Van Finance for new business
Introduction
Starting a new business in the UK is an exciting time, and for many entrepreneurs, it’s also a challenging period as they set the foundations for their company’s success. One crucial decision many business owners face is whether to purchase a van for their day-to-day operations. At First Oak Capital, we understand how vital it is to find the right van finance solution to help your new business hit the ground running. That’s why we’ve put together this comprehensive page on van finance for new businesses.
The Importance of a Van for New Businesses
A van is an invaluable asset for many types of businesses, such as:
- Delivery and courier services
- Construction, plumbing, or electrical companies
- Landscaping and gardening businesses
- Mobile catering services
- Retail businesses for trade shows and events
A van allows your business to transport goods, tools, and equipment, and can also be used for advertising purposes when branded with your company logo and contact details. However, purchasing a van can be a significant expense, especially for a new business. That’s where van finance comes in, offering a range of options to make the process more manageable.
Types of Business Van Finance Options
There are several van finance options available for new businesses. Here, we will explore the most common types of finance to help you choose the best option for your needs:
Hire Purchase (HP)
Hire Purchase is a popular van finance option that allows you to spread the cost of the vehicle over a fixed period, typically between two and five years. With HP, you’ll pay an initial deposit, followed by monthly instalments. Once all the payments have been made, you’ll own the van outright.
Benefits of Hire Purchase:
- Ownership at the end of the term
- Fixed interest rates and monthly payments
- No mileage restrictions
Finance Lease (FL)
A Finance Lease is a long-term rental agreement that allows you to use the van for a fixed period without actually owning it. At the end of the lease, you can either return the van, extend the lease, or sell the van and retain a portion of the proceeds.
Benefits of Finance Lease:
- Lower monthly payments compared to Hire Purchase
- Tax benefits, as monthly payments can be deducted as a business expense
- No need to worry about the van’s resale value
Contract Hire (CH)
Contract Hire is a fixed-term rental agreement similar to Finance Lease but usually includes additional services, such as maintenance, breakdown cover, and replacement vehicles if necessary. At the end of the contract, you return the van, and there is no option to buy it.
Benefits of Contract Hire:
- Fixed monthly payments, making budgeting easier
- Inclusive of maintenance and breakdown cover
- No depreciation risk or disposal concerns
Personal Contract Purchase (PCP)
Personal Contract Purchase is a flexible option that combines elements of Hire Purchase and Contract Hire. You pay a deposit and fixed monthly payments over a set period, and at the end of the term, you can choose to return the van, buy it for a pre-agreed amount (known as the ‘balloon payment’), or use the van’s value to part-exchange it for a new vehicle.
Benefits of Personal Contract Purchase:
- Lower monthly payments due to the balloon payment at the end
- Flexibility to choose between buying, returning, or upgrading the van
- Option to own the van at the end of the term
Factors to Consider When Choosing Van Finance
When evaluating the different van finance options, it’s essential to consider the following factors:
Budget and cash flow
Assess your business’s budget and cash flow situation to determine how much you can afford for monthly payments and the initial deposit. Be realistic about your financial capabilities to avoid overcommitting and causing cash flow problems down the line.
Duration of van use
Consider how long you plan to use the van for your business. If you only need it for a short period, a Finance Lease or Contract Hire may be more suitable. However, if you intend to use the van for an extended period, Hire Purchase or Personal Contract Purchase might be a better fit, as they offer ownership options at the end of the term.
Mileage requirements
Different finance options come with various mileage restrictions. If your business requires high annual mileage, Hire Purchase may be a better choice, as it typically doesn’t have any mileage restrictions. In contrast, Finance Lease, Contract Hire, and Personal Contract Purchase often come with mileage limits, and you may face charges if you exceed them.
Maintenance and running costs
Factor in the cost of maintenance, servicing, and repairs when deciding on a finance option. With Contract Hire, these costs are often included in the monthly payments, making it easier to budget. However, with other finance options, you’ll need to budget for these expenses separately.
Tax implications
Each business van finance option has different tax implications. Finance Lease and Contract Hire monthly payments are usually tax-deductible as a business expense, while Hire Purchase and Personal Contract Purchase allow you to claim capital allowances on the van’s depreciation. It’s essential to consult with your accountant or tax advisor to determine the most tax-efficient option for your business. If you plan to use the vehicle for private use make sure you understand the tax implications as set out by HMRC.
Selecting the Right Van for Your Business
Before securing finance for your new business’s van, it’s crucial to choose the right vehicle to suit your company’s specific needs. Here are some factors to consider when selecting the perfect van:
- Size and payload capacity: Depending on the type of goods or equipment you’ll be transporting, consider the van’s size and payload capacity. Choose a van that can safely and efficiently carry your cargo without overloading it.
