How your business can finance your vehicle

Content provided by a guest contributor.

Whether you are planning on buying a car for personal use or if you need a new company car, the process of finding finance can be a daunting task. However, having a business vehicle is important for most businesses, especially those that specialise in transportation, whether you’re transporting goods or people. Buying a business car has its benefits. It can build your business's brand and even increase productivity.

Getting finance for your business vehicle doesn’t have to be difficult. Below are tips on how your business can receive business vehicle finance.

Documents

It’s always best to go to a lender with all the necessary information to make the process easier. For vehicle financing, you need the contact details and the home address of your business partners, directors, shareholders and other trustees. You need to include the details of the specific asset you need financial assistance for, including the cost and the supplier's information. You will also need your business’s income statement and your business's balance sheet.

Business plan

Having a well-written business plan is important for any business. A business plan can help your business finance a new vehicle. Your business plan should be a reflection of your company. Make sure you also have a financial plan when meeting with a lender. Both your business and financial plan should show lenders how your business will pay for vehicle finance.

Your company’s credit profile

In order for your business to receive finance, it needs to have a good credit profile. Your company’s credit profile is as important as your personal credit score. Purchasing a new car using your business's cash flow is a financial risk for most companies and that's why people need finance. Having a good credit profile for your business allows it to apply for credit and have a lower interest rate. Having a good credit score not only allows your business to get vehicle finance but it opens the door for other finance options as lenders can see your business is trustworthy and manages its debts well.

You can improve your company’s credit profile by making all your business payments on time, paying off your debts faster, and trying to minimise the amount of credit line your business takes out. It’s also helpful to sort out your balance sheet and make sure you look at your business's credit profile. Try to look at your score every year.

Buying or leasing?

If you are interested in applying for business vehicle finance to buy a company car, you have two options. Your business can either lease or buy a vehicle from a lender. When you lease a car you only pay for the duration you will be using it for.

Taking out a car lease is ideal for a business which has no intention of buying the vehicle. The advantage of a lease is that your business will have the opportunity of getting the latest vehicles frequently, and you won’t have to worry about the selling process and finding a buyer for your vehicle at a later stage. When you have a lease, there is no balloon payment. Depending on your agreement with the lender, another benefit is that the insurance and maintenance will be covered by the lender and your monthly instalments are normally lower than when purchasing a vehicle.

However, when you lease a vehicle, you have limited vehicle usage. You can’t go over a certain amount of kilometres. Another disadvantage is that you will get penalised should you decide to end the lease before the contract ends.

On the other hand, when you purchase a vehicle you will have complete ownership after your last instalment. Unlike a leased car, your vehicle usage isn’t limited. However, the disadvantage of buying a car is vehicle depreciation and you as the owner will be in charge of maintenance and insurance. Similar to leasing, it is very difficult ending a finance contract.

Financing

Many financial services and registered credit providers offer vehicle finance calculators which allow you to calculate your car finance before applying. The rates quoted are only guidelines, which are put in place to give you an idea of how much your company will pay monthly and how much your interest rate is. Keep in mind that your business needs to be profitable for two years or more.

With a lender, you can work out a suitable time frame to make payment, starting from 12 months, which will have a higher monthly instalment or you can make it for 72 months. Always check your business’ affordability and work from there. Make sure you buy or lease a vehicle which your business can afford.

Once you get pre-approved it would be beneficial for your business to put down a large deposit on the car. Having a large deposit on the vehicle helps you have a lower monthly repayment. If you plan on buying the vehicle, then putting down a big lump sum will speed up the process and you can have full ownership sooner rather than later.

 

The content in this article was provided by Rogerwilco – a South African marketing agency based in Cape Town.

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