axi today talked with Mark Burgess from Broad Oak Asset Finance regarding the various finance options available for the taxi industry. Burgess explained that the options are wide and can seem at first complex, however it is vital that the taxi industry take the time to understand all the options and make the right decision for their business. The most common form of finance is straight forward hire purchase – with fixed capital and interest payments over a pre-set period. In some case hire purchase is the most appropriate funding option however other finance schemes can be more cost effective in certain circumstances.
For example if the transport operator regularly changes his vehicle fleet and therefore settles the agreement before the end of the contract term with hire purchase there is likely to be interest penalties to pay. In this case, a balance payment scheme may be preferable, where interest is calculated daily and therefore early settlement of the loan does not attract early settlement penalties. Also, in some cases rather than making equal capital and interest payments throughout the loan, it may make sense to offset an element of capital to the end of the loan. This has the effect of reducing the monthly payments so improving cash flow throughout the tern of the loan – and the balloon is payment is set so that the value of the vehicle comfortably covers the element of capital remaining at the end of the agreement. Also, taxi companies should give consideration to finance lease as oppose to hire purchase.
Normally with a lease agreement the entire payment can be off set against taxable income (as oppose to HP where just the interest element of the payment can normally be offset against taxable income). Burgess explained that at Broad Oak a series of questions are asked in order to gain an understanding of each individual transport business. Only by understanding elements such as the monthly vehicle budget, the VAT position and the frequency with which the vehicles are changed can the best advice be given. The decision regarding finance is vitally important and picking the wrong option can be costly. The most obvious consideration is obtaining the lowest interest rate. However, it is also vital to consider all the various finance options in order to find the right finance deal for the individual company.