- Fuel efficiency: Fuel costs can add up quickly, so selecting a fuel-efficient van can save your business money in the long run. Consider both petrol and diesel options, as well as electric and hybrid vehicles, depending on your driving habits and route requirements.
- Brand reliability: Research the reputation and reliability of various van manufacturers. Choose a reputable brand known for producing reliable vehicles to minimise downtime and maintenance costs.
- Accessibility: Depending on the nature of your business, consider the accessibility of the van. Side and rear loading doors, as well as tail lifts or ramps, can make loading and unloading easier and more efficient.
- Customisation options: Some vans offer customisation options, such as shelving and storage systems, which can help organise your tools and equipment more effectively.
Understanding the Application Process
When applying for business van finance, it’s essential to be prepared and understand the process. Here are some steps to guide you through the application:
- Gather required documentation: Lenders will typically request financial documents, such as bank statements, profit and loss statements, and balance sheets. They may also require proof of business registration and identification documents for the business owner.
- Assess your credit score: Your credit score can affect the interest rates and terms you’ll be offered for van finance. Check your credit score and address any discrepancies or issues before applying for finance.
- Approach a finance broker: Working with a finance broker like First Oak Capital can streamline the application process and increase your chances of approval. We can help you find a suitable lender and guide you through the application process.
- Compare offers: It’s essential to compare the various van finance offers available to ensure you’re getting the best possible deal for your business. Consider factors such as interest rates, fees, and terms when comparing offers.
- Complete the application: Once you’ve chosen a lender, complete the application process and provide any additional information or documentation required.
Managing Your Van Finance Responsibly
Securing van finance is just the first step in ensuring your business’s success. Managing your van finance responsibly is crucial to maintaining a healthy cash flow and building a positive credit history. Here are some tips for managing your van finance:
- Make payments on time: To avoid late fees and potential damage to your credit score, ensure you make your monthly payments on time. Set up direct debits or reminders to help you stay on track.
- Regularly review your finance agreement: Keep track of your finance agreement’s terms, interest rates, and fees. If your business’s financial situation changes, it may be worth exploring refinancing options to secure better rates or more favourable terms.
- Maintain your van: Regular maintenance is crucial for keeping your van in good working order, minimising downtime, and preserving its value. Following the manufacturer’s recommended maintenance schedule and promptly addressing any issues can save you money in the long run.
- Monitor your business’s financial health: Regularly review your business’s cash flow, profit margins, and expenses to ensure you can continue to meet your van finance obligations comfortably. Adjust your budget and spending as needed to maintain financial stability.
- Plan for the future: As your business grows and evolves, your van finance needs may change. Continuously assess your company’s requirements and consider upgrading or expanding your fleet when necessary. Planning for the future can help you avoid unexpected costs and ensure your business remains competitive.
- Maintain open communication with your lender or broker: Keep your lender or broker informed of any changes in your business situation that may affect your ability to meet your van finance obligations. They may be able to offer assistance or alternative solutions if you encounter financial difficulties.
- Budget for insurance and taxes: Don’t forget to factor in the cost of insurance and taxes when budgeting for your van finance. Shop around for competitive insurance rates and consult with your accountant or tax advisor to ensure you’re aware of all relevant tax implications.
- Consider fuel management: Implementing a fuel management strategy can help you control and monitor your van’s fuel consumption, saving your business money in the long run. This could include route planning, driver training, and monitoring fuel usage.
Van Finance for Businesses with Poor Credit
If your new business has a limited credit history or you have poor personal credit, securing van finance may be more challenging. However, there are still options available to help you finance your commercial vehicle:
- Use a guarantor: A guarantor is someone who agrees to take responsibility for your loan if you’re unable to make the repayments. This can provide extra security for the lender and increase your chances of approval.
- Offer a larger deposit: Providing a larger deposit may help offset the perceived risk associated with lending to a borrower with poor credit. A larger deposit can also reduce your monthly payments and the total interest paid over the loan term.
- Improve your credit score: Taking steps to improve your credit score before applying for van finance can increase your chances of approval and secure better interest rates. This may include paying off outstanding debts, correcting errors on your credit report, and establishing a positive payment history.
- Consider alternative lenders: Some lenders specialize in providing finance for borrowers with poor credit. While these lenders may charge higher interest rates, they can offer a valuable solution for businesses with limited credit options.
How First Oak Capital Can Help Your New Business
As a leading finance broker in the UK, First Oak Capital is here to help your new business source the best rates for van finance. Our experienced team will guide you through the process, ensuring that you fully understand the various finance options available and choose the one that best suits your needs.
