Business Lease Purchase

You assume risk

Business Lease Purchase is popular with:

Fast growing small businesses that cannot afford upfront business costs. Contrary to its name, lease purchase is not a lease but a purchase scheme similar to hire purchase but with a lump sum being paid at the end of the vehicle’s life as a final “balloon” payment.

Advantages of a Business Lease Purchase

• Cashflow: smaller front-end deposit and lower monthly charges ease the initial repayment burden with this method of car finance.
• Investment: lease purchase allows more cash to be pumped into the business early on, and is therefore attractive for companies with high start-up costs.
• Other advantages of lease purchase are the same as outright purchase.

Disadvantages of a Business Lease Purchase

• With Business lease purchase, the business must be in a healthy shape at the end of the vehicle’s fleet life to pay the balloon, which may exceed the vehicle’s residual value.
• The fleet will become vulnerable to residual value decreases and exceptional maintenance costs. You will need high calibre expertise to manage this method of acquisition effectively.
• Budgeting: it is difficult to provide robust forecasts with this level of risk.
• VAT not recoverable unless 100% business use.

Summary

Lease purchase is useful for companies with high initial start-up costs, as it delays the repayment burden until later in the vehicle’s operating cycle. Steadily losing ground to contract hire.

Lease purchase does not enjoy the benefits of manufacturer support that other funding options do.