Truck finance for your business, it is a subject close to heart for many truck companies.
There are numerous factors that all have an impact on the profitability of your business. We hope this article is useful in making the best decision about how you to finance your trucks.
Logistics and transport play a vital role in the UK Economy and with more and more transport businesses opening due to consumer spending it is important to look at ways of financing trucks for your business.
Key points to consider
- What sort of mileage will you do?
- Do you need to replace the trucks every 2 years?
- Will they be used for long or short-haul?
- Is it better for you to have assets on or off your balance sheet?
- Will your trucks be subject to lots of wear and tear?
Contract hire vehicles on high mileage will suffer from lots of wear and tear as well as attracting high monthly costs due to the depreciation of the truck. You would need to balance the high monthly cost against the deprecation of the truck as well as considering if you really need new trucks all the time or can run them a little longer for example 5-7 years.
The excess mileage charge will be detailed on the contract, it is sensible to get the mileage as close as possible to your requirements if you are under you will have paid for something you haven’t used whilst if you are over the excess mileage charges can be quite high.
2. Replacing the trucks
As mentioned above it is with considering if you can run the trucks longer or if the charges for high mileage contract hire contracts would be higher than the deprecation. It is worth searching the sales pages for similar trucks so you can get a rough idea of used values. Using truck finance may be a better option than contract hire trucks due to these reasons.
3. Long or Short Haul
Nothing will deprecate a used truck quicker than high mileage. Usually, excess mileage will be charged at a cost per mile over the mileage included in the contract.
High mileage contract hire contracts have high monthly costs. Most of the best deals will be advertised with low mileage to look attractive.
4. On or off-balance sheet
Assets on the balance sheet that depreciate will lower the balance sheet position. This can be useful as it reduces or can reduce tax liability. However, it can have. a negative effect if you are trying to grow the balance sheet for investment purposes.
Being able to write off a large amount in year one can be positive to reduce tax liability, contact hire contracts write off the monthly payments over the term so a smaller amount is allocated each year rather than a large lump in year one.
It really depends on your business requirements as to which is better for you and depends on what works for your business.
5. Return on Investment
Try to match the term of finance against the life and profitability of the truck.
Your cash flow and bank manager will appreciate a steady cashflow that is steady and works in line with how your customers pay you.
A 6 tear term may work better for you over a 2-year term if the cost of the vehicle and then monthly payments match up with the income that the truck produces.
We are happy to give you a range of options and to work with you to provide the best option for your business. Please just ask for a consultation.
In summary, a lot of it is down to personal preference but also keeping your eyes wide open. Whilst some lease/contract hire offers can seem attractive have you factored in mileage costs over the agreed figures. Have you also considered the return condition of the vehicles, there are charges for dents, scratches and chips over a certain size. Guideline documents can be obtained from the BVRLA.
You should also consider depreciation costs of buying vehicles and also that you won’t own the contract hire trucks.
We hope you have found this useful for making a decision on Truck Finance for your business if you would like more information please fill out an enquiry form or call us. All of our details are on the homepage of our website