Car hire for SMEs: Things to consider
There is a growing trend in the number of SMEs choosing to hire cars long term instead of purchasing them outright. With a large number of benefits for SMEs associated with long term car hire, it’s easy to see the draw. “You get the flexibility of low cost car hire without the penalties and costs that are associated with a long term lease,” explains Simon Howard, Managing Director of Norwich car hire company, First Self Drive.
Leasing usually works by businesses hiring a car for a fixed amount of time and making monthly payments for the duration of the higher. At the end of the agreed period, you can give the car back, trade it in for a newer model or re-negotiate on a new leasing term for the same car.
Rental companies will take some of the risk out of owning a car by arranging various aspects such as maintenance and breakdown cover. In fact, you can often expect all maintenance costs to be included. Having your car serviced without the fear of hugely expensive repair bills is an added weight off the shoulders of SMEs looking to lease and it puts the responsibility to make the vehicle roadworthy back on to the rental company.
Cost is naturally a key factor in the decision making process for all SMEs. For those smaller businesses that do not have a lot of capital or who only need a car for occasional use, then hiring a car is a viable option.The added advantage with this is that some operators offer a dedicated business service to deliver and collect the car from your office premises.
Many companies that do have the budget for a car often decide not to purchase a vehicle because it ties up capital in assets, which could be better used growing their business.Add to this the fact that cars can quickly depreciate in value and take away the hassle of having to sell the car when you are finished with it, and car leasing becomes an even more attractive option. Some car rental firms also will offer longer-term rental options without the finance charges that are incurred with leasing arrangements.
Leasing a car is also very tax efficient for VAT registered businesses since companies are able to offset a percentage of the cost of the monthly rental against corporation or income tax. This amount is based on the CO2 emissions of the rental car and for vehicles that are very efficient, it could be up to 100%.
How much you pay each month will depend on many different factors. For example, the more expensive the car, the higher the monthly lease is likely to cost. How many miles you expect to be driving the car is also another important point to consider. Your leasing agreement will include a mileage limit so it is a good idea to decide on a realistic figure and to keep it in mind that you will be charged for each mile you go over this limit.
Renting a car can certainly make financial sense, but how do you know if it is right for your business? When choosing your car hire company and the vehicle you want to hire, it is important to do your research into what is available and set yourself a realistic and sensible budget. Make sure you know the answers to these questions before you make any firm decisions:
- What is the lease going to cost each month and is it within budget?
- What are you using the car for? Is the vehicle fit for purpose?
- Is there a mileage limit and is it appropriate for how much you are expecting to drive?
- What cover do you get?
- How efficient is the car?
- How much of the rental can you offset against tax?