Business Finance for Vans
If you’re looking to raise funds for a van, you could take a secured or unsecured business loan. Get the best deal with ABC Finance.
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in business loans
Business van finance allows companies to purchase vans using a loan or specialised financial product.
Vehicle purchases can be costly and involve a significant upfront payment, using business van finance allows a loan to be paid back in manageable instalments helping maintain cash flow.
Whilst initially business van finance could appear very similar to business truck finance, there are differences between these two options. Read on to find out how van finance could benefit your business.
What is van finance?
Van finance covers a range of products that can help your business buy a van without having to pay the full upfront cost by making regular repayments instead.
It is a flexible form of finance that covers loans, leasing and hire purchase meaning that you can use a van and not own it or increase your equity (ownership) over time.
Given the range of products on offer, van finance can be arranged for new businesses, those with poor credit ratings and sole traders in the majority of circumstances.
Whilst a deposit is usually expected there are zero-deposit options available.
Why should I use finance rather than buying with cash?
Having a positive cash flow is essential for a business – whether it is to manage unexpected expenses, or invest in growth. Buying a van outright means you are likely to have to pay a considerable amount of money upfront, and this can impact cash flow.
There can be a number of advantages to using van finance as many deals include cost of maintenance and road tax. Some arrangements also have considerable tax benefits.
Using van finance also means you can buy or lease a vehicle that you might not otherwise be able to afford to buy.
What are the different types of finance available for business vans?
There are a number of finance options available for purchasing vans and commercial vehicles, the main types are as follows:
Hire purchase (HP)
Hire purchase is a financing option where a business pays an initial deposit followed by monthly instalments. Owner equity will build over time and when all the instalments have been made the business then owns the vehicle.
This arrangement benefits businesses that want to purchase a vehicle but don’t have the ability to pay for it upfront, or wish to spread payments to manage cash flow. As a lender has a stake in the vehicle, and it is used as equity, interest rates can be more favourable using this secured finance option.
Finance leasing
A finance lease combines elements of a hire purchase and operating lease arrangement. A business will lease a van, pay for maintenance and insurance yet have the option to purchase the vehicle at the end of the lease, usually for a low fee.
Sale and leaseback
Sale and leaseback is a financial arrangement where a business sells its vans to a leasing company and then leases the vans back for a specific period of time. The benefit to the company is that it can continue to use the vans whilst releasing cash. Depending on the arrangement, the business can also choose for the lease to include maintenance and upkeep. This is potentially a more costly arrangement for businesses than ownership; however, it is a useful option when funds are needed for other purposes – such as business expansion.
Unsecured loans
Unsecured business loans are a type of credit that isn’t based on assets such as property or stock and so for van finance the vehicle would not be used as collateral.
Lenders will assess the creditworthiness of a business and the likelihood that they will be able to pay back the loan. Unsecured loans are often shorter term arrangements.
This type of loan is considered to be higher risk as the lender does not have certainty the payments could be met, or that they will receive their money if the business defaults on the arrangement. Unsecured loans ordinarily have higher interest rates than secured business loans.
An unsecured loan to purchase company vehicles would be most suitable for a business that has a good credit score.
Revolving line of credit
This is a flexible financing option where businesses can borrow, repay, and re-borrow up to a pre-approved limit as and when they need it.This type of debt facility is commonly left open by lenders as long as the account is managed well. Many businesses find revolving credit useful as once it is set up there is no need to seek approval to use funding as opposed to loans that need to be applied for separately each time they are required.
Why should I consider van finance?
There are a number of benefits that come with van finance and the most common reason for using this type of finance product is that you can get a new van with manageable payments.
For many businesses a van is essential and there are many flexible financial options available that mean even start-ups can access finance. Often leasing agreements will cover maintenance, upkeep, road tax and even upgrade your van every few years enhancing your company reputation and profile.
There are also tax advantages, and in some cases incentives, for businesses leasing a van that can add up to a considerable reduction in liabilities.
How do I apply for a van loan with ABC Finance?
The application process is simple, and straightforward, and in most circumstances the ABC team can help you fill in a simple application form and get a quick decision on van finance from our specialist panel within hours.
Funds can be transferred to your business within 24 hours of the application.
Request a callback from one of our dedicated advisors to get started.
Is van finance 100% tax deductible?
Tax relief on van finance can potentially be 100% tax deductible depending on the type of arrangement you choose.
Relief can be a complex area and so make sure to consult a financial specialist if you are looking to reduce your tax liabilities by using van, or any other form of vehicle finance. If you are considering electric vans for your business then it is especially important to take advice as this area of taxation is constantly changing.
Tax relief applies to van leasing arrangements for those who are self employed, or VAT registered businesses.
If a van is used completely for company related activities a VAT registered business will be able to claim back fuel expenses and also the van leasing payment against their tax liabilities. If a van is also used for personal journeys, then up to 50% of leasing costs can be claimed.
