Financing Your Fleet
Virtually every business in the UK that makes deliveries or manages logistics will consider the cost of their fleet, and evaluate the best possible financing tool during the course of the year. Furthermore, if you are operating a number of company cars, or even working with agricultural machines, fleet financing is something that can offer real benefits to your organisation.
Deciding which fleet financing option is best for the enterprise usually involves a customised solution based on several considerations. These will vary between different businesses. Because fleet funding can affect many aspects of the business, including profitability, financing this aspect effectively deserves the management’s undivided attention.
Factors to Consider
There are a number of factors to be considered when choosing how to fund your company’s fleet. By answering a few standard questions, the correct answer to your financing needs may become more apparent.
VAT – The organisation’s VAT status can affect the financing decision. Charities and certain financial institutions are restricted in the amount of VAT offset they can claim.
Corporation Tax – If the organisation pays corporate tax, it can benefit from deductions captured through different financing alternatives.
Funding Costs – Some companies will have financing available for their fleets through credit relationships. It is important to shop and compare interest rates and other requirements offered by these lenders. Not all financing relationships are created equally. Is the potential lender in the fleet financing business and will use of credit to finance the fleet affect the enterprise’s overall credit status?
Vehicle Contracts – Are vehicles in the fleet currently running the full length of the contact or are contract periods unrealistic for the company’s use?
Balance Sheet – Is there a financing choice that will have a desired outcome on the company’s balance sheet? The impact of the financing tool upon the balance sheet is an important consideration.
Risk – What risks do different financing options present to the organisation? It is important to identify all risks related to every financing options; every tool has certain associated risks.
Types of Financing Options
Financing the company’s fleet can be achieved through several different methods. Whilst many UK businesses finance their fleet with the Contract Hire option, there are other tools available that can work better in certain circumstances.
Contract Hire – This is the finance product used by the majority of companies to finance their fleet of vehicles. The contract includes fixed price and pre-set mileage standards which allows the company to enjoy a fixed rate for the life of the contract. If the mileage limit is not met, the cost of the lease will increase by a lump sum payment at the end.
Outright Purchase – This option involves the company taking title to a fleet of vehicles using credit from banks or the lenders. As the owner of the vehicle, the company provides and manages its own maintenance; a situation that discourages some owners. When the vehicle has outlived its usefulness, the business must dispose of the vehicle and replace it.
Finance Lease – With finance lease products, the business has the use of the vehicle but has no interest in the title or ownership. Typically, the business turns the vehicle over to the leasing company at the end of the lease term. In some cases, the owner may have the right to purchase the vehicle at a fixed rate at the end of the lease.
Contract Purchase – Under this type of financing, the business leases the vehicle for a specified time and is then obligated to pay a lump sum to take title to the vehicle. In certain Contract Purchase agreements, the business can decline to purchase the vehicle and opt out for a pre-determined fee.
Employee Car Ownership – Under this finance plan, the employee purchase a vehicle over a defined period of time through a credit-sale agreement. At the conclusion of the scheme, the employee has the right to purchase the vehicle or return it to the leasing agency.
There are a number of financing options available if you would like to finance a fleet of vehicles for your business. Whether this be company cars, a fleet of vans or lorries, or agricultural equipment, NGI Finance can help you find the perfect method to gain access to the best vehicles and run a profitable business.
For more information about NGI’s services, get in touch by calling 01993 706403. You can also contact us online