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Business car leasing can make sense for SMEs with an eye on cash flow

SMEs often find long-term financial commitments to be much more difficult than they are for large, established organisations, particularly when it comes to vehicles.

Many cars bought for business use by small firms are usually financed, often by hire purchase or a loan.

However, many small business owners that regularly change cars are missing out by purchasing vehicles rather than leasing, mainly due to the lower monthly costs involved.

A quick comparison of monthly payment schemes show that it is less costly to lease a Mercedes Benz C Class from CVSL on a four-year lease agreement for £255.30 per month than to buy a Vauxhall Astra GTC from a dealership for £282.58 per month using 0% finance over the same period.

Of course the downside of business car leasing is that you don’t actually own the Mercedes lease car at the end of the lease period, whereas you would own the Vauxhall Astra. However, at the end of the lease period, you do have the option to lease a new Mercedes again.

But it’s not just the monthly outlay of the vehicle that should be taken into consideration. There are other factors that show why leasing provides a much better option for small businesses.

 

VAT

Whilst vehicles that are that are also used for personal journeys receive a 50% VAT restriction on the lease costs, businesses can reclaim 100% of the VAT paid on leased vehicles which are used solely for work – although you would have to show accurate records to HMRC showing that a car is only used for business purposes (ie no commuting and so on). Optional maintenance packages are also 100% VAT-recoverable.

READ  What are the benefits of business car leasing?

 

Maintenance

Maintenance is the most vital optional extra to consider adding to your lease agreement – because the finance company will remove the risk of you having to pay for any expensive and unintentional maintenance costs. Think of it this way: if you don’t actually own the car, you are never liable for repairs!

 

Pricing structure

The monthly payment plan on lease agreements is often at a significantly lower price than buying the vehicle outright. This is because you are effectively covering the cost of the depreciation (the leasing company buys the car and then sells it at the end of the lease term – so the lease payments cover the bit in between).

Large payments can also be daunting for SMEs. With leasing you don’t need to worry about any significant deposits or final payments; it’s all covered within one fixed monthly sum.

With leasing there is usually a three month rental to pay up front; and then the rest of the term in equal monthly instalments; at the end of the lease there is nothing else to be paid as long as the car is in good condition and you have not gone over your agreed mileage.

 

Flexibility

Leasing agreements allow people to change their vehicle for a new model fairly frequently, with most contracts typically lasting for 24–48 months. This provides customers with added assurance that they will always be using a reliable vehicle.

With cars becoming less dependable as they get older, leasing not only provides you with added peace of mind but it helps to eliminate the risk of things going wrong.

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The verdict

Vehicle leasing can prove to be a cost-effective alternative to buying a car (outright or on finance) due to the monthly payments often being significantly lower.

At the end of your lease agreement, you are able to take out a new contract on a brand-new car which means that you don’t have to worry about the value of your vehicle decreasing.

Although you can’t take advantage of the vehicle’s capital value, car leasing can provide your business with a number of benefits. It’s certainly worth weighing up your options – particularly if you are an SME with limited funds.


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