Learn how small businesses can finance and manage their vehicle fleet on a budget. Explore fleet financing options and cost-saving strategies.
Understanding Fleet Financing
Small business owners wear many hats and need to be across the ins and outs of every part of their operation. When it comes to running a fleet of vehicles, whether they’re a passenger, light or heavy commercial vehicle, the costs and at times the headaches can compound, which is why fleet financing is a popular way for businesses to keep their business running, while also keeping cashflow in the business and taking advantage of a range of benefits and incentives.
What is Fleet Financing?
Fleet financing is the term used to describe a range of financial products designed to help individuals and businesses get access to the vehicle/s of their choosing when they need it, with the option of leasing or owning the vehicle upfront or at the end of the finance term.
Why Fleet Financing is Crucial for Small Businesses
Cashflow is crucial to small businesses, and often a company’s vehicle fleet is its biggest expense, significantly impacting money going in and out of the operation. By using a fleet finance product, small businesses can acquire the type of vehicle/s it needs with predictable regular payments, while also taking advantage of tax benefits and potential savings along the way. In some instances, there is also the option of a final balloon payment to reduce the regular loan payments, once again potentially keeping more money in the business.
Key Fleet Financing Options for Small Businesses
Commercial Hire Purchase (CHP)
A Commercial Hire Purchase (CHP), which is sometimes known as a Hire Purchase (HP) or Corporate Hire Purchase, is a finance arrangement where a financier purchases an asset (like a passenger, light or heavy commercial vehicle or a piece of equipment) on behalf of a business, who then hires it back for a fixed term with regular payments. The key factor of a CHP is the business has full use of the asset during the term but doesn’t take ownership until the final payment is made.
Finance Lease vs. Operating Lease
A finance lease is a contract that permits the use of an asset and transfers ownership after the lease period is complete once certain obligations are met, whereas an operating lease is a contract that permits the use of an asset without transferring its ownership rights. Both have their unique advantages, depending on the type of vehicles a business needs and how they intend to use them.
How to Choose The Right Fleet Financing Option
Factors to Consider
With any financial decision for both businesses and individuals, it’s important to look at all the factors and how they will impact your specific situation. Some key elements to consider when looking at fleet financing includes:
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Current interest rates, and whether they will be fixed or variable for the finance period of your loan or lease
Fleet Management and Cost Optimisation
One of the toughest aspects of managing any fleet is striking a balance between outgoing costs and the value/revenue generated by the use of the vehicle/s. Fleet managers need to look at the size of their fleet and how it stacks up in doing the work required of it, while also factoring in financial and downtime costs for things like fuel, registration and maintenance. Driver safety is also paramount, so ensuring that a fleet is well maintained and provides safe vehicles for business employees to use is also crucial.
Budget Friendly Strategies for Fleet Expansion
Leasing vs Buying – What’s More Cost-Effective?
The reality is, there is no one-size-fits-all solution when it comes to fleet financing, as every business structure and their needs are different. However, vehicles will almost always be a depreciating asset, so it makes sense for businesses to optimise their usage while also ensuring that they cost the business as little as possible. When looking at leasing vs buying, it’s important to consider your business’s own requirements and look at fleet costs over a comparable term – while in some instances it might be beneficial to own a vehicle or vehicles right away, in others it might make more sense to lease it with a view to future ownership. A broker will be able to find the best solution for your business needs, so why not start a conversation with a member of Metro’s national network? Click here to contact us.
How to Minimise Fleet Running Costs
Again, forward planning is key, and looking at the total cost of your fleet, including depreciation, maintenance and insurance costs, registration and fuel. Understand the tax implications of running a vehicle fleet first as well, as there may be ways you can offset some of the fleet expenses in your business tax returns.
Common Mistakes to Avoid in Fleet Financing
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While this is not exclusive to small businesses, overlooking the total cost of ownership for any asset purchase or lease is a common mistake. Before you decide on any financial product, make sure you understand the terms and conditions, ongoing costs and any additional responsibilities you may have throughout the finance term.
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It’s a competitive market out there! Make sure you look at all your options when it comes to fleet financing, which includes comparing interest rates and fees, along with the various lenders offering products that suit your requirements. Remember, by doing your homework and choosing wisely you could be saving thousands over the life of a fleet finance product!
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Taxation is a fact of life when it comes to business. Just as it’s important to factor tax into the comings and goings of business operations, not taking advantage of tax benefits and asset depreciation schedules can also be a wasted opportunity when it comes to saving money on fleet costs.
Get Started with Metro Finance
With so many fleet financing options to choose from, it can be daunting for small businesses to know where to start. Why not start a conversation with one of Metro’s friendly brokers, who can help you find a tailored fleet finance solution for your business needs? If you’re ready to start looking at options, reach out to our team here.
