Investing in a business vehicle, such as a car, is a big step. Whether you are buying a brand-new vehicle or a second-hand model, you must understand the implications of purchasing a large asset that will only depreciate. Vehicle ownership also means carrying the responsibility of maintenance and the risk of theft or damage.
When you consider acquiring a business vehicle, you must ensure you are doing so for the right reasons. The purchase shouldn’t happen because you believe you have the funds for it. It should be a business move that takes into consideration the function or use of the vehicle, your budget, and your credit profile.
Firstly, you should think about how the vehicle will be used. Don’t buy a car just because you think you need it. It might be worth considering purchasing a small truck or light motor vehicle, or a bakkie, if you often move equipment, do deliveries or transport large loads. If you intend to transport people, you might want to look into a minibus.
The conditions under which the car will be used, such as driving long distances, difficult roads, long hours in traffic, and so on, will also affect what vehicle you choose. You may also include added features such as safety ratings, parking assistant, blind spot detection, autonomous braking sensor, speed limit monitoring system, or even a wireless charger.
Secondly, your credit rating is important. When you purchase a vehicle, you must apply for vehicle financing. When doing so, both your personal and business credit profiles will be under scrutiny. Together, these two documents indicate your level of risk.
Don’t forget that your business needs to be in operation for at least two years before obtaining funding. You can also look at additional advice on how to improve your business credit score to improve your chances.
Clear up any discrepancies, explain any missed payments and pay any small outstanding debts on time.
Pathways to Vehicle Ownership
SMEs are spoilt for choice; There are multiple roads to vehicle ownership. You can rent-to-own, buy a new vehicle, or purchase a second-hand car.
Buying New
Buying a brand new car, bakkie, or truck can seem like the obvious choice. But it isn’t the only choice. Be encouraged to compare prices amongst various manufacturers and weigh your options carefully.
The benefits of buying a new vehicle are that you have a new vehicle – there are no parts that need replacing, it doesn’t have a lot of kilometres on it, and a full manufacturer’s warranty.
Buying Second-hand
Seeing that vehicles have a steep depreciation curve, it can be beneficial to invest in a second-hand vehicle. Depending on the age of the new asset and where you obtain it, you can still have a maintenance or service deal.
Pre-owned does allow you to bring down the short-term costs, but long-term costs for mechanical refurbishments are still on the cards.
Leasing
Leasing a vehicle is still an option for South African entrepreneurs. Various lenders can offer SMEs vehicle financing so they may invest in purchasing these kinds of assets.
However, vehicle and asset finance doesn’t mean that you shouldn’t take a vehicle’s affordability into account. Your budget should also be a vital point of consideration.
Budget
A budget is calculated by determining what amount you are willing to spend and what your business is able to afford. Essentially, you will need to look at the amount of financing you qualify for and if you are able to pay the loan back. Don’t forget to weigh the current expenses without a vehicle against the expenses of owning the vehicle.
If you are unsure about how to calculate this, speak to a financial adviser about how you can budget for a company car.
After you have allocated a budget, start looking for a vehicle that meets your needs and budget.
Company Asset Insurance
One part of acquiring a car for your business, you can’t just buy a car, and that’s that… You need to obtain insurance for your intended purchase first. You have to find the right insurance.
This means that you ensure you obtain insurance that covers your specific vehicle type. It’s important to note that commercial insurance will cover the vehicles differently from the way personal insurance does. It’s therefore important to seek out various quotes. You can ask a broker to help you with this if you don’t know where to start, or check out reviews online.
In certain situations, the specific lender might also have a preference for the insurer to use.
Vehicle insurance helps protect your newly acquired asset against accidents and theft. It won’t prevent the vhicle form getting damaged, but it reduces the risk of loss that the business can incur when these events happen. Instead of needing to pay for a new replacement vehicle or fixing damages, the insurance steps in.
Documents For Buying Your Business Vehicle
The following documents are what you need when acquiring a company vehicle.
- A copy of your identity document, as well as any partners’ or shareholders’ documents
- The company registration and VAT number (if applicable)
- The company’s banking details and balance sheet information
- All company contact information, including the address
- The details of the owners, partners, shareholders, directors, members and trustees
- The details of the vehicle you want to finance
You might also be required to present a business plan detailing how the vehicle will help your business grow
Purchasing a company vehicle is a major step that takes a lot of consideration and financial planning. Yet, this is also a milestone to celebrate. Needing a vehicle for deliveries, moving equipment or even shuttling materials from one warehouse to another is a sign of growth. By carefully weighing whether to invest in a new or preloved vehicle, or lease it. You will need to ensure you have all the right documents available, obtain financing and the necessary insurance to protect your business from the risk of this newly acquired asset.
