Contract Hire
Contract Hire is a long term rental agreement. Contracts range from 24 to 60 months and are tailored to the businesses requirements.
Advantages
- A fixed cost making budgeting more simple
- A small initial cost
- No exposure to residual value risk
- VAT recovery on the lease rentals (subject to 50% block)
- VAT is payable on each lease rental (as opposed to upfront)
- Corporation tax relief available against the lease rental charges
- Eliminates most of the stresses and financial risks of vehicle ownership
- Reduced car fleet administration
Disadvantages
- The company will be tied into a fixed contract
- No ability to profit from residual values
- There is no option for the company to purchase the vehicle
- It will be necessary to forecast the expected term and mileage for the car at the outset of the contract
- If you do more miles than stated in your contract you will be charged excess mileage for each mile over that stated in your contract
- You must look after the vehicle and return it in a well maintained condition otherwise you will be charged for any damage over and above that stated in the ‘Fair Wear and Tear Guide’
- You must have fully comprehensive vehicle insurance (or third party and self-insure)
Finance Lease
A flexible lease option with no mileage limits or damage recharges.
Finance Lease is perfect for registered companies who want to handle the administration of their vehicles, and have the asset shown on their balance sheet.
A VAT-beneficial option where the hirer can choose to pay the entire cost over the agreed lease period, plus an interest charge, or pay lower monthly rentals during the lease period with a final payment based on the anticipated resale value of the vehicle.
- Finance Lease is a method of financing a vehicle that is usually favoured for commercial vehicles and by VAT registered businesses
- The business obtains use of the vehicle by paying a rental each month
- The monthly rental is determined by the initial cost of the vehicle (excluding VAT), the period of the Finance Lease and the residual value (sometimes called the balloon payment), plus interest
- Although you never take ownership, at the end of the Finance Lease contract a Final Rental (balloon) is payable
- Usually this means that the vehicle is sold and a proportion of the proceeds of the sale are returned to the lessee (In LeasePlan’s case, the customer receives 98% of the sales proceeds whilst LeasePlan retain 2%)
Advantages
- Minimum capital expenditure
- Accurate monthly budgeting
- A fixed interest rate is available on all contracts
- No damage recharge as you are responsible for disposal of the vehicle
- VAT recovery on the lease rentals (subject to 50% block)
- Corporation tax relief available against the lease rental charges
- Rentals can be offset against the businesses profits.
Disadvantages
- You will never own the vehicle as you must sell it to a third party at the end of the agreement
- Operating risk associated with running the vehicle at the end of the contract
- Interest rates can vary on some contracts
- You must have fully comprehensive vehicle insurance
- The company will be tied into a fixed contract
- Exposure to residual value risk for the company
Hire Purchase
A flexible finance option for ownership, available to private individuals and businesses.
Hire Purchase is a funding agreement where the customer acquires ownership when all payments, including the purchase payment have been made.
Part of the capital cost of the vehicle payment may be deferred into a Balloon Payment at the end of the agreement, which equates to the anticipated market value of the vehicle at the end of the agreed contract period.
The benefits of Hire Purchase:
- Fixed monthly cost
- Ownership at the end of the agreement
- Flexible contract
- Balloon Payment
- Low initial outlay
- Business capital not tied up in a depreciating asset
- Finance not subject to VAT
- Interest reclaimable against tax
- Writing down allowance
- Road fund licence included for the first year of the contract
Commercial Loans
What are they?
There are many businesses that will benefit from investment at some point on their journey. Business loans can be a solid financial solution to explore as they offer so much more flexibility than funding specific assets.
A business loan is an amount of money issued to a business exclusively for use in their business and is repaid—with interest—over a set period. When it comes to the amount that you can borrow, a business loan can range from £5k – 500k, with repayments terms from 3 months to 7 years.
Key Features
- Fast flexible unsecured loans that can be used for any purpose to include, working capital, stocking finance, asset purchases, expansion capital and one off business expenses.
- Advances from £5K to £500K with fixed monthly repayments spread from 3 months up to 7 years.
- Unsupported personal guarantees are required from the Directors of Companies.
- Loans are available to sole traders and partnerships.
- A fixed establishment fee is payable which is added to the loan to assist cashflow.
Key Benefits
- Loans can be arranged quickly and available for any purpose.
- Enables expenditure made now to be spread over up to 5 years.
- No need to provide tangible security.
- All the costs of the loan are known up front, due to the fixed monthly repayments, which assists with budgeting.
