Whether your business requires a large or medium panel van, compact van, chassis cab with dropside or double cab van, buying a new van involves significant investment for self-employed builders and major construction companies. However, there are a number of ways of spreading the cost over a period of time, allowing builders looking to acquire a new van or fleet to get the vehicles they need without overstretching their finances.

The subject of finance can be bewildering. So let me explain what is available in terms of finance to van buyers, and how these products can be adapted to meet individual circumstances.

Before deciding on the finance option best for you, a number of important factors should be considered. For example, how long do you expect to run the van? Can you estimate the annual mileage? Do you eventually want to own the van?

The answers to these questions will help you to decide which is the best finance product for you.

Hire Purchase
Hire purchase (HP) is the traditional form of finance agreement employed to offset a large capital outlay and it still remains popular.

With other forms of credit, such as a loan or credit card purchase, the goods you buy belong to you as soon as the transaction is completed. Under an HP agreement you pay an initial deposit followed by monthly instalments over an agreed period. Each installment is made up of a portion of the money borrowed plus interest, but you don't legally own the goods until the option to purchase fee is paid with the final payment.

Nevertheless, hire purchase still offers several attractive benefits. The initial deposit can be relatively low; the interest rate is fixed for the duration of the agreement; monthly repayments are fixed in line with the contractor’s budget; and hire purchase is generally available for both new and used vans.

Although hire purchase remains a popular form of finance, other products – based on fixed-cost payments over an agreed period – are now available that offer much greater flexibility.

Contract Hire
Today many businesses are opting to hire as this eliminates the concern over vehicle depreciation and resale. Contract Hire allows businesses to operate the van/s for a monthly rental over two, three or four years and at the end of the contract, simply hand the van/s back to the van centre.

Another advantage to contract hire agreements is that service and maintenance costs can be covered in the monthly rental payments, along with the provision of a replacement vehicle if needed. With the Annual Road Fund Licence also included with many contract hire agreements, it is easy to see why this method of finance is becoming increasingly popular, particularly with construction companies operating large fleets.

Lease Purchase
Lease purchase is an extremely cost effective way of eventually owning a new van. The lease period can range from one to four years, during which time you make monthly payments but defer payment of a percentage of the vehicle’s cost until the end of the agreement. The monthly payments and payment period are agreed to suit budget and cash flow. Furthermore, the interest paid is allowable against income tax *.

Finance Lease
A finance lease agreement sees the finance company retain ownership allowing it to recover the VAT on the cost of the van/s and then pass the savings back to customers through reduced monthly payments.

After the duration of the lease period is decided – normally two, three or four years – the customer makes an initial advance payment before selecting one of two options:
• Spread the cost equally over the full term
• Pay a higher final rental to reduce the monthly rental still further

At the end of the agreement the customer can sell the van on the finance company’s behalf. A proportion of the proceeds of the sale will be refunded to the customer when all the terms and conditions of the lease agreement have been met.

Additionally, with Finance Lease and Contract Hire agreements you may be able to recover up to 100 per cent of the VAT payable on the monthly rentals, but only if your business is VAT registered and your van is used exclusively for company purposes *.

Contract Hire, Lease Purchase and Finance Lease agreements are available from the major commercial vehicle manufacturers, providing the construction industry with flexible and affordable finance solutions that can be tailored to suit individual needs.

* Taxation and accounting practices are subject to change and current business allowances can be changed at any time. It is recommended you seek independent tax advice prior to entering into any finance or hire agreement.