.
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What details/documents do I need for a business lease?
As part of every vehicle lease contract you will be required to undergo a credit check from the finance provider funding it. Because this involves looking at the bank account and director’s information, it may come as a concern for new businesses who don’t have much to show in terms of revenue and expenditure.
However, if your company is less than one year old, you will likely need to support any application with additional details.
Here are the information all businesses must provide to finance companies before they lease.
- Business details – name, address, company registration number and yearly revenue.
- Director’s information – full name, date of birth and marital status.
- Company bank details – name of the bank, account number and sort code.
New or start-up business documents
It’s likely that a finance provider will ask for some additional information if you’re a start-up company in order to assess eligibility and ensure you can make the monthly lease payments.
This can include:
- Three months’ business bank statements and/or audited accounts
- Management accounts
- A director’s guarantee that promises to pay the monthly rentals if the company’s finances no longer allow it (this usually only applies to Limited Companies)
Without the above information, it’s likely unlikely that you’ll be approved for the finance needed to lease. If you do, it will likely be at a higher interest rate.
Which businesses can lease?
Vehicle leasing through a business contract hire (BCH) agreement is available for a range of companies, including:
- Limited Companies
- Sole Traders
- Limited Liability Partnerships (LLPs)
- Public Limited Companies (PLCs)
- VAT registered businesses
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Benefits of leasing for new businesses
The reason why business lease agreements are the most sought-after option for new enterprises is because of a number of reasons, which include:
- All the VAT can be reclaimed on the monthly payments. This is provided that the vehicle has only been used for work purposes (excludes commutes), otherwise you can get up to 50% relief on the vehicle’s tax if it’s been used for any personal journeys.
- It provides an affordable solution for company car drivers, who will pay a benefit-in-kind (BIK) tax to use the vehicle. This will be cheaper than using their own car and won’t be charged for models which emit no CO2.
- What’s more is that all of the VAT on any maintenance package taken out for the car can be reclaimed too. This is regardless of whether it’s been used for private trips.
If you’re the director or an employee of a new business that has been rejected finance for a lease, it’s worth looking at personal leasing as an alternative to get a company motor. Here’s how.
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Personal leasing for new businesses
Unlike when you apply for a business lease agreement and a finance provider looks at your company’s financial history, a personal deal will only consider the details of the individual applying for a contract.
So, as long as you’re 18-years-old, have a full UK driving licence and a good to excellent credit score, you shouldn’t have an issue being approved.
This is useful if you’re a sole trader running your own business and need an affordable vehicle for a couple of years or so to use for work while finances grow. You won’t be restricted to just private journeys for a personal lease too, so you’ll have greater flexibility than if you were to have a business agreement.
Remember: A leasing company will ask you for an annual mileage for each year you spend with the car, the total of which will be checked when the car is collected at the end. If you intend to use vehicle for personal and business use, be sure to calculate your annual mileage before signing any contract to avoid excess mileage charges.
It’s also worth noting that monthly payments will be slightly more expensive, due to them including VAT.
To find out what documents you need for a personal agreement, check out our other guide on this.
Is short-term car leasing an option?
Although short-term vehicle leasing isn’t offered by every provider, it’s becoming increasingly popular as an alternative to standard car rental, which often charges higher daily rates.
On the contrary, a short-term lease intends to be a solution to this problem, offering the same fixed monthly payments as a standard two to three-year agreement, but for as little as three, six, nine or 12 months. At the end of the deal, you simply hand the keys back to the finance provider and decide whether you want to take out another contract on a new car or walk away.
So how is this appropriate for new businesses? Well, short-term agreements that are no longer than three months don’t require a credit check, meaning a lack of financial history isn’t an issue when you’re applying. What’s more is that it’s usually available for both personal and business customers, and can even include insurance cover, maintenance and breakdown recovery.
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Want to learn more about leasing and car finance? Head over to our leasing guides for all the information you need.