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Car leasing tips for start-up businesses

If you have a start-up business, you probably don't have spare cash to drop on a new car. However, leasing may be a viable option in certain situations.

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New start-up business registrations are on the rise, with 2014 seeing the creation of over 581,000 new companies and this number continuing to rise.

The chance to pursue a personal passion, be your own boss or work more flexible hours are just some of reasons people look to start their own business.  However, once these ventures are created there are a lot of aspects to consider.

One of these is creating the right first impression with clients, and with this comes the allure of a new car.  Compared to showing up to a meeting with a prospective client in an old banger, imagine rolling up in a brand new Audi or Mercedes-Benz.  First impressions are, after all, one of the main factors in any sale.  However, with the expense of starting up a new business, purchasing a new car may hardly be viable. This is where the option of leasing comes in.

Leasing a car may be an option for your start-up business

By leasing a car, you have the chance to drive in a brand new vehicle for a much smaller cost than if you were to purchase the same model.  You can also incorporate your maintenance and servicing costs into a single monthly payment.

Leasing usually involves an up-front payment when you start the agreement, and then regular monthly payments over the course of the lease.  At the end of the term (usually 24, 36 or 48 months although other options are available), the car goes back to the leasing company.

Depending on how your business operates, there can be tax benefits to leasing a car rather than owning one.  Your accountant will be able to advise on what the pros and cons for your situation will be.

Before you rush down to the dealership…

Before getting too far ahead of yourself, it’s important to assess the situation.  Being approved for finance as a start-up can be hard, and there is no guarantee you will be successful due to a lack of trading history for your new business.  Finance companies will be assessing the risk of you defaulting on your lease when they consider your application.

So there are a few things to keep in mind and have prepared for when you start the application process.  As well as being a good business practice for your new start-up anyway, having the right documentation available when you are applying for a lease will improve your chances of being approved.

The Car Expert's Ten Golden Rules of Buying a Car

Documents you will need for a car lease application

What you will need to prepare
– You need an opening balance sheet
– You need proof of trading (for example, managements)
– You should be prepared to offer a personal guarantee

To be considered as a start-up you will need
– At least three months management accounting information
– A directors guarantee as a minimum sanction of any leasing approval

Other factors which will be taken into account
– Previous business history: for example, you were in a partnership or were a sole trader and have now become a limited company with the assets transferred – so you are effectively the same company but a new entity
– Where initial investment is considerable (£1m+) and can be proven in opening statement of affairs

Please keep in mind that, even if you have all the above information ready and it presents a glowing picture of your new business, some finance companies will not simply look at start-ups that have been trading for under two years.

Also be aware that there are penalties for early termination of most leasing agreements, so you need to be confident that you will be able to afford the monthly payments for the whole term of the lease.  This can be be difficult to judge in a start-up business when you future prospects may be uncertain, so it is important to not overstretch your cashflow and make sure you are leasing a car that you an comfortably afford to pay for.

Most car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA. You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.

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