Different types of finance available
Dealer finance
Depending on the type of commercial vehicle you are trying to purchase, the dealer may be able to offer a finance package directly to you. This is often in partnership with a finance company, or the dealer will just act as an intermediary. Dealer financing can often be amongst the most convenient of options, but does not necessarily offer the most competitive repayment terms.
Pros of dealer finance:
- A combined buying and finance solution under one roof, which can be more straightforward
- Some dealers will be able to offer promotional rates that make dealer financing more affordable compared to other financial products
- Flexibility in terms of deposit and repayment terms
Cons of dealer finance:
- Whilst it is convenient, the repayment terms and rates are not necessarily the most competitive
- There might be less flexibility in terms of negotiations or custom terms
- Without the promotional offers attached to new vehicles, the interest rates for used vehicles might be higher than other financial products
Commercial loans
Some businesses will opt for a commercial bank loan to then purchase the asset outright. Depending on your credit history, access to collateral and lines of credit available to you, this could be a suitable option for your business.
Pros of commercial loans
- Potential for more flexible repayment options
- Full ownership of the vehicle once the loan is paid off
- Can be used to purchase vehicles from private sellers or auctions
- Allows for a separation of vehicle purchase and finance, can make negotiations easier
- Potential tax benefits
Cons of commercial loans
- Will typically require a more detailed financial assessment
- Can require a higher deposit
- Interest rates will depend upon creditworthiness
- Depreciation, insurance, maintenance and servicing will be your responsibility
Business lease
Business leases are types of rental agreement that allow the business to use a commercial vehicle for a fixed period of time, with the vehicle then returning to the leasing company.
Pros of business lease
- Often have low upfront costs
- Fixed monthly repayments make for simpler budgeting
- As you don’t own the vehicle, you do not need to worry about depreciation
Cons of business lease
- No ownership, so no residual value at the end of the lease
- Can end up more expensive if you opt for long-term leasing
- Can be restrictions or extra charges for excess mileage, wear and tear etc
Asset finance
Asset finance is a common commercial finance solution used by businesses for a wide range of commercial purchases, and is ideal for businesses seeking to use a vehicle long-term. There is ownership potential after the final payment has been made.
Pros of asset finance
- Can be ownership potential for the asset
- Flexible terms
- No limits on mileage or usage
- Potential tax advantages such as capital allowances or VAT reclaim
- Suitable for long-term use
Cons of asset finance
- Can have higher upfront costs compared to leasing
- Depreciation of the asset is your responsibility
- You will be responsible for maintenance and repairs
| Feature | Business Lease | Asset Finance | Dealer Financing | Commercial Loan |
|---|---|---|---|---|
| Ownership | No (vehicle is returned after the term) | Yes (with hire purchase) | Typically yes | Yes |
| Upfront Costs | Low deposit | Higher deposit | Varies (promotions may reduce costs) | Typically requires a deposit or fees |
| Monthly Payments | Fixed, lower | Higher, but customizable | Fixed, can vary with promotional rates | Higher, based on loan amount and terms |
| Maintenance | Often included | Not included | Sometimes included (via bundled packages) | Not included |
| Depreciation Risk | None | Borne by the business | Borne by the business | Borne by the business |
| Flexibility | Short- to medium-term agreements | Long-term ownership focus | Medium-term, often tied to dealer offers | High (terms can be tailored) |
| Application Process | Quick, minimal paperwork | Requires financial assessment | Quick, handled at dealership | Slower, with a more detailed application |
| Interest Rates | Fixed, depends on agreement | Varies (may be higher for used vehicles) | Promotional rates may be available | Based on credit profile and lender terms |
| Tax Advantages | Lease payments may be deductible | Ownership may allow capital allowances | Varies (depends on ownership terms) | Potential for capital allowances |
How to decide which option is best for your business
There is no one-size-fits-all when it comes to financing your commercial vehicles. However, here are some common scenarios that could help you to choose which is right for you.
Choose a business lease if:
- You want to preserve cash flow so seek a minimal upfront cost
- You want fixed monthly payments
- You do not want to worry about depreciation
- You want flexibility to upgrade your vehicles regularly
- The inclusion of maintenance and servicing packages are appealing
Choose asset finance if:
- You want to own the vehicle long-term
- You are comfortable with a higher upfront cost
- Your business will handle the servicing and maintenance
- You will consider claiming the capital allowance or other tax benefits
Choose dealer financing if:
- You value convenience
- The dealer can offer promotional offers such as 0% APR
- You want to bundle in offers such as extended warranties or maintenance packages
- The dealer can offer competitive terms that suit your budget and timeline
Choose a commercial bank loan if:
- You want full ownership of the vehicle
- You can secure competitive repayment terms and rates
- You are buying a vehicle from a private seller
Real world examples
Scenario A) A rapidly growing courier company
A courier business that is rapidly growing has decided they need new vans to keep up with demand and growth. They would consider fleet financing options for business leasing. This will enable them to scale operations quickly, without tying up cashflow or capital.
Scenario B) A specialist construction company
A construction firm looking to buy a heavy-duty truck could choose asset financing, as they intend to use the vehicle for the long-term and want to benefit from the tax benefits associated with asset ownership.
If you are unsure of which type of commercial finance is best for your business or you are ready to apply, here at Mill Wood Finance we are here to help. We’ve been helping UK businesses to access commercial finance for over 25 years. We work with a wide panel of lenders who trust our judgement, helping us to access commercial finance products you won’t find on the high street. Book a free, no obligation call with one of our team today to start exploring your options.
