Business Finance Series – What is Asset Finance? – Part 5

There are numerous ways that you can fund your business. In this series of blogs, I’m looking at one of the options namely, Asset Finance.

I started the series by providing a general introduction to asset finance and looked at the different types of assets that can be funded and the different types of asset finance options that are available.

Over the past few weeks, I’ve been looking at each of the different asset finance options in turn, examining how they work in detail and discussing the ‘pros and cons’ of each option.

This week we continue the series by looking at contract hire.

Contract Hire

What is it?

Contract hire means that ownership of the vehicle or vehicles remains with the leasing company, as does all the administration, vehicle tax, insurance and maintenance costs.

The leasee pays a fixed monthly rental. Contracts typically run for anywhere between 24 to 60 months, although shorter terms can be arranged. As a result, a contract hire agreement removes the stress and responsibility that comes with vehicle maintenance. In addition, contract hire agreements often provide access to courtesy cars or vehicles, as part of the overall package.

With these added benefits, you usually have the option of including these benefits within the monthly payment as part of the contract, or alternatively you can ‘pay-as-you-go’ only paying for the various services as and when you need them.

The best thing is to work out which option is the most cost effective and works best for you.

Contract hire is therefore an ideal solution for any business looking to run a vehicle or fleet of vehicles but who wants to avoid the cost of ownership and all the associated costs such as maintenance that go with owning a vehicle or fleet of vehicles.

Regardless of whether you are looking for a small number of executive cars or a larger, nationwide fleet of vans and lorries, contract hire helps fix the cost and thus enable you to plan your cash flow.

Benefits of contract hire

• Fixed-cost motoring

• Frees up capital within the business for other things

• Rentals are treated as an expense item

• Additional line of finance that may not affect banking arrangements

• Eliminates the hassle and financial risk of vehicle ownership

Regular ‘replacement cycles’ means the vehicles are replaced regularly and so kept new and up to date.

My Advice

Any vehicle is a depreciating asset and when you have a fleet of vehicles this can feel particularly painful if you own the vehicles. For small and medium sized businesses, this can be a huge cost with virtually no hope of a return on investment.

A contract hire agreement gives you the benefit of freeing up capital within the business that might otherwise have been spent on cars or vans. Therefore, if you consider that owning a vehicle or fleet of vehicles outright is not going to benefit your business, contract hire may be the best option for you to consider.

We’ll finish the asset finance series next week by taking a look at ‘sale and leaseback’ as a potential funding option.

In the meantime, if you are looking to purchase an asset for your business, or you would like to release funds into your business by utilising an asset you already own, then why not talk to an expert. Email us at keith.park@fundingtrack.com or give us a call on 020 8949 2122 and let’s see how we can help.