Business Van Leasing: A Comprehensive Guide For UK SMEs

Many companies require vans for operating their business and delivering services. However, they can be an expensive asset, especially if you want to expand and need more vehicles. That’s why business van leasing is a popular option for spreading the costs of acquiring vehicles or as an alternative to ownership. 

In this article we explore the pros and cons of van leasing, what costs to expect, key factors to consider when choosing a business van lease and how to apply. 

What is a business van lease?

A business van lease is a form of vehicle finance that allows a company to “rent” a van (or fleet of vans) for a fixed period and enjoy the benefits of owning the vehicle without a long-term commitment or a high upfront cost. 

At the end of the lease (or primary leasing period) [anchor link], businesses have several options, depending on lease type, such as returning the van, upgrading to a new model or renewing the lease. Some agreements enable a final payment to purchase the van outright.

Many small companies prefer using a van lease rather than buying one, for more manageable monthly costs and fewer commitments, or due to temporary van needs. Also, it’s a great option if you can’t afford a vehicle outright. 

How does a business van lease work?

In most cases, a business van lease agreement begins with the business recipient (the lessee) making an initial deposit before an agreed period of monthly payments. The leasing company (the lessor) charges interest (included in the monthly amount) on the cost of borrowing, as they buy the vehicles to lease them to businesses. 

Most business van leases also include other elements, such as mileage and maintenance allowances, and the overall lease cost takes into account things like: 

• Vehicle type and age
• Market value
• Contract length (and depreciation considerations) 
• Maintenance packages and mileage limits on van leases

Van insurance is usually the responsibility of the business entering into the leasing agreement to arrange, as is making sure the van is regularly cleaned, serviced, etc.

Key steps involved in business van leasing

In most cases, these are the common steps involved in leasing a business van:

• Choose your van from a leasing company's range of vehicles
• Select a leasing option and tailor it to your business needs, such as contract duration and estimated mileage requirements, and include any maintenance packages and other add-ons
• The leasing company will run a credit check to determine your eligibility and creditworthiness and match your business with a suitable van lease
• Once credit assessments and documentation have been checked and approval decisions made, you’ll move forward to signing agreements
• Drive away with the leased vehicle, once any deposit has been made
• Make ongoing monthly payments to cover the cost of your lease (plus interest and add-ons)
• The lease comes to an end, at which point you return the van, renew or extend the lease, sell the van, upgrade to a new vehicle or acquire the van outright – depending on your lease type

Main types of business van lease agreements

Finance lease

In a finance lease, the van remains the leasing company’s property throughout. Businesses commit to monthly payments for the cost of the vehicle’s use, including interest charges. You can pay lower monthly fees with a bigger final payment at the agreement’s end or sell the van, keeping a percentage of the resale value.

Contract hire

Similar to a finance lease, in that you don’t own the car at the end of the agreement,  the main difference with a contract hire is that the lessee returns the van when all the payments are made. There are fewer liabilities and maintenance costs are often included. 

Lease purchase

A lease purchase is suitable for businesses that want to own the vehicle eventually but don’t have the immediate funds. After a period of monthly instalments, you’ll own the van outright with a final balloon payment. This is slightly different from a hire purchase, where you’ll own the vehicle once all instalments have been made, usually without needing a balloon payment.

Contract purchase

A business contract purchase also involves fixed monthly payments for the van’s use but has more flexibility than a lease purchase. A pre-agreed estimated resale value is agreed upon, and at the end of the contract, depending on its value, the lessee can buy, sell or trade in the van.

Lease conditions vary depending on the provider’s terms and benefits, including flexibility level, mileage allowances and maintenance packages. Explore various options to suit your business needs. 

How much does it cost to lease a van in the UK?

There are various cost considerations when looking for a van lease, such as the deposit, monthly instalments, interest rates, maintenance and insurance costs, which your business has to arrange, minus perks and tax deductions.

Typical monthly business van leasing costs

The monthly costs of leasing a van in the UK depend on many variables, including van types/models, age, lease types and other factors influencing lease prices. However, for most business vans, you can expect to pay £250-350 each month per vehicle (for panel vans, Luton vans, dropside vans, etc.), and £150-250 for small vans.

If leasing a fleet of vans, you’ll enjoy further cost savings for a combined contract while electric vans offer greater tax relief and eco-incentives.

