Whether your a sole trader, limited company or public limited company (PLC), leasing your cars and commercial vehicles can be a great way to drive the latest vehicles for various work projects or to provide your employees with mobility solutions.
Leasing a business car or van presents numerous advantages, including affordable and predictable expenses that positively impact the company’s cash flow. By opting for leasing, businesses can minimize their capital expenditure, making it the most cost-effective choice.
One of the key conveniences of business car leasing is the elimination of concerns regarding depreciation and future selling. These risks are assumed by the finance company, allowing businesses to simply return the vehicles and upgrade to new models every few years, according to the agreed lease term.
Among the various leasing options available, business contract hire (BCH) stands out as the most popular and easily manageable form of business vehicle leasing. In fact, more than 50% of all new company cars are leased through business contract hire agreements.
What is Business Contract Hire (BCH)?
Business car leasing, also referred to as Business Contract Hire (BCH), provides a convenient solution for companies seeking to hire vehicles for a specific duration. Similar to personal contract hire (PCH), this type of lease is tailored specifically for business needs.
Businesses of all sizes can benefit from signing up for a BCH agreement, whether they require a single car or van, a few vehicles, or an extensive business fleet. It is regarded as the most suitable form of leasing for business owners.
The contract term offers flexibility, typically ranging from one to four years based on the requirements of the business owner. For shorter durations of under 12 months, businesses can explore options for short-term business leases, which can be either fixed or flexible.
One of the significant advantages of business leases is the recoverability of VAT for each contract. If the vehicle is exclusively used for business purposes, VAT registered companies can claim back 50% of the VAT. In cases where the car is solely utilised for business and not for private use, it may be possible to reclaim the entire VAT amount.
At the beginning of the lease, an initial payment is required, typically equivalent to approximately three months’ worth of payments (profiles explained). However, the amount of the initial payment can often be customized according to preference. Some leasing agreements even offer the option of a one-month initial rental payment, effectively requiring no deposit. It’s worth noting that larger deposits result in lower monthly payments. Subsequently, the lease is continued through monthly installments.
Throughout the lease term, the company never assumes ownership of the vehicles. Thus, upon the conclusion of the contract, the leased vehicles are returned to the leasing company.
Following this, businesses have the flexibility to either extend the existing contract or opt for a new model under a new lease agreement. Certain finance options may even provide the opportunity to purchase the car with a balloon payment.
How are the monthly payments calculated?
Several factors contribute to determining the monthly payments for your car lease. The manufacturer and model you choose play a significant role in the overall cost.
When you opt for a lease with Cocoon Vehicles, funders consider the concept of residual value (RV) or guaranteed future value (GFV). This represents the predicted value of the car at the end of the lease agreement. Our team will calculate the RV for you. Subsequently, we subtract the RV from the initial retail price of the vehicle. The remaining amount is what you will pay off over the course of the lease. Essentially, higher RV translates to lower monthly payments.
To begin the lease term, you will make an initial payment, which will be deducted from the total amount you need to pay off. Then, you will continue to pay the remaining balance through fixed monthly installments until the contract concludes.
One advantage of these monthly payments is their fixed nature. This means that you have a clear understanding of your monthly outgoings and can effectively manage your budget.
What are the pro’s and con’s?
Every business is different, so it all depends on how you wish to utilise the vehicles and the set-up of your company. As with all financial agreements, there are advantages and disadvantages, here are a few:
Pros
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Lower fixed monthly payments -
No worries on depreciation of the vehicles -
Doesn’t appear on the company balance sheet -
Lower upfront payments when compared with traditional finance -
Manufacturers warranty included -
Road tax included for the duration of the contract -
50% of the VAT back of the car is used for business and personal reasons, 100% is reclaimable if the vehicle is used solely for business.
Cons
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Vehicles have to adhere to a mileage allowance -
The company will never be the registered keeper of the vehicle
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No way to end the agreement early without an early termination fee -
Car needs to be returned inside of the BVRLA’s fair, wear and tear guidelines.
Eligibility for a Business Lease
To get a business contract hire agreement, most funders will require the following:
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Must be a Sole Trader, Limited Company (LTD), Partnership or Public Liability Company (PLC) -
You may be required to send management accounts or audited accounts -
You may be required to provide bank statements -
You must provide proof of address and ID of the signing DIrector -
You must have a good credit rating and 3 years plus of positive accounts and/or shareholder funds
If you do not believe you meet the above criteria, you may still be eligible for a business car subscription or a business short-term car lease.
Short-Term Solutions
We’ve already touched on subscriptions and short-term leases above, but these provide a more flexible approach to traditional business car leasing and it is more cost effective than long-term car rental through daily rental providers.
We offer two types of contracts here, flexible car contracts or fixed short-term car leases. Both have their pro’s and con’s and you need to choose the right contract that suits your business needs. Click the links below to see the latest offers.
What leasing option is right for my business?
The benefit of using Cocoon Vehicles for your leasing requirements is that we are not tied to any individual funder and can therefore search the market to find the best car lease deals available. We use no less than 12 different funders and also have access to manufacturer backed funders such as Alphabet, Athlon and VWFS.
Not quite sure what you need? Give the team a call on 01332 290173 or use the ENQUIRY FORM below. We will talk you through our options and recommend the best services to suit your company requirements.
Whilst we specialise in short-term contracts, we also offer a FIND A CAR LEASE service, it is free to use and you have no obligation to go ahead.
