Financing your first van or vehicle fleet

For trades, delivery firms and service businesses, a reliable van is often the difference between taking on work and turning it away. Buying outright ties up a large amount of cash in a depreciating asset, so many businesses spread the cost instead. The main options look similar at first glance but differ in who owns the vehicle, how it is treated in your accounts and what happens at the end.

The main options

• Hire purchase. You pay a deposit and then fixed instalments. The finance company owns the van until the final payment, after which it belongs to your business. It suits vehicles you plan to keep for a long time.
• Finance lease. The finance company owns the van and you rent it for most of its useful life. At the end you may be able to keep using it or share in the sale proceeds, depending on the agreement.
• Contract hire. A longer-term rental with agreed mileage, where you hand the van back at the end. Maintenance can sometimes be included, which makes costs predictable, but there may be charges for excess mileage or damage.

There is no single right answer. Ownership suits businesses that run vehicles into the ground or customise them heavily. Contract hire suits those who want a regular replacement cycle and fixed running costs.

Tax and VAT

The tax treatment of each option differs, and it can affect which one works out best overall. VAT on vans is often treated differently from cars, and capital allowances may apply where the business owns the vehicle. The rules have specific edges, for example around double cab pick-ups and electric vehicles, so it is worth checking the treatment with your accountant before you choose.

Getting the first van right

A first vehicle is often the moment a business moves from working out of a car to looking properly established. A few points to weigh up:

• Choose the payload and size you will need in two or three years, not just this month.
• Factor in insurance, tracking, racking, signwriting and servicing, not only the monthly payment.
• Check whether clean air zones or low emission zones on your regular routes affect your choice of vehicle.
• Consider whether a balloon payment at the end would suit your cash flow or simply delay the cost.

Growing into a fleet

As the number of vehicles grows, managing each agreement separately becomes harder. Lenders and brokers can often arrange a facility that covers several vehicles, which may simplify paperwork and give a clearer view of total commitments. Staggering replacement dates also helps, so the business isn’t faced with renewing every vehicle in the same month.

Lenders will look at how vehicles support the business, so be ready to explain the contracts or regular work that justify each addition. A track record of keeping up payments on existing agreements makes further vehicle finance easier to obtain.

Before you sign

Compare the total amount payable across the life of the agreement, not just the monthly figure. Check what happens if you need to end the agreement early, how mileage and wear are assessed on rental options and whether a personal guarantee is required. Asset finance can be a very efficient way to grow, as long as the terms match how you will actually use the vehicles.