Key factors that influence lease prices

• Van model
• Age of the vehicle (used or new)
• Mileage limits/allowances
• Lease length
• Interest rates– rates charged can vary widely, from around 8% up to 20%
• Your business creditworthiness 
• Deposit size
• Benefits packages of the van lease agreement
• Type of lease agreement (i.e. if there’s a balloon payment included)

Also, consider hidden costs like excess mileage charges, wear-and-tear penalties and any maintenance needs beyond agreed allowances, as these impact the overall cost-efficiency of using a lease.

Can I lease a fleet of vans?

Yes. Fleet leasing is a popular option for companies, as you can bundle numerous van leases under one contract and enjoy various benefits of bulk business van leasing deals. 

Is fleet leasing a more cost-efficient option?

Fleet leasing is cost-efficient for companies requiring multiple vans, from couriers and businesses in the trade to events companies and taxi firms. Here are a few of the main benefits of fleet leasing:

• Bulk discounts that equate to lower per-van lease costs
• Flexible contracts that are easier to adjust as you scale and your fleet expands
• Maintenance and servicing are usually included
• Simplified contract management and easier accounting (including tax)
• Other mileage and efficiency benefits

What are the pros and cons of leasing a van?

There are pros and cons to any financial agreement, but business van leasing has a lot of benefits, especially for SMEs and growing businesses. Here are the main advantages of a van lease for small businesses, plus a few downsides to consider:

What are the advantages of leasing a van?

• No large upfront cost (apart from a deposit)
• Easier cash flow management (spreading van costs over a long period)
• Simplified budgeting and forecasting 
• Various tax advantages – VAT-registered businesses can typically claim back 100% VAT on lease payments
• Fewer concerns about vehicle value depreciation
• Flexible options at the end of your leasing term
• Access to a wider range of vans than might normally be in your price range

What are the downsides of leasing a van?

While business van leasing offers flexibility and lower upfront costs, the long-term costs of leasing can end up being higher than buying a van outright. Many lease agreements come with mileage and maintenance limits, which can lead to excess fees if exceeded, and wear-and-tear penalties may apply if the vehicle isn’t returned in good condition.

• Long-term costs of leasing can end up costing more than buying a van outright
• Maintenance and mileage limits on van leases that can incur excess fees
• Potential wear-and-tear penalties
• Less flexibility of use compared to outright ownership
• Ongoing monthly commitments can be a drain if you run into unexpected costs

Key considerations when looking to lease a van for business

It can be hard to judge the most cost-effective approach when looking for a small business van lease, as there are so many variables at play. So, here are some key considerations to ponder:

• Deciding on the most suitable lease format and length, which influences deposit/monthly payment amounts
• Choosing the right van specification, including size, payload capacity, fuel efficiency, etc
• Understanding limits of use – many leases allow branding, such as vinyl wraps, but resprays or greater modifications may be restricted
• Determining maintenance packages, mileage allowances and excess fees
• Finding out any other terms, hidden fees and flexibility, such as any early contract exit options/costs
• Organising insurance costs – most leasing companies require businesses to arrange fully comprehensive van insurance

Electric van business leases: Benefits and challenges

While electric vans can be expensive, there are numerous benefits to consider. Plus, the UK government has aggressive targets to minimise emissions, such as wanting to end the sale of new petrol and diesel cars from 2030, which means various incentives for users, including tax exemptions.

Here are some of the main benefits of electric van business leases:

• Lower running costs and efficiencies
• Greater tax benefits and reduced Benefit-in-Kind (BiK) rates
• Government grants for workplace charge points (visit the Government's website for more information)
• EVs are exempt from road tax
• Helps meet corporate responsibility and sustainability targets
• Get access to the EV models and innovations 

If the price of electric vans is a sticking point, iwoca can help with initial or ongoing costs. Our flexible business loans get you fast access to funds with manageable monthly payments tailored to your cash flow, with no charge for early repayments.

What are the main tax advantages of business van leasing?

Business van leasing provides numerous tax benefits, making it a cost-effective option for UK companies. Plus, leasing keeps your vans off the balance sheet, offering greater financial flexibility.

