If you are looking for investment on vehicles then make sure you are aware of the financial schemes that can give you maximum profit. Any amount you are going to invest on a fleet should be well thought of. There are two major schemes of financing available:
- Owning the fleet
- Leasing out the fleet
Both the schemes have their own pros and cons., depending upon your capacity and business requirements you can go for the one. In this article, we have tried to explain some of the important factors which will enable you to decide on the correct scheme.
Benefits of leasing out of the fleet:
- You will have higher cash flow options.
- You can start off the business with minimal upfront investment
- When you write down the clear cut procedure for the leasing out of your fleet total costs will be converted to monthly operating costs
- You will be able to maintain your credit lines clear
- The scheme helps you in retaining good amount of cash in hand which you can re-invest in the company.
- With the cash you reserved for purchasing of fleet can be used for improving your core business
Demerits of owning a fleet:
- In order to own a fleet, you must invest the entire amount by using your own capital or you need to seek for a loan
- In this you will need to invest heavy upfront amount
- There will be a hard hit on your company balance sheet
- You will be left with very minimal cash on hand or you will be burdened with heavy debts
- This scheme attracts less investors or bankers
There are many fleet owners, who have already invested wisely by choosing the leasing method. Especially in the case of commercial vehicles the contract type has attracted lots of businessmen. One of the most important factors that is luring them is the tax saving. There are numerous advantages in terms of tax concessions such as VAT reclamation.
If you go for purchasing of the fleet then you will miss this benefit. You will get 100% rebate on VAT if you are using the vehicles extensively for business purpose. If you get into a maintenance contract then there will be 100% rebate whether you use the vehicles for personal or business purpose.
In case yours is a startup then it would be practically difficult to invest large amount as initial investment. Apart from this you will have to invest on various other things such as administration and finance management team. You will have to renew the fleet licenses and maintain all the records of your business.
As an owner operating truck financing, it is advisable to lease out all the operations. This will also help you to avoid the burden of carrying the depreciation costs of all the vehicles. Before you enter into a lease contract make sure that you have understood and studied all your business needs and accordingly formulated the contract.