Van Finance for New Businesses: What You Need to Know
Starting a new business is no small thing, and getting the right vehicles in place from day one can feel like one more obstacle you could do without. The good news is that being a new company does not automatically rule you out of van finance. Lenders do assess new businesses differently to established ones, but there are plenty of routes available, and the right option depends on how you want to structure things financially.
Here is a straightforward rundown of the main finance products available for a new company looking to get a van on the road.
Hire Purchase
Hire Purchase is probably the most straightforward option if you want to own the van outright at the end of the agreement. You put down a deposit, typically somewhere between 10% and 20% of the vehicle’s value, and then pay fixed monthly instalments over a term of two to five years. Once the final payment is made, the van is yours.
The monthly payments tend to be higher than some of the alternatives, but you are building towards full ownership and the van appears as an asset on your balance sheet. For new businesses that want to keep things simple and avoid end of term decisions, it is a clean and predictable way to finance a vehicle.
Finance Lease
A Finance Lease works more like a long term rental. You pay an initial deposit and fixed monthly payments over the lease term, but you never formally own the van. At the end of the agreement you can arrange for the vehicle to be sold, with the sale proceeds used to settle any remaining balance, or in some cases you can continue using it for a nominal ongoing payment.
Monthly costs are generally lower than Hire Purchase, which can help with cash flow in the early stages of a business. If your company is VAT registered, you can also reclaim the VAT on the monthly payments, which makes a meaningful difference to the real cost.
Contract Hire
Contract Hire is a straightforward rental arrangement over a fixed term, usually two to five years, after which you hand the van back. There is no option to own at the end, but many agreements bundle in servicing and maintenance, which removes some of the unpredictability around running costs.
It suits businesses that want to know exactly what they are spending each month and are happy to upgrade to a newer vehicle at the end of each term. The main things to watch are mileage limits and fair wear and tear clauses, as going over either can result in additional charges when you return the vehicle.
Lease Purchase
Lease Purchase sits somewhere between Hire Purchase and a Finance Lease. You make lower monthly payments throughout the term, but there is a larger balloon payment due at the end if you want to take ownership. It is worth going into this one with your eyes open about that final figure, as it can be substantial depending on how the agreement is structured.
It can work well if you want to keep monthly outgoings down while still having the option to own the van eventually, provided you are confident you can manage or refinance that final payment when the time comes.
Personal Contract Purchase (PCP)
PCP is more commonly associated with personal car finance, but it is available for business use in some cases. Like Lease Purchase, you pay a deposit and lower monthly payments, with a balloon payment at the end. At that point you can pay the balloon and keep the van, hand it back, or use any equity towards a new agreement.
It offers flexibility at the end of the term, but the balloon payment and the van’s residual value need careful consideration before committing. Depreciation varies considerably between models, so the numbers do not always stack up as favourably as the lower monthly payments might suggest.
What to Think About Before Choosing a Finance Product
Once you have a feel for the different products, there are a few practical things worth working through before you commit to anything.
The first is ownership. Do you actually want to own the van at the end of the agreement, or are you happy to hand it back and move on to something newer? If ownership matters, that narrows you down to Hire Purchase, Lease Purchase, or PCP. If it does not, the rental based options often give you more flexibility and lower monthly costs.
Budget is the obvious one, but think beyond just the monthly payment. Factor in the deposit, any balloon payment further down the line, and what the total cost of the agreement looks like over its full term. A lower monthly figure does not always mean a cheaper deal overall.
Mileage is something new business owners often underestimate. If you are covering a lot of ground each year, make sure any rental based agreement has a mileage allowance that reflects reality. Excess mileage charges can add up quickly and catch you off guard at the end of a contract.
Think about maintenance too. If you have the time and resource to manage servicing yourself, that is fine, but if you would rather have a predictable all in monthly cost, a Contract Hire agreement that includes a maintenance package might suit you better.
Finally, consider how much flexibility you need. Some businesses know exactly what they want for the next three to five years. Others are still finding their feet and would rather not be locked into a rigid agreement. Finance Lease and PCP tend to offer more options at the end of the term, which can be useful if your situation is likely to change.
Getting Finance Approved as a New Company
New businesses do face more scrutiny from lenders, but that does not mean the door is closed. There are things you can do to put your application in the best possible position.
Having a clear business plan helps. Not every lender will ask for one, but being able to explain what your business does, how the van fits into your operation, and what your income looks like goes a long way towards building confidence with a lender who has no trading history to look at.
Your personal credit history matters more than you might expect when a business is new. With no track record for the company itself, many lenders will look at the director’s personal credit profile as an indicator of how you manage financial commitments. If there are any issues there, it is better to know about them before you apply rather than after.
A larger deposit can make a real difference. It reduces the lender’s exposure and can open up options that might not otherwise be available to a new business. If you have capital available, putting more down at the start often improves both your chances of approval and the monthly payment.
If your credit profile is thin or there have been past difficulties, a guarantor can sometimes provide the reassurance a lender needs to approve a deal. This is someone, usually a director or a connected individual with a stronger credit history, who agrees to cover the payments if the business cannot. It is not always necessary, but it is a useful option to know about.
It is also worth speaking to a broker rather than going direct to a single lender. A broker with access to a panel of funders can match your circumstances to the right lender from the outset, rather than you working through a series of applications and declined decisions, each of which can leave a mark on your credit file.
If you are looking at van finance for a new business and want to understand which product fits your situation, the team at First Oak Capital can talk you through the options and approach the right lenders on your behalf. Call us on 0800 066 3677, or apply online and we will come back to you.
For more on this topic, take a look at our page on van finance for a new business.
