If you’re looking to build a bus fleet or expand the one you already have, you may require some form of bus and coach finance.
Typically, this type of finance is regarded as being somewhat specialised in nature.
You can, of course, approach a traditional lender such as your bank. Don’t be surprised though if that is less than successful. Some banks might regard fleet-type investments as being risky.
Specialist providers of bus and coach finance may be more flexible and receptive.
The types of finance available
There might be a number of different specific types of funding available. Three of the main categories are:
- Hire Purchase (HP);
- operating leases;
- finance leases.
Each of these has its own characteristics and the optimal solution for your enterprise might not necessarily be the same as that for another.
This is one of the most familiar forms of vehicle finance around.
It essentially means that someone will purchase the vehicle based on your request. They will then allow you to use it as its “registered keeper”.
While you are doing so, you will make monthly repayments to the funds provider and that will continue over a defined period of time. Once you make your last payment the vehicle becomes legally yours, as the funder transfers title.
During the term of your payments, you must not sell the vehicle, as it is not yet legally yours.
In order to secure HP funding, you’ll typically need:
- a cash contribution towards the total cost of the arrangement. This is often referred to as “the deposit”;
- to be able to show that your business is financially viable and able to afford the monthly payments.
In this arrangement, the leasing provider will purchase the vehicle and make it available for you to use over an agreed period. In return, you will undertake to make monthly payments over the term of the arrangement. The sums are usually based on the depreciation of part of the vehicle’s value over the period of the agreement.
The costs will be taken into your profit and loss accounting as a normal business expense. The asset may be treated as off balance sheet – subject to your auditor’s approval.
You will not own the vehicle at the end of the agreement, it will return to the provider.
Although there are differences, for example, the average duration and the degree of formal commitment implied, in many respects, an operating lease in application is similar to renting.
Here the total value of the vehicle is used to calculate the repayments over a time period.
At the end of the finance lease, you have three options:
- to continue to use the goods after entering into a peppercorn rental agreement. This is generally one month’s rental payable annually;
- to sell the goods to a third party, typically retaining 95% of the net sales proceeds;
- to return the goods.
The asset is added to your balance sheet.
Selecting an approach
There are significant differences between the above bus and coach finance options, both in terms of the accounting treatment involved and their appropriateness for an individual set of requirements.
If you’re in doubt as to which is suitable for you, it might be worth speaking to an experienced provider of such solutions.