Finance
Funding Guide
Automotivate Leasing provides different finance types for your business and below is a guide to those funding types we offer.
Contract Hire
Contract hire is the main type of vehicle leasing.
It sees a user hire a car for a set period of time and pre-determined maximum mileage at fixed monthly rentals.
There is no option for the hirer to purchase the vehicle and at the end of the contract it is returned to the leasing company.
The monthly rental rate takes into account the cost of the car, including vehicle registration fees, road fund licence, its period of use and agreed mileage, funding costs, and forecast residual value (the car’s estimated value at the end of the contract, taking into account depreciation, mileage and condition).
Vehicle mileage will have a big impact on the rental rate because the number of miles a car does has major implications for both its service requirements and resale value. Underestimating mileage can reduce the monthly rental rate for the user, but it can result in them incurring excess charges at the end of the contract if they have exceeded their agreed total mileage limit.
The choice of vehicle model can also be a major factor. Two cars can have an almost identical list price, but if one has a much higher forecast residual value this will be reflected in a lower monthly rate.
The monthly rate for contract hire agreements may include a ‘service’ element or rental, which can cover a range of additional services.
Examples of such services include maintenance, replacement vehicles, roadside assistance, motor insurance, accident management and fuel cards.
Users are able to choose from a menu of options to meet their individual needs.
Pros
Fixed-cost motoring.
Frees up cash flow 100% of VAT claimable if the vehicle is used solely for business 50% of VAT claimable if private use is allowed by a business.
Rentals are Corporation Tax-deductible.
Additional line of finance that doesn’t affect banking arrangements.
Eliminates most of the stresses/ financial risks of vehicle ownership.
Cons
Estimates of the time and mileage of vehicle use are required.
No option to purchase the vehicle
Finance Lease
Another option for a business is a Finance Lease.
As with contract hire, a finance lease allows the lessee to hire a vehicle for a fixed monthly fee, with the vehicle remaining the property of the leasing company.
However, using a finance lease means that the vehicle will appear on the lessee’s balance sheet, with outstanding rentals represented as a liability because the risks and rewards of ownership rest with the lessee.
A finance lease generally conforms to one of two standard formats: a lease with a final balloon payment (smaller monthly payments with a final big payment at the end), or the fully amortised lease, in which the finance is spread over a fixed period with the same amount being paid on a regular basis, usually monthly.
In a lease with a final balloon payment, the overall depreciation of the vehicle is reflected in the monthly rental, with the final payment covering the original estimated residual value at the end of the contract.
If the vehicle is subsequently sold at a price above that of the predetermined balloon payment, the leasing company will refund a percentage of the proceeds to the lessee. If the price is below the balloon payment, the lessee will be liable to pay the shortfall to the leasing company.
A fully amortised lease finances the full value of the vehicle over the primary lease period from the monthly payments. Under these circumstances the lessee can be offered a lease on the vehicle for a secondary period at a nominal ‘peppercorn’ rental and possibly a share in the sales proceeds when the vehicle is disposed of by the leasing company.
Pros
Fixed monthly rentals 50% of VAT can be claimed on the rental if there is any private use of the vehicle.
Rentals are Corporation Tax-deductible Potential to carry on using the vehicle at the end of the primary lease period.
Additional line of finance without affecting core banking arrangements.
Vehicle appears as an asset on company books.
Cons
Risk of a fall in used vehicle prices.
Monthly rentals appear as a liability on balance sheet.
Finance Journey
Below is a guide to the finance journey with Automotivate Leasing, guiding you through the different stages of the process.
Needs Assessment
Businesses need to first identify their specific vehicle requirements, including type, size, and purpose.
Consider factors like operational needs, budget, and long-term business goals.
Application and Approval
Prepare necessary documentation, including financial statements, business plans, and details of assets and liabilities.
Lenders will assess the application and creditworthiness of the business.
Finance Options
Finance Lease: Enables businesses to rent the vehicle for a specific period, with options to purchase or upgrade at the end of the term.
Contract Hire: A form of leasing where the business pays a monthly rental fee for the vehicle's use, often including maintenance and other services.
Funding & Acquisition
Once approved, the finance agreement is finalised, and the business can acquire the vehicle.
Businesses can then utilise the vehicle to support their operations, manage cash flow, and potentially achieve growth.
Consultation
Engage with one of our dedicated Account Managers to discuss business needs and explore suitable financing options.
Our Account Managers can provide tailored solutions, assess credit scores, and guide businesses through the application process.
Key Considerations
A business's credit score plays a crucial role in securing finance, impacting interest rates and loan terms.
Commercial vehicle finance allows businesses to spread the cost of vehicles, minimising the impact on cash flow.
Some finance options, like hire purchase, may offer tax advantages for business users.