If, however, a van is purchased outright using a loan then the tax rules differ. For tax purposes, a loan will be split into two different parts, and only one will be eligible for tax relief, here we explain how tax is applied:
Principal payments
If you finance your van through a loan you will repay the loan itself, known as a principal payment, and also interest on the loan. UK businesses cannot claim tax relief on a principal payment and this is because it is viewed as a ‘capital expenditure by HMRC.’ A capital expenditure is seen as something that improves the long term outlook of a business and gaining assets such as company vehicles count in this category.
Interest payments
Interest payments are tax deductible and so tax relief can be applied to this portion of a loan. It is important to demonstrate clearly what your interest costs are and this can be shown by the lender in a yearly statement.
Capital allowances
Capital allowances are a type of tax relief for businesses and in some circumstances HMRC may allow you to write off a portion of the van’s cost against taxable profits each year. Over time your asset will depreciate in value and a capital allowance allows this to be recognised through the tax system on a yearly basis.
The amount you can claim against capital allowance will vary depending on the type of vehicle you have, the original cost, how much it is used and what type of fuel it uses.
Electric vehicles (EVs) and tax incentives
There are a number of tax incentives that apply to zero and low-emissions vehicles to encourage companies to choose more environmentally sustainable options.
If you choose to install an electric vehicle charging point then you can claim 100% of the installation costs back, including any land alterations that are required and associated costs to connect an electricity supply to the charging point.
To qualify, the charging point to be installed must be new and unused rather than a second-hand charging point. Vehicle charging for business purposes on a company site can also qualify for reduced VAT at 5% instead of the standard 20% in public places.
What to consider before choosing a company van
Here, we examine some of the key considerations before choosing the type of van you are seeking finance on and how this might impact the types of financial products you are offered:
Mileage it is important to understand what your usage will be in terms of annual mileage. Many forms of vehicle finance are based on how much you expect to use your van, particularly lease arrangements.
Often finance companies look to set agreements in place where mileage is less than 50,000 miles each year or a 180,000 over the entire agreement; this is because a vehicle will be worth a lot less if it has excess mileage.
If you know that the company van will be used constantly then it is important to discuss your requirements with your finance broker so they can match you to the right lenders.
Fuel type: When choosing a company van it is good to have an idea about the type of fuel you want to use as electric, petrol and diesel carry significant advantages and disadvantages.
Electric and zero-emissions vans: there are many benefits to choosing an electric van both for the environment and for you as a business owner. If you are able to charge your van as often as you need to and have access to charging points an electric van can be cost-efficient in terms of fuel. You may also be able to take advantage of several government incentives that offer grants or tax relief on zero-emissions vehicles. It should be noted that the rules around tax relief and electric vehicles are subject to change and this is a complex area.
The ‘plug-in grant’ is an incentive for low-emissions vehicles and for vans there can be a discount of up to 35% on the cost of a van. See the government website for eligibility and further details on the models of van that qualify for a discount.
If you are going to be spending a lot of time driving in cities then your costs might be impacted by Ultra Low Emission Zone (ULEZ) charges. An ULEZ is an area where there are stricter standards on emissions and vehicles that do not meet the required emissions standards are required to pay a daily charge to enter the city. Using an electric van will avoid these costs, which can mount up if you will be working in a city every day.
Fuel economy is a key point for diesel engines, and more noticeable in larger vehicles such as vans. For longer range journeys and long distance travel, diesel can be more cost effective as a fuel. Electric vans can be cheap to charge, however, if you are travelling long distances and need to charge your van regularly then you will need to make sure that the area you are operating in has accessible charging points. It may be worth installing your own business charging points – see our section on charging points and tax relief for more information.
Frequently Asked Questions
Standard repayment terms are usually from one to five years on van finance, however, given the wide range of lenders and packages there can be exceptions. Using a finance broker means you can be matched to a lender who understands your business and your circumstances.
The amount you can borrow will vary depending on the type of finance you choose. Other key factors will be:
The cost of the van
Whether the van is new or used
The fuel type of the van
How much mileage you plan to put on the van each year.
Yes, it’s likely ABC Finance will be able to match you with a lender from our panel of specialists, even if your credit rating could be improved. We have twenty years of experience finding our customers the best deal according to their circumstances. Van financing is an extremely flexible form of financing with many options from traditional loans to lease arrangements where there is less risk for a lender.
Taking out a loan can even help businesses improve their credit rating if the loan is managed according to the terms agreed with the lender – especially paying back the loan on time.
Contact our team at ABC Finance for a callback and discussion about your needs.
Yes, new businesses and start-ups can get van finance. For most business loans, a company should have been trading for at least six months; however, there are special deals available for van loans as lenders understand this is an essential purchase for many businesses. In some instances a higher rate of interest or a personal guarantee may be required for new businesses
Yes, you can get a business van with zero deposit leasing. Some lenders require at least one month’s payment, however, there are still many zero deposit options available. This means you will not pay anything until your agreed monthly repayment fee is due and you won’t have to use business cash flow to finance a van.
If you do opt for a zero deposit lease your monthly payments or length of repayment period might be increased in comparison to an arrangement that requires a deposit.
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