Self Employed – Light Commercial Vehicle
Having a light commercial vehicle (LCV) at your disposal, whether it be a car or van, is a tremendous asset for any fledging business. You can use them to offer specialised services, drastically broaden your client base, or act as an excellent marketing tool.
However, there are a ton of things to think about before you decide to go through with the purchase – how to source your LCV, financing, whether it suits your business needs, and most importantly, avoiding the potential pitfalls.
By the end of this article you should hopefully have a clearer understanding of the things to consider when purchasing your first commercial car. You don’t want a fantastic asset turning into a long-term liability!
Sourcing Your LCV
There are several different choices available to you when it comes to acquiring your first commercial car or van. Some of the most popular methods include ‘outright purchase’, ‘hire purchase’ (HP), and ‘financial lease’.
These three options differ from each other in terms of their depreciation, duration, ownership, maintenance and payment. Feel free to research each of them in turn (and we strongly recommend this!), because we’re just going to be covering the basics of each.
This involves purchasing your vehicle outright with cash, either in part (with a loan), or fully. Consider carefully whether you have the budget for such a high outlay – it always helps to lay out the pros and cons of the decision, in the short-term, yes, but over the long-term too.
Remember, with great ownership comes great responsibility – you’ll have to consider all the running costs, including maintenance, repair, servicing, road tax and tyres. If in doubt, it’s always worth talking with other business owners with similar LCVs to find out what they think of these long-term expenses.
Hire Purchase (HP)
Hire Purchase is a cost-effective option with allows self-employed traders to spread the cost of purchase over time. After an initial deposit, the remaining cost of hire is spread across monthly instalments. You also have the option to end the agreement with a balloon payment (the repayment of outstanding sums at the close of the hired period).
An important factor to keep in mind is that you won’t own the LCV until the final payment is made, which means that if your business undergoes financial difficulty, the vehicle could be repossessed.
Leasing acts as a financial contract between the hirer (you) and the leaser. In a similar way to Hire Purchase, the leaser grants you permission of their vehicle with periodic payments, or ‘lease rentals’. Arrangements can also be quite flexible in order to suit the preferences of both parties.
Unlike Hire Purchase, the ownership of the hired vehicle lies with the owner. Lease rentals cover the cost of using, but not owning, the asset. This is a popular option among self-starters and traders because when the lease ends, you can continually replace the vehicle with a new one for no additional expense.
Whatever acquisition method you eventually settle on, carefully consider the pros and cons of each, keep a level head, and don’t jump into any decisions. Always read the fine print, and if you’re unsure, there’s no harm in taking advice from experts. It also serves well to think of payments in the long-term, as oppose to short, and how exactly they might affect your business.
Securing a Loan
Many people who are self-employed, or just starting up a small business, often can’t afford the luxury of purchasing vehicles outright, or jumping into agreements without heading into financial difficulty. Therefore, securing a loan is a great idea.
However, acquiring one might be tricky for the self-employed business owner, and even more so for those with a poor credit history. All is not lost, however! There are many professional subprime lending companies out there which offer car finance for the self-employed, and understand the need as well.
Keep in mind that when applying for finance under self-employment, it’s often necessary to provide certain information to help secure the loan, including:
- 3-months’ worth of bank statements as proof of income
- Employment history (usually over the previous 3-year period)
- Address history (usually over the previous 3-year period)
Remember, it’s NEVER a good idea to rush into financial agreements and contracts. In the long-run it pays to ensure that you are dealing with a well-trusted, well-reviewed lender, and that you can keep up with payments. Look out for companies authorised by the Financial Conduct Authority, as they are obligated to abide by the rules introduced to protect the interest of customers.