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Securing company car finance is a strategic move that empowers businesses to acquire essential commercial vehicles without the burden of substantial upfront costs that can impact cashflow.
This quick guide delves into the distinctions between personal and business car finance, explores various business financing options, outlines the application process, and highlights the advantages of engaging a business finance broker.
What is Company Car Finance?
In the dynamic landscape of modern business, efficient transportation is pivotal for operations such as client meetings, deliveries, and employee mobility.
Company car finance offers a practical solution, allowing businesses to obtain necessary vehicles while preserving capital for other critical investments. By leveraging tailored business finance solutions, companies can manage cash flow effectively and maintain operational agility.
The Difference Between Company Car Finance Vs. Personal Car Finance
Understanding the distinctions between company and personal car finance is crucial for making informed decisions. Here are a few to consider:
Purpose and Usage:
Company Car Finance:
Designed for vehicles primarily utilised for business activities, such as transporting goods, attending client meetings, or providing employee transportation. These vehicles often qualify for tax deductions related to business expenses.
Personal Car Finance:
Intended for individuals purchasing vehicles for personal use, including commuting and leisure activities. The vehicle is registered in the individual's name, and monthly payments are made from personal income.
Financial Assessment:
Company Car Finance:
Lenders can assess on factors like the business's financial health, credit history, and trading duration. A strong business credit profile can lead to more favourable terms.
Personal Car Finance:
Evaluation is based on the individual's personal credit score and financial stability. A higher credit score increases the likelihood of approval and access to better interest rates.
Types of Business Finance Available
Businesses have access to several financing options tailored to different needs and financial strategies, so it's important to explore which one suits your needs the best. Here are a few of the most popular funding solutions:
Business Car Loans:
A business loan is a lump sum provided by a lender, repaid over a predetermined term with a mutually agreed interest rate. This option offers flexibility, allowing businesses to purchase vehicles outright and manage them as assets.
Benefits:
- Asset Ownership: Purchasing vehicles outright means they become assets on the company's balance sheet, potentially enhancing the company's financial standing.
- Tax Advantages: Ownership may allow for depreciation and interest expenses to be deducted, reducing taxable income.
- No Usage Restrictions: Owning the vehicle outright eliminates concerns about mileage limits or wear-and-tear clauses which can be associated with lease agreements.
Hire Purchase (HP):
A hire purchase (HP) agreement is where the business pays an initial deposit, followed by fixed monthly instalments. Ownership is transferred to the business upon completion of payments.
Benefits:
- Predictable Budgeting: Fixed monthly payments facilitate accurate financial planning and cash flow management over a period of time.
- Eventual Ownership: The business owns the vehicle after the final payment, adding to its asset base.
- No Mileage Restrictions: Unlike some leasing options, HP agreements typically do not impose mileage limits, offering operational flexibility.
Lease Purchase:
Similar to HP but a lease purchase arrangement includes a larger final payment (balloon payment) at the end of the term, resulting in lower monthly payments. This structure is beneficial for businesses primarily seeking to manage cash flow effectively.
Benefits:
- Lower Monthly Payments: Deferring a portion of the vehicle's cost to the end of the term reduces the monthly financial burden.
- Flexibility at Term End: Businesses can choose to pay the balloon payment to acquire the vehicle, refinance the balloon amount, or sell the vehicle to cover the payment.
- Potential Ownership: If the balloon payment is made, the business gains ownership of the vehicle, adding it to the company's assets.
Read our helpful blog for further information on the the differences between Hire Purchase vs. Lease Purchase here.
A Quick Guide to Applying for Company Car Finance
Assess Your Business Requirements:
Assess Vehicle Needs: Determine the number and type of vehicles required, considering factors such as usage patterns, fuel efficiency, maintenance costs, and suitability for specific business tasks.
Future Scalability: Consider potential business growth and whether additional vehicles may be needed in the near or distant future.
Find A Suitable Commercial Vehicle
Research Online
Explore Reputable Suppliers: Begin by exploring reputable suppliers that offer the types of vehicles you're interested in, these can provide valuable information on costs associated and reviews from other vehicle owners.
Speak to Specialist Vehicle Concierge Services
Streamline Vehicle Sourcing: Consulting experts can streamline the process of finding the perfect vehicle. Specialists like Foremost Concierge Ltd excel in sourcing a variety of vehicles, from commercial fleet, or a luxury prestige vehicle.
Select an Appropriate Finance Option
Align with Business Goals: Choose a company car financing method that aligns with your company's financial strategy, cash flow considerations, and long-term objectives. If you feel ready to get started you can read our everything you need to know about business finance guide on our website.
Speak with a Business Finance Specialist: Engage with business finance specialists to find the most suitable options for your specific business circumstances.
Prepare Necessary Documentation
Get Your Documents Ready: For most deals, lenders will want to see 3 months bank statements, your latest set of business accounts and a quote or website link to your desired vehicle. Sometimes for more complex deals further MI maybe required, such as profit / loss bank sheet.
Submit the Application
Lender Selection: Navigating commercial vehicle finance can sometimes be time-consuming, not to mention knowing if you've secured the best deal available to your business. By applying through a business finance broker, they will search their extensive panel of lenders for the best-fit solution available and doing all the paperwork to ensure an efficient and stress free experience to securing your vehicle.
Benefits of Using a Business Finance Broker
Engaging a business finance broker can offer significant advantages when securing company car finance, here are just a few:
Access to a Broad Network of Lenders
Business finance brokers have established relationships with various lenders, including mainstream banks and alternative financing institutions, providing businesses with multiple financing options tailored to their specific needs.
Expertise and Industry Knowledge
With in-depth knowledge of the financial market, business finance brokers can assess a business's financial situation and recommend the most appropriate financing solutions.
Time and Effort Savings
By managing the application process, paperwork, and communications with lenders, brokers save businesses valuable time and effort, allowing them to focus on core operations.
If you'd like to take the first step towards securing your next commercial vehicle, you can quickly check your eligibility and your affordability here without impacting your credit score.
Conclusion
Securing company car finance is a strategic decision that can enhance operational efficiency and support business growth. By exploring various commercial vehicle finance options, and considering the benefits of engaging a business finance broker, businesses can make informed choices that align with their objectives.
At Millbrook Business Finance, we’re here to provide personalised assistance in navigating company car finance every step of the way. Explore our financing solutions today to discover how we can help you meet your company vehicle business goals. Take your first first to getting your new wheels on the road by checking your eligibility now or using our business finance calculator.
