Van Finance for New Businesses: What You Need to Know

Van Finance for New Businesses: What Start Ups Actually Need to Know

Six Months In and Already Fighting for a Van

Roland rang from his office in Hampshire last October, frustrated. Third declined application that week from a new Limited company with a clean credit file, eight months of trading behind them, and a straightforward hire purchase request on a four year old Sprinter. Automated scoring system, thin business credit file, rejected. Roland knows how this works. He went direct to a manual underwriter, made the case for the application on its own merits, and had it approved inside forty eight hours.

Nobody tells new business owners that's an option.

Manual underwriting is how lenders review applications individually rather than running them through automated scoring. A new business will almost always score poorly on an automated system regardless of whether it's actually a decent credit risk, because those systems are built for volume processing, not for nuanced judgement about a plasterer in his first year of trading. Ask for manual review. A broker who works specifically in commercial vehicle finance will know which lenders offer it and how to frame the application correctly.

The two year accounts requirement isn't a rule. It's an automated system's default behaviour. Different thing entirely.

Why This Asset Is Different

Borrow money for stock, marketing or early wages and a lender has nothing but your promise to pay it back. Which is why unsecured lending for new businesses is genuinely hard to access and expensive when you find it. Van finance sits in a completely different category. There's a vehicle at the end of it with a resale value that lenders understand and have already modelled. They know what a 2022 Transit Custom fetches at trade auction. They've priced that recovery value into the product.

This is why a new business that gets a flat no from a mainstream bank for a general loan will sometimes get approved for van finance by a specialist. Brokers like First Oak Capital, who work specifically in commercial vehicle finance, deal with funders who are comfortable with asset backed lending for businesses at early stages. The conversation is different because the product is structurally different. Alternatively visit the Business Van Finance site who specialise in helping business owners with van finance for new or used vans.

Used vans are viable security just as well as new ones. A three year old Transit with a full service history and 45,000 miles is a known quantity in the market. There's a price guide, there's demand, and a lender can recover meaningful value from it if they need to. For a lot of new businesses, going used rather than new isn't a compromise. It's the financially sensible call, and it doesn't harm the finance application.

Hire Purchase or Contract Hire

Honestly? Contract hire makes sense for an established business that wants predictable monthly costs and no residual value risk. Hand it back, get a new one, carry on. Clean and simple if you've got a stable revenue forecast and have done this before.

For a new business, those lower monthly figures come attached to conditions that matter.

Mileage caps. Condition assessments at return. Some funders asking for the equivalent of six months rental up front when your trading history is thin, rather than the usual three. And at the end of the contract you have nothing. Four years of payments and you're handing back the keys to start again from zero, with no asset and no equity to put towards the next vehicle.

Hire purchase is ownership finance. Deposit, monthly payments, van is yours at the end. No penalties for mileage. Nobody arriving at handback to document scuffs. No funder deciding your company livery is an unacceptable modification. You own it, you sell it when you're ready, you use whatever you recover as a deposit on the next one. That matters when you're trying to build a business rather than just access transport.

HP is also more fundable for a new business because the lender holds a legal charge on the vehicle throughout the agreement. Security is clear. The risk is understandable. That's why a new business applying for HP on a sensible used van is a more attractive proposition to many funders than the same business applying for a contract hire agreement that runs three or four years into an uncertain trading future.

Tax treatment is worth knowing about too. Capital allowances, including 100% Annual Investment Allowance, can be claimed on a commercial van purchased through HP. Offset the full cost against taxable profit in year one. That doesn't apply to contract hire because you never own the vehicle, so AIA never applies. For a new business trying to reduce a first year tax liability, this isn't a small thing.

Sat down and ran the numbers properly on this with a broker's example last year. A 2021 Transit Custom L1H1, 55,000 miles, full service history, sitting on a forecourt in Cannock at £16,500. With a £2,500 deposit on a forty eight month HP term, monthly payments came out at £267. That's manageable for a trade business from week one. It didn't need two years of filed accounts. What it needed was a personal guarantee, a clean personal credit file, and a complete set of documents submitted in one go.

