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Case Study

Buying a £60,000 coach: Making the most of Asset Funding

When a coach operator needed a new vehicle, he knew that the costs were going to be high - but unavoidable. Bringing in new equipment or vehicles can be vital to the future of any business - but it will always mean a major investment.

In many cases, the future and the profitability of a business will be restricted if it cannot bring in the equipment it needs.

Making that investment affordable - even for smaller businesses and those with a restricted cashflow - may be possible with an Asset Finance solution, which can spread the cost. With the right solution, a business can ensure that their new asset is already earning money and paying for itself before repayments to the lender begin.

The Challenge

Our client was a coach service operator, who had built a business in his home town in the Midlands. He had regular contracts for school runs, but he needed to keep his drivers busy and revenue coming in during the school holidays.

“The obvious answer was to start providing tours and outings for the summer season. It used to be the core of the coach business - but these days you can’t compete if you don’t have the right vehicles.”

Modern coach tours need to offer luxury. Air conditioned coaches with toilets and WiFi from the major operators have meant that the expectations of the public have increased in recent years.

Our client had been offered a pre-owned coach from a contact in the trade. It was three years old and in near-perfect condition, and he would be able to secure it for just £70,000 - a very substantial saving over the cost of buying a new vehicle.

“She was perfect for us. We are only a small operation and she would provide a real flagship, and help us get noticed in the area - but because we are only a small operation, I didn’t think that we could get the cash with a private sale.”

Vehicle dealers are fully aware that customers rarely have the funds they need to buy a new or used vehicle as cash, and have developed a number of finance plans to help. In the case of new vehicles, this can often involve what appears to be a discount from the manufacturer, as well as a range of attractive terms. 

These can make the cost of buying a vehicle much easier to afford - although, at Rangewell, we believe it is important to be cautious about these offers. Vehicle dealers can offer finance plans to help them secure a sale, but they may be designed to maximise their profits, and often means that the purchase price is inflated to pay for the finance.

Some dealerships may use selling fiance plans as an important income stream that generates as much revenue as the sale of a vehicle.

We suggest that a better approach is to agree the dealers best price for cash, and arranging the  finance from a specialist lender. Your overall costs and monthly payments could both be reduced, because you will not be providing an additional profit for the dealership.

What about private sales?

With a private sale - where a trade dealer is not involved - things are even more clear cut, and arranging external funding is essential. Many businesses buying a vehicle privately will use a business loan to fund the purchase.

“I knew that I was getting a good deal on the coach. The price was right and, as a direct operator to operator sale, there was no dealer in the middle to push up the costs. And I’ve been in the trade long enough to know that there would be no problems with our new coach - she is built on a Mercedes chassis after all. But I was not so sure that I could get a good deal on the finance I needed.”

When the operator talked to us, we explained that a business loan can be a versatile way to raise cash - but that it might not be the most cost-effective solution for a new vehicle. A coach - like any other vehicle and most types of equipment - is classed as a business asset. This means that it has a market value - a value that can act as the security for a loan.

‘Security’ is something that a lender can take and sell if a borrower does not keep up the repayments on a loan. When that something is the item that is being bought with the cash borrowed, it becomes suitable for Asset Finance. 

Asset Finance can be particularly cost-effective. Because the lender has the security provided by the item being bought, it has no risk in lending - it will simply repossess the asset. This means that rates can be substantially reduced.

We were able to arrange an Asset Finance plan for our client from just 6% per month - substantially below the costs of providing an unsecured business loan - and saving him a substantial amount every month. If you have similar needs, talk to our team of funding experts today.

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