Being mobile is a great asset to any business. From providing that all important (and sometimes deal clinching) face to face contact to dropping round final contracts, the ability to be out on the road – often at a moment’s notice – is paramount.

 

You could, of course, use public transport to bolster your green credentials. But there are drawbacks, none of which need pointing out here. So, what’s the way forward? Many business people use their own private vehicles for business purposes, assuming that they have the appropriate levels of insurance of course. This approach does have pluses and minuses to it – one minus being that darling baby George will always throw more of out his pram than just toys the day before you drive your most important client to lunch…

One of the most popular – and convenient – ways to ensure mobility for you and your staff is to acquire a vehicle for business use, paid for through the business via one of a range of attractive finance deals. Whether you are looking for a car for yourself, a pool car for the office or a fleet of motorway munchers, there will be a finance deal to suit your requirements.

Before you enter into finance negotiations, it might be worth considering what you want to happen to your vehicle after a certain period – would you want to keep it or trade it in for a new one? Your ultimate plans might have a bearing on which deal is most suitable for you.

Should you, like many businesses, want the convenience of having new cars on a rolling basis, then you might find that Contract Hire or Finance Lease schemes are the best for you. Both options carry repayments spread out over a predefined term, allowing you to effectively forecast your budgets. The amount of the monthly rental will depend on the mileage you anticipate doing, as well as any servicing/maintenance agreements that you’ve entered into.

With contract hire, once your contract runs out, you simply return the vehicle to the finance company and enter into a new contract to get a new vehicle. VAT registered businesses can get a proportion of the rental payments offset against taxable profits, plus the car doesn’t show up on your asset sheet as a liability.

Finance Lease schemes are VAT free and operate in the same way as Contract Hire – however you will be responsible for the sale of the vehicle at the end of your contract, using the money to pay for the final payment. The good news is that you can make money this way, if the value of the vehicle is in excess of the agreed final payment. However, like interest rates, the value of the second hand car market can go up and down…

If you’re undecided as to whether you want to keep the vehicle at the end of your contract, then Contract Purchase might be the route forward. This approach will shield you from some of the depreciation risk on your vehicle – you pay a fixed monthly rental and then a predetermined ‘balloon’ payment at the end if you want to buy the vehicle. If you decide that you don’t want to keep it after all, you should be able to hand the vehicle back to your finance company and start with a new contract.

For those who know that they want to keep the vehicle in the long term, then Hire Purchase finance will fit the bill. Under this scheme, the business pays a fixed monthly rental and then buys the car from the finance house at the end of the agreement for a predetermined sum (you don’t have the option of changing your mind and handing the car back as you would with Contract Purchase). Repayments can be made lower by increasing the final ‘balloon’ payment.
It is worth remembering that this approach will mean that the vehicle will show up on your balance sheet – so if you’re going for an Enzo-sized finance package with a Corsa-sized turnover, your ability to borrow funds for the business may be affected.

With all of these schemes, there are a number of different ways to reduce the monthly outgoings – including initial and/or balloon payments, lump sums or extending the period of the lease to cover any balloon payment. The Business Advisor at your local dealership will be able to advise you on the option best suited to your business, or speak to a qualified accountant who can go into more depth on which option is most tax effective and best suited to your individual circumstances.

For the more adventurous, there is always the Sale and Leaseback option. This is where a finance company purchases all of your current vehicles at a realistic set value, and then you lease those vehicles back to yourself. This can release capital into your business while keeping you on the road.

As with any major outlay from your business, seek fully qualified financial advice before entering into any contracts. The above information is simply intended as a guide to get your started in the rewarding world of business car ownership.