Contract Lease Hire vs Company Owned Vehicles
One of a company’s largest expenses can be vehicles. Whether a sole trader with a “white van” or a larger business that operates a fleet of vehicles you need to know what your options are and the most cost effective way of operating company vehicles.
Traditionally many companies bought their vehicles and kept them for a certain amount time before renewing them. More recently businesses have turned to contract lease hire as an alternative to owning the vehicles. But what is the difference for companies?
Off Balance Sheet Financing
Leasing vehicles is referred to as “off balance sheet financing”- this means the vehicles are not shown on a company’s balance sheet as either an asset or liability as they would be if purchased with a loan. By keeping vehicles and other equipment off the balance sheet it reduces the debt burden of that company. Businesses only have a certain amount of credit available to them. If they use up their available credit with vehicles, machinery and other equipment that can be leased, they are more of a financial liability and able to borrow less for future plans and growth.
What are the disadvantages of Off Balance Sheet Financing?
As off balance sheet financing makes a company’s books look healthier it is hard to pin point a disadvantage to leasing company vehicles. By leasing vehicles you are effectively “renting them” and therefore they are not assets but they are also not liabilities. If you were to default on a payment however you risk the vehicle being repossessed.
Contract Lease Hire
As well as being good for the overall financial health of a company, leasing a vehicle also has many other advantages. It allows you to have a higher spec of vehicle or a better model than you could have if you were buying vehicles outright. It also allows for the upgrade of vehicles more regularly with the knowledge that the driver is only going to be in that vehicle for a fixed amount of time.
More choice for less money
Contract hire allows you to drive a better car for a lower outlay than an outright purchase or hire purchase. The monthly outlay tends to be lower meaning that you can get a lot more car for your money. Why have a Ford Fiesta when you could be driving an Audi A3?
At CVS we specialise in credit for those who have bad or no credit. For new companies with no trading history or for those who have had credit problems in the past we could be the answer to your problems.Back to all help and advice articles