Logistics company owners know that operational costs can be exorbitant, not only the day-to-day running of the company but also the costs of acquiring new vehicles to supplement and build your fleet.
This can be a highly stressful undertaking, but it is not impossible. And with the right preparation and the right attitude, you will be able to finance your fleet.
What do I need to prepare?
Applying for machinery asset finance follows a similar route to other corporate or asset finance applications, in that you will have to prepare documents and have a clear credit record. If this is not possible, then you will have to be able to explain why you have an unfavourable credit record and what steps you are taking to rectify this.
Fleet finance requires the bank to examine your operational issues and company processes in order to correctly define the best long-term solution with the lowest possible operating costs. It is vital for you, as someone who is interested in acquiring machinery asset finance, to consider all of the operating costs, not only the upfront charges when purchasing or hiring your vehicle.
The following should also be taken into account when calculating the total cost of ownership with your bank or financial provider, in order to choose the best solution.
- The purchase price of the vehicle
- The cost of the required accessories
- The resale value/market depreciation
- The maintenance costs (these can be very high in the logistics industry)
- The cost of tyre repair and replacement
- The fuel consumption of the proposed vehicle
Choose the right machinery asset finance
There are options to choose from when deciding on machinery asset finance for your fleet, which are namely an installment sale or a lease agreement. It is important to consider aspects of both when deciding on one to choose for financing your fleet.
Instalment sale options mean that you will own the vehicle after the last payment, and that interest payments and capital allowances can be claimed as income tax deductions.
An instalment sale entails the business buying the asset with a prime-linked loan from the lender. A prime-linked interest rate means that you are being the average rate of interest that is charged on loans by major commercial banks. You will then pay this back in equal instalments over a set period of time, which can be anything from 60 months to 10 years.
While you are paying off the loan, the lender or the bank owns the asset, and in the event that you are unable to repay the loan, they will sell the asset to recover their money.
With a lease agreement, you have the option to own the vehicle or vehicles after purchase and lease payments may be claimed as income tax deductions.
The bank or lender will still have ownership when you choose this type of machinery asset finance, while you are repaying it. Your business will be able to use the asset for the period of the agreement, usually 60 months. At the end of this period, you have the option to either buy the asset from the bank or give the asset back to the bank. If you would like to keep the asset, then you will have to pay a residual value, which is usually the value of the asset after 60 months of use.
Note, fleet trucks may incur some serious damage or undergo serious repairs during this period, so consider this option carefully before making the decision to keep the asset.
What do banks consider?
Not only do you have to do work in preparation for applying for machinery asset finance, but banks do too, as they are the ones who are taking the risk in granting you finance.
One of the main considerations that banks have when granting asset finance is the operating costs of the assets and whether these will hinder your ability to repay your loan. If you are applying for finance for a fleet of vehicles for a logistics company, then you must consider the fact that these large, heavy vehicles often have more operating costs, which is something that can affect the bank’s decision.
Your business track record will also be looked at, as will both your personal and business credit history. If you are a young business, with little to no credit history, then the likelihood of receiving finance is low compared to that of a more established company.
With determination and preparation, you will be able to finance your fleet of vehicles. Do not let the obstacles deter you and remember that you will have to be upfront and honest about everything on your application.