We work with a wide network of reputable lenders, which allows us to find competitive rates and terms for your van finance requirements. Whether you’re looking to finance a single van or an entire fleet, our team will work tirelessly to secure the best possible deal for your new business.
Conclusion
Investing in a van can significantly impact your new business’s success, allowing you to transport goods, tools, and equipment and even serve as a mobile advertisement. However, it’s crucial to choose the right van finance option to suit your business’s unique needs and circumstances.
- Access to a Van Without the High Upfront Costs. Van finance allows new businesses to access a van without having to pay for it outright. This means that they can benefit from having a van for their business operations without incurring the high upfront costs associated with buying a van.
- Increased Flexibility. Van finance allows new businesses to choose a finance option that suits their needs and budget. This means that they can select a van finance option that offers the level of flexibility they require, whether that’s the ability to own the van outright at the end of the term or the option to upgrade to a new van regularly.
- Improved Cash Flow. Van finance allows new businesses to spread the cost of the van over a period of time. This means that they can maintain a healthy cash flow, which is essential for new businesses that may have limited resources.
- Tax Benefits. Van finance can offer tax benefits for new businesses. The interest paid on van finance can be claimed as a business expense, which can help to reduce the overall tax liability of the business.
- No Depreciation Worries. With van finance, new businesses don’t have to worry about the depreciation of the van. This is because they don’t own the van outright, and therefore, they’re not responsible for its depreciation. This can be a significant benefit for new businesses that may not have the resources to invest in a new van regularly.
- Access to Newer Vans. Van finance allows new businesses to access newer and more reliable vans, which can be essential for their operations. This means that they can benefit from the latest technology and safety features, which can help to improve the efficiency and safety of their operations.
- More Control Over Budgeting. Van finance allows new businesses to have more control over their budgeting. They can choose a finance option that suits their needs and budget, and they’ll know exactly how much they need to pay each month. This can help to make budgeting easier and more predictable.
- Increased Credibility. Having a van can increase the credibility of a new business. It can help to establish the business as a professional and reliable operation, which can be essential for attracting new customers and clients.
- Better Resale Value. If a new business chooses to own the van outright at the end of the term, they’ll benefit from a better resale value than if they had purchased the van outright initially. This is because the van will have been well-maintained and serviced throughout the finance term.
- Professional Image. Having a van can help to create a professional image for a new business. It can help to establish the business as a serious operation, which can be essential for building trust with customers and clients.
Overall, van finance offers numerous benefits for new businesses that require a van for their operations. It allows them to access a van without incurring high upfront costs, offers flexibility and improved cash flow, and can provide tax benefits, among other advantages.
Q: What is van finance, and how does it work?
A: Van finance is a financing option that allows new businesses to purchase a van without having to pay for it outright. The business will make regular payments over a fixed term, and at the end of the term, they’ll own the van outright.
Q: Can I claim tax benefits on both finance and operating leases?
A: Yes, both finance and operating leases offer tax benefits. However, the tax advantages may vary depending on the type of lease and your specific business situation. Consult with a tax professional to understand the specific tax implications for your business.
Q: What types of van finance are available for new businesses?
A: There are several types of van finance available for new businesses, including Hire Purchase, Personal Contract Purchase, Finance Lease, and Contract Hire.
Q: How do I choose the right van finance option for my business?
A: Choosing the right van finance option for your business will depend on your specific needs and budget. It’s important to consider the monthly payments, interest rates, and terms of the finance option before making a decision.
Q: What are the benefits of van finance for new businesses?
A: Van finance offers several benefits for new businesses, including improved cash flow, access to a van without high upfront costs, and increased flexibility.
Q: Can I get van finance as a new business with no credit history?
A: It may be more challenging to obtain van finance as a new business with no credit history. However, working with a finance broker or providing a business plan and CV can help increase the chances of approval.
Q: What deposit do I need for van finance?
A: The deposit required for van finance will depend on the finance option chosen. Typically, the deposit will be between 10-20% of the van’s total cost.
Q: How long does van finance last?
A: Van finance typically lasts between 2-5 years, depending on the finance option chosen.
Q: Can I change my van during the finance term?
A: This will depend on the finance option chosen. Some options, such as Personal Contract Purchase, offer the option to upgrade to a new van during the finance term.
Q: Can I pay off my van finance early?
A: Yes, you can pay off your van finance early. However, there may be early repayment fees to consider.
Q: What happens at the end of the finance term?
A: At the end of the finance term, the business will typically own the van outright. However, with Finance Lease or Contract Hire, the business may have the option to extend the lease or return the van to the finance company.
