CREDIT is remaining difficult to obtain. Earlier this year, the Federation of Small Businesses (FSB) reported that banks were still holding back funds from viable small businesses.

And in its most recent survey, the CBI said access to finance remained a serious problem for businesses. Although the CBI did note that the rate of deterioration in credit conditions had slowed.

Nevertheless, businesses owners turning to unsecured lending for their cars are only finding that rates have soared.

A Moneyfacts.co.uk survey found interest rates on unsecured loans had increased by much as 44% over the last two years – in some cases rising from 8.6% in May 2007, to 12.4% today. And all this despite bank base rates being at an all time low.

Leasing, on the other hand, looks a much better option as an easier way to access funding for business cars.

A new line of credit

The beauty about leasing – whether on contract hire (CH), personal contract hire (PCH) or even a PCP personal contract purchase (not strictly a lease, but performs a similar function) – is that you have access to an additional line of credit.

You don’t tie up bank loans and overdrafts that your business will invariably need at a time when cashflow is tight and working capital at a premium. And with regular monthly rental payments, the costs can be budgeted.

What about short-term leasing?

Of course, during such economic turmoil, long-term leasing might not be the right option for your business.

But that shouldn’t hinder your company’s sales aspirations. There are plenty of opportunities to opt for short-term leasing over, say, three or six months. While the rental will be slightly higher than a longer-term lease, it remains a cost-effective way to manage trading expenses in turbulent economic conditions.

“Using rental – and not just daily rental – but long-term rental can provide a good, flexible alternative to leasing,” confirms Neil McCrossan, chief executive office, Nexus Vehicle Rental. “But the key is to find a supplier who can match your business needs.

“Make sure they can provide vehicles when and where you need them, wherever staff might be in the country. That might seem obvious but it’s important to think about the extent of coverage you might need,” continues McCrossan.

“If you are a smaller company or a small user of rental, you might find you don’t have the pulling power of bigger buyers. However, a rental broker will be able to pass on the buying power they have to even the smallest business – including a competitive price.”

New tax rules favour leasing

And, finally, the other good reason to consider leasing now is that all new business car leasing costs – since the beginning of April – are fully tax-deductible for all cars with emissions below 161g/km.

Even for those cars with emissions of 161g/km and above, 85% of the rental can be put against the profit and loss account.

So if leasing hasn’t been on your radar before, it really is worth considering now.

Further information

If you would like to know more about the business car tax accounting changes, then Business Car Manager has produced a factsheet on the new rules. The factsheet is free to access and can be downloaded as a pdf. You can download it for free by clicking on this highlighted link The BIG tax change (PDF 518KB).

Read the Editor’s Blog for more on the subject of car leasing and daily rental: Use rental to your advantage