When it comes to purchasing a work vehicle, buying a vehicle under the business name can make plenty of sense from a tax perspective. Generally there are three different options available to finance a work car: pay cash, get a loan or lease the vehicle. Whether it’s a delivery van for your business, a branded sedan for a travelling salesman, or any other kind of vehicle used for company purposes, here’s what you need to know about each option.
Using money from the business bank account might seem like the logical option, but for many small businesses taking capital directly from the business could cause cash flow issues. It can also prevent the business from using that cash flow for investing in other measures to grow the business. When you buy outright, you’ll also need to factor in maintenance and depreciation costs into your account keeping, which can take time away from the business. If there is plenty of available cash in the business however, using cash from the business can be a practical, fast and convenient way to get a new set of wheels.
Leasing The Vehicle
For cash strapped businesses, leasing can make a lot of sense. Down payments and ongoing monthly payments are typically lower than car loan repayments and lease payments qualify as tax-deductible business expenses. The other benefits include the fact that many lease agreements include a petrol allowance and will cover vehicle maintenance. On the downside, at the end of the lease if the market value of the vehicle is less than the agreed value, the business will have to pay the shortfall if they choose not to buy the vehicle. Also, if you decide that you’d like a different vehicle, it can be difficult to cancel the lease unless you pay it out, or find another party to take over the lease.
Taking Out A Car Loan
For most business owners, getting credit through a car loan company will be the most popular option. Getting approved for a business car loan is typically easier than for a private vehicle loan and a company car will qualify for tax benefits. You may be able to even claim the car as a business expense. Generally the best kind of loan to take out from a business perspective is a secured car loan. There are also many great finance deals that businesses can take advantage of, especially at the end of the financial year. As with all loans, it’s important to consider the interest rates, and whether the loan might also include other potential hidden costs such as lenders insurance or dealership commissions. Business owners may also want to look into taking out a fixed loan to know exactly what the payments will be, which will help when doing budget forecasting.
Have you purchased a vehicle for your business? Which finance option did you take and how did it work out? Share your experience with a comment below.