Having a company car can potentially provide a multitude of benefits for employers, employees, and the business overall. The advantages are numerous and can help both your top and your bottom line. While the benefits are immense, there is an obvious financial burden in choosing to use a company car versus a personal vehicle.
There are several financing methods at your disposal to help you fund a company car which can have advantages and disadvantages that need to be weighed. When deciding what is best for your company, it is important to compare the different options that you have: leasing or buying a company car. Particularly in this article, the focus will be on leasing a company car and if it is the right decision for your company, as well as potential strategies to cut costs associated with company vehicles in general.
Advantages of Business Vehicle Leases
The primary advantage of leasing as opposed to buying a company car outright is that leasing does not require the same amount of initial financial investment. The reality is that buying a company car outright will potentially set your business back tens of thousands of dollars. Purchasing with a bank loan requires a down payment and monthly payments. But you own the vehicle outright at the maturity of your vehicle loan.
Leasing also requires a down payment and monthly payments. With a lease, buyers make a monthly payment to drive a new vehicle for a set amount of months or years. But the payment is often less than the monthly cost of funding the vehicle from a bank. And, importantly, the buyer must return the car at the end of the lease term.
Leasing has the advantage, at least in the early years, of keeping as much cash in the business for building the business and other needs such as hiring, product inventory, marketing costs, etc. This can be critical for a startup or early stage business that needs growth capital to be deployed carefully.
Another advantage of having a business vehicle in general is that, if you put your logo or business name on the vehicle, you get an advertising benefit. Visibility with potential customers in your local market is especially important as a startup or small business.
When you lease a vehicle under your company name, you are also building your business’s credit score when you make the lease payments on time. Ultimately this helps with future funding needs of the company.
Disadvantages of Business Vehicle Leases
Leases require some capital up-front as a down payment and financing charge rates can be higher than some personal vehicle auto loan rates. Auto dealers give more advantages to consumer customers and can have the financing done by the manufacturer’s own finance unit rather than a local bank.
Either way, you still face the costs of operating the vehicle, fuel, insurance, and maintenance. For a company, though, using a fuel card can lower some operating costs and help you better track the driving and maintenance needs of the vehicle.
With leasing, you are likely to need to turn in the vehicle at the end of the lease period and get another. The monthly payments will go on forever. With preset milage limits, for each lease period, you’ll pay an excess mileage penalty that can range from 10 to 50 cents for every additional mile you go over the preset limit. But you won’t get any credit for unused miles. You should carefully calculate how much you plan to drive.
There will also be high early termination fees and penalties to get out of a lease early if you change your mind about the lease or need a different type of vehicle. And at the end of the lease, there may be other fees when you turn in the vehicle
Conclusion
Impressing new and potential customers of your startup company by driving a business vehicle helps establish your brand, reputation, and professional persona. Careful consideration of the costs of leasing versus buying, and where you get the funding capital for the vehicle are all part of the challenge of successfully launching your startup.
