Everything You Need To Know About Leasing For UK Startups

Everything You Need To Know About Leasing For UK Startups

Start-up businesses have a tough time trying to survive in the first couple of years, and face many difficult decisions as they try to establish themselves. Profits may be non-existent initially, and certainly money to throw around on non-essential purchases will be hard to come by. But a vehicle might be critical to the business, perhaps if you are a sole trader who has to work on the road, or if a vehicle is shared between various employees in a small business and is used all the time.

A vehicle can certainly have a positive impact for a start-up business and may be important in establishing credibility and developing a brand image. Whether a vehicle is essential, a high priority or just a beneficial thing to have, it has to be affordable and something the business can commit to, and that is why car leasing for start-up businesses is definitely the way to go.

What is car leasing?

When you lease a vehicle through a business you are choosing the type of vehicle you want to drive and committing to an annual mileage. You then agree a fixed, monthly fee which essentially covers the depreciation of the vehicle over the lifetime of the lease, which is usually between two and four years. At the end of the lease period, the business will return the vehicle to the leasing company and in most cases will choose another vehicle and start another lease.

What are the benefits of car leasing for start-up businesses?

-          The business doesn’t own the car, meaning there is no depreciating asset on the books and no capital expenditure required.

-          It is possible to tailor a lease deal to present a financial commitment the business can cope with.

-          The business can agree a short term deal of two years, so they can re-evaluate their position when it comes to a second lease deal, and are therefore not overburdened with a long term commitment.

-          A car lease deal can include a service and maintenance agreement within the fixed monthly payment, which makes it much easier for the business to budget.  

-          Vehicle leasing involves every type of vehicle, giving a business the choice to opt for a van, an electric vehicle or an executive vehicle, depending on its needs.

What does a start-up business need to be aware of with car leasing?

Although car leasing is an option for business start-ups, there are some important considerations the business will need to bear in mind:

-          Financial history – The business will have no financial history so some car leasing companies may not supply a business leasing deal. A credit check is a standard element of the application process, and if you have no trading history the leasing company may consider you a risk. However, some car leasing companies may enable you to apply for a car leasing deal if you supply certain information and documentation, such as an opening balance sheet, proof of trading, a business plan, early bank statements or a directors’ guarantee.

-          Personal leasing – If your start-up business is a sole trader or a partnership, you could consider personal leasing rather than business leasing. This means the leasing company only looks at your personal credit history, but also means the individual is liable for the commitment, rather than the business.

-          Deposit – A car leasing deal is dependent on paying an initial deposit, which is usually around three months’ leasing payment as an upfront cost. A start-up business may find that a car leasing company asks for a larger deposit than this, to cover their risk. If this is affordable, it does mean that the monthly payments thereafter will be cheaper.

-          Penalties – There will be penalty costs written into the lease agreement for early termination. Make sure the business is able to commit to the leasing deal and for the full length of the agreement.

-          Realistic – Following on from this, the business should be realistic with the type and model of vehicle it chooses. Make sure it is affordable, and don’t go for a top of the range model if you don’t need to. And opt for a shorter lease, two years initially, so the commitment is minimal and at the end of the lease you can see where the business is and can maybe start to look further ahead, i.e. at a better model or at a longer lease. By this time you will also have some financial history and a leasing company will see you as less of a risk.

-          Wear and tear – The business also faces penalties for excessive wear and tear, if the vehicle is returned at the end of the lease in a poor condition. What qualifies for this can be found in the BVRLA Fair Wear & Tear Guidance. This may also guide what type of vehicle you opt for, as it has to be practical for the business and suit the type of driving and the operations undertaken.

Car leasing for start-up businesses from Pink Car Leasing

A vehicle may be the lifeblood of a start-up business and could be the conduit that makes the first 12 months of trading successful. It is therefore important that you consider your options carefully and car leasing is the ideal solution for a start-up business that has to manage its finances very closely, but also needs some flexibility and a good choice of suitable leasing vehicles. At Pink Car Leasing we have helped many start-up businesses navigate the early months and years of their existence with affordable car leasing deals, so contact our team to discuss your start-up business today.