This handy guide provides an overview of what business leasing means, the factors involved in determining how much it costs, what the benefits are and how the application process works.
Business leasing is another name for business contract hire. Essentially, it’s a car lease agreement between a finance company and a business that’s ideal for those who use their car for work as well as for personal use. The process is similar to personal leasing in that you choose a car (or more than one car if leasing for a business fleet), agree on a monthly payment to be paid over a set period (normally between 2 and 4 years) and then the finance company secures the car. Your car will be delivered to you on an agreed date. When you come to the end of the leasing contract, you hand the car back to the leasing company.
The monthly cost of a business lease varies depending on a range of factors, including:
Once you’ve chosen your vehicle you’ll be able to amend the contract type, contract length, annual mileage and the initial rental to select the contract terms that work best for you.
Business lease deals are normally calculated over a 2, 3 or 4-year period. A 2-year deal that’s advertised as “3+23” means that the initial payment required is 3 month’s lease costs upfront (3 payments in advance), then a monthly payment for the remaining 23 months.
It’s worth noting, however, that if your vehicle will be used for personal as well as business use, you can’t have the VAT tax benefit on any mileage done for personal use. The private portion of the total usage must be calculated and subtracted from the total. You’ll need to keep a record to show the proportion of the annual mileage which was for business use and what was for personal use. You’ll then be taxed for your personal usage. This tax is known as benefit in kind tax or company car tax.
There are certain criteria which need to be met in order to qualify for a business car lease contract. These are:
Your business will undergo a thorough automated credit check before a decision is made as to whether you qualify for business leasing. The purpose of the credit check is for the finance company to determine whether your business can afford the monthly repayments.
If you have a good business credit score, then there shouldn’t be any issue in arranging the leasing finance agreement. If you’re credit score isn’t as good, then you may be asked to provide additional evidence to prove that you can and will make the monthly payments. This could include taking out a director guarantee where you will make the monthly payments should the company fail to do so.
If you’re a business that’s less than 2 years old, you won’t have much in the way of a credit rating, either good or bad. This will make it very difficult to get finance from a finance company as they won’t have any history to go on. And this is where AMT can help. Businesses that can prove that although they’re young they’re in a good place financially could be offered a finance agreement directly with AMT. In this instance, you won’t need to use a finance company for your lease, as instead your finance agreement is with AMT.
Once you have completed the business finance application form, an account manager will be in touch by phone to confirm your order and run through the necessary pre-credit checks before submitting your application to a chosen funder.
Most funders respond to a credit application within 2 working days, however during busy periods (particularly March and September when new vehicles are registered), it can take up to 5 working days to receive a response from the funder.
There are 4 main ways to finance your business lease. They include business contract hire, business contract purchase, business hire purchase and business lease purchase. Here at AMT, the vast majority of our business car financing is done via a business contract hire agreement. See our guide to different business funding options for more information.