Getting the paperwork right

Most declined new business van finance applications don't fail because of credit history or thin trading records. They fail because something's missing from the submission and the application stalls in a pending queue while someone chases the borrower for it.

Phil's view, and it's consistent with what most commercial vehicle finance brokers will tell you, is that a substantial proportion of the declined cases he encounters each month would have been approved if the documentation had been complete on first submission. Lenders work from checklists. Submit everything on that list and decisions come quickly. Submit half of it and wait.

What a lender will typically need:

• Proof of identity and two separate proofs of address dated within the last three months; a bank statement and a utility bill is the standard pairing most lenders accept

• Business bank statements covering as far back as trading exists; three months of statements from a business that's only been running three months is fine, sending nothing because trading history is short is not

• Companies House registration and director details for limited companies, matching the application exactly and not just approximately

• A written description of the business and how it generates income if trading history is under six months; it doesn't need to be a formal document, it needs to be clear

• Personal bank statements for sole traders and for sole directors of new limited companies, because there is no practical financial separation between them in the eyes of most lenders

A personal guarantee is almost certain for any new business application. Personally liable if the business stops paying and the van recovery doesn't cover the outstanding balance. Standard for commercial vehicle finance on new businesses. Read it, understand the scope of the liability, which is typically capped at the outstanding balance and recovery costs rather than being open ended, and sign it knowing what it means.

Building the credit profile in parallel

New businesses have thin credit files. Six months of consistent, sensible behaviour changes that faster than most people expect.

Open a dedicated business bank account and use it exclusively for business transactions from day one. Not six months in when it's convenient. Day one. Pay every supplier on time. Run a business credit card and clear it monthly. Each of those things adds positive data to a file that currently has almost none on it. A year of that and the second finance application looks materially different to the first.

Sole traders: a personal credit file is effectively the business credit file and lenders look at it directly. Run it through Experian, Equifax or TransUnion before making any application. Wrong entries appear more often than they should, and a disputed account you weren't aware of can quietly kill an application that would otherwise pass without anyone explaining why.

Rates, Deposits and What to Expect

New business applications will carry a higher interest rate than applications from businesses with established trading histories. That's the risk premium and it's not unreasonable. On a hire purchase agreement for a van in the £12,000 to £18,000 bracket, the practical difference between a new business rate and a standard rate might be £30 to £50 a month over the term. Worth knowing going in rather than finding out when the agreement arrives.

Deposit level makes a difference. Most HP agreements start at around 10% but a larger deposit reduces monthly payments and improves the overall application. If there's £3,000 available to put towards a £15,000 van, that's 20% down and it changes the risk profile noticeably. Some lenders don't require a deposit at all depending on the product and the applicant's profile, but offering one voluntarily is rarely a bad move on a borderline application.

One thing worth doing before any application: run an HPI check on the van. Outstanding finance registered against a vehicle is more common than it should be and it will stop a finance application dead. Looked at a 2021 Transit Custom at a dealer in Cannock, presented well, and found £4,200 of outstanding finance still registered against it. Dealer sorted it before sale but that kind of issue discovered mid application at the wrong moment is a proper mare.

If a first application comes back declined, try a different lender rather than accepting it as a final answer. Criteria vary significantly between funders and some are considerably more comfortable with new business applicants than others. A specialist broker will know where to place it.

The Electric Option Is Worth Running the Numbers On

Plenty of new businesses default to diesel without really working out whether electric makes more sense for their specific operation. For urban and suburban work where the van returns to a base each night, the economics look different once fuel, servicing and clean air zone charges come out of the equation.

Used electric stock has come down considerably in price. Browse the electric vans for sale available right now and the market looks very different to two years ago. Finance on electric commercial vehicles works identically to diesel, same products, same process, same funders. For a new business doing inner city work, it's worth actually running the numbers rather than assuming diesel is cheaper. Often it isn't. For more advice on start up loans, speak to the experts at First Oak Capital.