Buying a bus may sound like simplicity itself.
True, the formalities can be relatively straightforward, but if you’d like to ensure that you have found a suitable and cost-effective financing deal, it’ll be worth spending a few minutes reading what follows below.
As with any sort of finance, whether you are applying as an individual or a company, you are likely to have to meet certain criteria before funds will be advanced:
- you will typically have to find a percentage of the total cost involved, from your own financial resources. Today this is still typically, if inaccurately in some cases, called “the deposit”;
- you or your company will need to be able to show that you have the financial ability to meet the agreed monthly payments of whatever form agreed. If you are a limited company or a public limited company, that will usually involve a review of two years’ of your audited annual accounts or bank statements for very small companies;
- typically there will be some requirement for a background and credit check;
- there will need to be evidence of the reason for the finance and that the sum being requested is sensible given the vehicle being acquired.
Assuming none of those is a problem, you may be faced with a choice between three generic types of bus and coach finance.
This is a very familiar and comfortable form of bus and coach finance. Its key attributes are:
- the funds’ provider will purchase a vehicle;
- they will be officially listed as the legal owner but they will nominate you as the vehicle’s “official keeper”;
- you will typically be able to use the vehicle as if you owned it, with possibly some conditions attached;
- each month you will make a fixed payment over an agreed total period of time;
- at the end of that term, after you make your last payment, legal ownership of the vehicle will be transferred to you;
- while you are the vehicle’s registered keeper, as opposed to its owner, you must not sell it or otherwise transfer responsibility for it to any other party.
This is essentially a form of rental. Its characteristics include:
- the value of the bus or coach will be divided over the period of the lease;
- the vehicle’s residual value at the end of the lease period will be deducted and an agreed monthly repayment schedule put into place. Typically the entire lifetime value of the vehicle is not used as the basis of the monthly repayment calculation;
- you do not automatically become the owner of the vehicle at the end of the lease and the asset is returned to the financing company. In some cases, the lease may offer special preferential outright purchase rates upon termination;
- the monthly costs are written off in your business expense profit and loss account;
- the asset does not appear on your balance sheet which can improve gearing and provide additional tax efficiency.
In many respects, this is a form of bus and coach finance that is similar to the above.
It differs largely in:
- the entire economic lifetime value of the vehicle is recovered over the full period of the lease;
- the item can appear on your balance sheet. The monthly costs do not appear as a business expense in your P&L;
- at the end of the lease period, you may have the option to purchase the vehicle outright for a final “balloon payment”.
Deciding which type of finance is most suitable for your position, is not always easy.
A lot will depend upon your existing business and taxation situation, as well as the advice of your accountant.
Because of the different financing options available, it may make sense to also take specialist advice from an expert in bus and coach finance.