Funding your Fleet
When it comes to fleet purchases, many companies will view outright purchase as the default option. A recent survey suggested that 60% of all fleet operators will look at their requirement for new vehicles and, without hesitation, contact the nearest car or commercial dealership and haggle the best deal they can on the day. This approach has certain merits in that it allows any fleet operator/manager to have complete control over the procurement and sourcing of the vehicles concerned.
However, as a result, this does mean that the operator will have to tie up a large capital outlay in the fleet, potentially for quite some time. This can then lead to holding up crucial investments in other parts of your business whilst you have money tied into the fleet. Also, with outright purchase, your company is exposed to 100% of the maintenance and repair costs of your whole fleet which can quickly escalate to the point of being extremely costly indeed. You could end up being faced with the very real possibility of 5 figure sums each year just to keep a small fleet on the road.
However, in these times of cost cutting and time saving, there are options that you can look at which will help minimise the risk to your company’s balance sheet.
Contract Hire
Bussey Vehicle Leasing is a leasing company specialising in Contract Hire for all makes and models of vehicle.
Outside of outright purchase, one of the most widely utilised methods for financing a fleet is Contract Hire. Contract Hire, or Leasing, is essentially an agreement whereby you take control of a vehicle for a fixed period which is predetermined in your contract at the start of the arrangement. The vehicle is owned by the Leasing Company rather than the fleet operator meaning that the operator is isolated from the risk associated with depreciation and, if agreed, maintenance & repairs as well. When the contract ends, you simply return the vehicle to the Leasing Company and start the whole process again
.
The monthly rate that you or your company pays to lease a car depends on a number of factors. The Leasing Company make a calculation based upon the initial list price of the car and the value of the car at the end of any prospective contract. The initial value to the leasing company may well be less than your company would pay due to manufacturer’s bonuses. A real rough rule of thumb is that the smaller the gap between the two figures, the cheaper the contract hire will be. Options and accessories will help to tailor the vehicle to your usage but may not add as much to the residual value which means you may find that the monthly payments are increased as a result.
Whilst not suitable for all, Contract Hire certainly does offer a massive variety of benefits for fleet operators. Firstly, you do not have a costly asset on the balance sheet to worry about, especially if you take a fully maintained contract. With maintained agreements, the Leasing Company takes on all costs for Service, Maintenance, Tyres and Repairs associated with normal wear and tear meaning that all you have to worry about is insuring the fleet, accident repair and fuel costs. This also leads to the benefit of having a fixed amount each month which can be allocated to the vehicle. You know EXACTLY what each vehicle costs a month and have no hidden surprises with regards to repairs. And whilst we’re on the subject of budgeting, Contract Hire allows reclamation of VAT for registered companies- 100% of the VAT on the maintenance payments and up to 50% of the finance rental for cars or 100% for vans. Hire rental tax allowances can also be applied.
But Contract Hire does not allow the option to purchase direct from the Leasing Company at the end of the contract which can dissuade some from this form of financing as the total cost of hiring for the term can seem expensive compared with an outright purchase or PCP deal.
Personal Contract Purchase (PCP)
PCP is, in many ways, very similar to Contract Hire. You pay an advanced rental followed by a predetermined number of monthly rentals but, at the end of the contract, you have one key difference. Once the term of your PCP has passed, you can pay a “balloon” payment meaning that you can own the vehicle outright at the end of the agreement. Alternatively, as with Contract Hire, you could return the vehicle or start a new PCP deal with a new vehicle. Similarly with Contract Hire, there can be additional charges for excess mileage or damage that exceeds fair wear and tear.
The monthly payment on a PCP deal is influenced by the residual value of the vehicle in question combined with the amount of money that you put in as a deposit. The more you put in at the front of the deal and the more that the vehicle is worth at the end of the deal, the less your monthly payment will be.
Personal contract purchase, traditionally, is an alternative to Hire Purchase (HP) agreements and is subject to the protections set out in the Consumer Credit Act.
As a business to business lender, Bussey Vehicle Leasing do not offer PCP deals but our sister companies Busseys Ford and Busseys Peugeot would be more than happy to deal with your enquiry relating to this product type.
Finance Lease
Finance lease is a method of financing a vehicle that is usually accessed by VAT-registered businesses and companies, however sole traders and partnerships can also take advantage of finance lease. It is a form of finance where the vehicle remains the property of the finance company, with the vehicle effectively hired out to a business. The business can then use this asset while paying an effective rental rather than a repayment.
The monthly rental is determined by the initial cost of the vehicle, the period of the finance lease, the residual value, and the end balloon payment (not necessarily the vehicle’s residual value). As a residual value is used to calculate your monthly rental, most finance lease companies will insist that you stick to a strict mileage limit as this mileage restriction is used to determine the future value.
You have full use of the vehicle during the finance lease period. At the end of the finance lease agreement the vehicle is sold to a third party by the finance company, if the sold price is above the predetermined balloon payment then the finance company will refund a percentage of the proceeds back to the hirer, usually 95 to 97% of the proceeds, there will also be no charges for excess mileage or unfair wear and tear. However if the sale price is below the balloon payment then the hirer will be liable to make a payment to the finance company to cover the shortfall.
Finance lease agreements are also available to businesses looking to pay the entire cost of the vehicle, including any interest, over an agreed lease period, in this case the vehicle is fully amortized so the company will receive the sale proceeds of the vehicle less an administration fee. This agreement is perfect for commercial vehicles where the customer is uncertain of the mileage and the vehicle may have some damage when returned.
If you are interested in any of the above finance arrangements why not contact Bussey Vehicle Leasing for a friendly chat.