Here are the main tax benefits of a business van lease:

• Van leasing payments are a fully tax-deductible expense – you can claim 100% regardless of the van’s emissions – meaning reduced taxable profits when calculating capital allowances in corporation tax
• VAT-registered businesses can typically reclaim 100% of the VAT on lease payments if your van is used solely for business
• You can claim tax relief on excess mileage and maintenance costs

Applying for a business van lease 

Registered sole traders, partnerships or limited companies operating in the UK for over a year are eligible for van leasing. New businesses and start-ups can still apply but may need to provide a personal guarantee.

Eligibility considerations for leasing companies

• Business status 
• Proof of ownership and verification 
• Trading history
• Financial stability and credit rating
• Personal guarantor – required if you’re a new business without a track record

Common requirements for leasing applications

• Key business details, including ownership information
• Proof of trading and ID checks
• Recent financial records and bank statements
• VAT registration
• Credit checks/file reviews

Can you get a business van lease with bad credit?

Some providers offer van leases for small businesses with poor credit but you may need a guarantor or use a secured lease, while larger initial deposits may be required.

If you don’t have a good credit history or long financial track record, there are various ways to build business credit and improve your credit score. Plus, alternative lenders like iwoca offer business funding options for companies with lower credit ratings, looking beyond your credit score and providing access to capital you might not get from a bank or traditional lender.

Flexibility at the end of a van lease agreement 

What happens when the lease ends?

The options at the end of your lease will depend on the lease type chosen. Here are some of the options you may get in your agreement:

• Hand the van back to the leasing company, making any final payments and paying any excess fees above agreed limits
• Renew or extend the leasing period or expand its scope
• Trade the van in or upgrade to a newer model
• Sell the vehicle on behalf of the leasing company
• Purchase the van outright with a final balloon payment or due to your monthly instalments covering the vehicle’s value

Can you terminate the lease early?

While there is often an option to terminate a business van lease early, most agreements come with an early exit charge. The cost will vary on the provider and contract terms but typically include some of the following:

• Paying a percentage of any remaining instalments 
• Accounting for market value adjustments
• Admin and processing charges

Check the lease terms for early exit costs when reviewing prospective providers. 

How iwoca can help your business van needs

iwoca is a leading business loan provider, offering fast and flexible finance solutions to empower UK business growth. Our short-term loans can help fund your business vehicle leasing needs, whether covering van lease deposit costs or easing cash flow.

Alternatively, you can use our small business loans to purchase vans outright, with management monthly payments tailored to your needs and cash flow. 

Borrow between £1,000 and £1,000,000 and use our loans like a line of credit, drawing down funds when required, only paying interest on what you use.

Explore our Flexi-Loans to see how iwoca can support your business van needs.

Business van leasing FAQs

Is it better to buy or lease a van for business?

While leasing offers lower upfront costs, fixed monthly payments and various tax advantages, buying a van outright has its own benefits, such as greater control over use and long-term savings. So, suitability depends on your financial position, long-term plans for the van and cash flow.

How can I get the best business van lease deals?

To ensure you get the best business van lease deals, conduct extensive research and review multiple van leasing providers, exploring and comparing their terms and offers, including mileage and maintenance packages. If seeking a cheap business van lease, look for seasonal offers and bulk discounts or consider a higher initial deposit to lower your monthly payments.

Can I lease a van for my business with no deposit?

You can find UK leasing providers that offer no-deposit leasing options but this usually requires significantly higher monthly payments. Check with prospective providers and weigh up the pros and cons.

Should I choose a new or used van business lease?

To keep costs down, leasing used vans can be a cheaper option with fewer depreciation concerns. However, a used vehicle may require more repairs during the lease agreement. New van leases offer warranties and lower maintenance costs.

Grey fleet vs. van lease: What’s right for a small business?

A grey fleet, where employees’ personal vans are used for business purposes can be a cost-effective solution, depending on your company’s needs. However, it can be tricky to manage. Van leasing offers more uniformity and greater tax benefits for businesses.

Sources:

• Finance Leasing Explained: An Alternative Solution to Borrowing [iwoca Finance Explained Series]

• Van Finance for Business [iwoca]
• Guide to Van Leasing [Leasing Options | Van Leasing Hub]
• How Does Van Leasing Work? [Nationwide Leasing Contracts]

• HMRC Claim Capital Allowances [Gov.uk]

• Phasing Out Sales of New Petrol and Diesel Cars [Gov.uk]

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