2 min read
Why hauliers use asset finance rather than cash
A single articulated lorry represents a capital outlay that few small or medium haulage businesses could absorb from retained cash without seriously depleting their working capital. Replacing or expanding a fleet of five, ten or twenty vehicles in a compressed timeframe is essentially impossible without some form of asset finance.
Asset finance allows the company to spread the cost of a vehicle over its productive life, aligning repayments with the revenue the asset generates. It also preserves working capital for fuel, driver wages, tyres and compliance costs — the day-to-day expenses that keep the fleet operational.
Hire purchase for commercial vehicles
Under a hire purchase agreement, the haulier pays a deposit and then fixed monthly instalments over an agreed term. Ownership of the vehicle passes to the company at the end of the term, typically on payment of a nominal option-to-purchase fee. The vehicle appears on the company's balance sheet as an asset from the outset.
Hire purchase is straightforward and predictable, which suits businesses that want a clean path to ownership. Early settlement is usually possible, though lenders may apply settlement fees — terms vary.
Finance lease and contract hire
Under a finance lease, the haulier has use of the vehicle for the lease term and pays rentals that reflect the full cost of the asset, but formal title remains with the lessor. At the end of the term, the company typically sells the vehicle and retains most of the proceeds. A finance lease can have tax treatment advantages depending on the company's specific position — directors should take advice from their accountant.
Contract hire (operating lease) transfers residual value risk to the lessor and usually includes maintenance. It may suit companies that want predictable, all-in fleet costs and prefer off-balance-sheet treatment under applicable accounting standards.
Refinancing existing fleet assets
A haulier that owns vehicles outright can refinance them — raising cash against the equity in the asset through a sale-and-leaseback arrangement. This releases capital tied up in the fleet without the business needing to dispose of the vehicles. The company sells the asset to the finance provider and immediately leases it back, retaining operational use.
Sale-and-leaseback is not appropriate in all circumstances; the company should ensure the ongoing rental is commercially sustainable relative to the revenue the vehicle generates.
Frequently asked questions
Can a newly incorporated haulage company access asset finance?
Start-up or early-stage companies face more scrutiny because there is no trading history to assess. Some asset finance providers will lend to new businesses where the directors have relevant industry experience and the asset provides clear security, though deposit requirements are typically higher.
Does vehicle age affect finance availability?
Most mainstream asset finance providers prefer newer vehicles. Finance on older or high-mileage HGVs is available from specialist lenders but terms — advance rates, interest rates and maximum terms — will reflect the lower residual value and higher breakdown risk of older assets.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.