When financing your motorhome or campervan fleet, consider these four key factors:

Deposit:
What’s the optimal deposit for your finance deal? Planning for purchases at the start of the season is important, particularly when you will likely be required to pay deposits towards the end of the off-season where cashflow is stretched without income from seasonal vehicle hire. For example if you are purchasing motorhomes for the season ahead, a good basis to work off is a standard deposit of 10% + VAT. If each motorhome is £50k + VAT, you will need £15,000 deposit per vehicle (option to defer the VAT referred to below). If you want to keep deposits to a minimum we can defer the VAT and provide no deposit finance deals, if the correct credit criteria is met. It’s worth remembering, the more money put into the deal upfront will reduce the monthly payments and interest charged as the borrowing reduces. It’s a balance between cash-flow reserves at initial point of the deal and ensuring the deal works for the business on an ongoing monthly cashflow basis.

VAT:
The VAT on an asset can be either be paid upfront and reclaimed in your next VAT quarter or our funders can provide a VAT Deferral. A VAT deferral means that the funder pays the VAT upfront for the borrower, the borrower then reclaims the VAT and pays it back to the funder in-line with their next VAT quarter. This product enables the borrower to reduce large upfront payments and ultimately preserve cashflow when purchasing assets.

Term:
Choosing the term on your finance agreement has 2 key factors, lifespan of the asset and cashflow. The longer the term, the lower the monthly payments, the higher amount of interest accrued on the finance agreement. The shorter the term, the higher the monthly payments, the lower the interest accrued across the term. Specifically with motorhomes, we try to work with clients to understand when they will look to sell and replace the asset, and then structure the term around this. For example, if you are looking to swap your vehicles every 2 years, it’s more efficient on interest to structure a finance agreement over 2 years, with a balloon payment as opposed to over a straight 5-year term. The balloon payment will enable the monthly payment to be lowered, the shorter term will mean the interest will be paid off more aggressively and the settlement when selling the vehicle will carry much less interest providing the client with more equity in the sale of the vehicle.

Balloon:
The balloon payment coincides and is reliant on the term of the finance agreement as described above. Typically we can provide a balloon figure on assets over 1-5 year terms. The balloon will be calculated via estimated future market value and will take into consideration the annual mileage on the vehicle to depreciate accordingly. As such, the balloon on a 12-month deal will be higher than a balloon on a 24-month deal, and this scale will continue to reduce with the term lengthening. It’s important to note, the higher the balloon value, the higher the interest charged on the finance, so we always work with customers to find the optimal monthly payment they are looking for to ensure a balance between cash-flow and interest charged on the finance.

Get in touch to find out more how we can help you reduce interest on your business costs!