Business Leasing Hub
If you're wanting to find out more about leasing a car for your business, or to learn about the process, Leasing Options' comprehensive guides have everything you need to know.
How to Get a Business Car Lease with Bad Credit
Business car leasing is a great alternative to buying a vehicle outright. But what are the options if you have bad credit?
All business lease applications must go through a credit check. Here, the finance company checks the company's financial history, accounts, and affordability.
It features highly in whether an application is successful. However, in some cases, businesses with bad or poor credit scores may be eligible for a car lease if they meet other factors.
So what are your options for business leasing with bad credit? Below, we look at the factors that may affect your application.
Can my business lease a car with bad credit?
It's not impossible for businesses to lease a car with bad credit, however, there are some additional factors you have to consider to prove you can meet the monthly payments for the vehicle.
Some options for bad credit leasing include:
- Paying a larger initial payment, which helps to reduce monthly costs
- Having a guarantor on the lease
- Taking out a joint lease with a business partner
- Switching to a personal lease
Why do you need good credit for a business car lease?
Like any other form of credit for personal or business reasons, finance companies want to verify that you can comfortably afford the agreed payments. To ensure this, funders will run a check on your previous credit history.
A credit check is essential for anyone looking to secure credit, and it's a stipulation of the Financial Conduct Authority (FCA) to perform one for a business car lease.
The better the company's history, the easier it usually is to secure the credit your business needs.
Can I take out a business lease without a credit check?
No, it is not possible to get a business lease without a credit check. This check aims to protect both you and the lender to ensure you can meet the financial obligation.
What is shown on a company credit report?
Each financial company will have a different process, but all will consider your business credit report. Here is the information a funder may look at from your report:
- Companies House accounts and trading history (previous three years)
- Business bank accounts
- Company registration (if you have one)
- Management accounts if trading accounts are unavailable
- Any prior credit limits, mortgages and loan
- Information related to any current account overdraft
- Missed or late payments related to outstanding credit and how many times
- Highlighting any financial links to other people
- Up to six years' worth of information related to bankruptcies, CCJs or debt issues
- Whether your company identity has been subject to fraud
- Details of the company director/owner
Sometimes, the directors and owners may need to provide additional documents to confirm their identity. If you use your name, such as sole trader, for the business lease, a personal credit check may also be required.
What credit score do I need to take out a business lease?
Most finance companies require a good or excellent credit score for a successful application. But business leasing is possible with bad credit, depending on your circumstances.
What documents do I need to take out a business lease?
As well as your business or personal credit report, funders will generally need the following:
- Proof of identity (business owners and directors)
- Company registration number and address
- 3-6 months of business bank statements
- Up-to-date financial statements (proof of annual net income)
- Names/addresses of director(s)
Documents that may be required
- Management accounts (if available)
- Opening balance sheet (if available)
New companies may also need to offer more account and financial information.
How to improve your chances of being accepted with bad credit
All financial documents show the provider that you can comfortably afford the lease payments. If your monthly payments are affected by bad credit, read on to find out how you can improve your company's score.
Check your credit report
The first step is to look directly at the same credit report the financial company has seen. This can be obtained for free from the likes of Experian and Equifax. Make sure all of the information is correct, and if there are any mistakes, be sure to point these out so they can be corrected. Regularly checking your credit report also identifies any issues with fraudulent activity so it can be resolved sooner.
Keep your current account in credit
Wherever possible, avoid falling into the overdraft, and if you have any old business accounts that are lying dormant, it's best to close them if they are not likely to be used in the future.
Get a credit card
If your credit is good enough to get one, using a credit card to boost your score is a good move. This means ensuring the balance is always paid off each month, along with any charges.
Cards with 0% introductory rates are often the best starting point, but always check when the initial rate ends. Ensure you can afford this before getting one, as being unable to pay your debt will only worsen your credit score.
It’s also important not to max out your credit cards. Your credit score takes into account your credit utilisation and works of a percentage used. Keeping this as low as possible will help keep your credit score healthier.
Keep on top of bills
Pay all of your company bills on time and ensure they are in your business’s name. Change to using direct debit wherever possible, as this makes it easier to pay on time while also helping your credit score.
Cut down on applications
Every time you apply for credit, it leaves behind a ‘footprint’. If you believe you are unlikely to secure the line of credit, then it is best to avoid applying until your credit score has improved.
How long will it take to improve my business credit score?
What must be remembered is that your credit history is not something you can rectify in a few days or weeks. The minimum amount of time you will need to see a noticeable change to your credit rating will be several months.
While this may seem like a long time, if your credit history only needs to be improved slightly, it can really benefit your business in the long run.
I'm a director with poor credit, can I still take out a lease?
Yes, it is possible to get a business lease if you personally have bad credit. Opting for a business lease means the finance company will predominantly look at your business finances and income instead of your personal financial background.
If your company credit check and documents provide proof that you can comfortably afford the monthly instalments, there is a better chance of success for a business lease.
Can a new business without credit lease a car?
All businesses can apply for a car lease no matter how long they've been trading. However, as your company accounts and credit history will be new, the company directors or owners may require a credit check to support the application.
But how long does it take to build a good business credit score? A good credit score can take around two to three years to build up if you're a new company. So, this may affect your credit applications when starting up.
There are options for new businesses looking to secure a car lease, including:
Choosing a shorter lease – Opting for a shorter term lowers the risk to the finance company.
Higher initial payment – Paying a larger amount at the start of your lease helps to reduce the monthly instalments over the rest of the contract.
Use a guarantor – A guarantor takes responsibility for the payments if your business does not meet them. However, as a director or company, you can also act as a guarantor and personally take over payments if your business cannot.
Learn more about leasing as a new company in our new business leasing guide.
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