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Purchasing large commercial vehicles for your business can mean juggling budget allocations, and running financial risks – especially where cash flow, or lack thereof, can be a huge strain on your business. If purchasing heavy duty vehicles is not an option for your company at present, commercial vehicle funding may provide you with a more flexible solution that will give you the assets you require for business purposes, all while reducing the risk of cash flow problems.
Of course, buying outright offers the advantage of having the asset as your own and the flexibility that brings. However, it is important to remember the fact that lorries and commercial vehicles will decrease in value over time and by owning them outright you will need to fund that depreciation and also take the risk associated with the size and scale of the fall in value.
So what are your commercial vehicle funding options? And how can you avoid the pitfalls of buying outright?
Find out some of the commercial vehicle finance options available.
Your Commercial Vehicle Funding Options
Contract Hire
This form of commercial vehicle funding will ultimately give you the use of the vehicle without owning it.
Payment will come in the form of an initial payment, depending on your credit history, as well as the nature of your business and the intended use for the commercial vehicles in question. This small ‘deposit’ will mean a much healthier cash flow for your business as compared with buying commercial vehicles outright.
You will then pay for the use of the vehicle on a monthly basis throughout the contract term. This amount will depend upon the estimated residual value of the vehicle at the end of your contract, your predicted mileage, and the type of work you are undertaking with the vehicle.
Your monthly commercial vehicle funding payments may also include the cost of maintenance and servicing. This will need to be discussed with your asset finance provider before the contract is issued and signed. At this point, it is always worth ascertaining exactly what your maintenance payments will cover, and whether or not the finance provider is able to cover legislative requirements, such as regular safety inspections.
One of the benefits of contract hire is that you have the ability to pay for the use of the vehicle as well as its maintenance. That has the added advantage of predictability. It means that you can rely on your monthly payments to be regular and steady, and not heavily interfere with any other expenditure that crops up.
A contract hire agreement is also an off-balance sheet commercial vehicle funding option. Although the accounting rules on this are changing – read more on new lease accounting standards.
Contract or Hire Purchase
Where contract hire does not allow you the option of purchasing the commercial vehicle at the end of the contract, a contract or hire purchase agreement does.
This business car finance option does pose some risk, however. There is always the risk of fluctuations in the market and the future value of the vehicle may fall short of what you expected. This option may be best suited when you have an in-house maintenance team that can deal with demand when it comes to servicing and repairs. It may also benefit your business to own more vehicles and have those assets on your balance sheet, especially if your business is growing.
Finance Lease
A finance lease is another option for commercial vehicle funding. It has all the benefits of contract hire, but this type of commercial vehicle finance will mean that you take on the liabilities of the vehicle. The asset will therefore appear on your balance sheet. You will also have the option to extend or renew your contract, should you require the vehicle for longer, giving you flexibility if you need it.
Need further advice on commercial vehicle funding? Get in touch with our team of experts for further advice or take a closer look at our commercial vehicle finance solutions before you make your decision.
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