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Driving a better deal for SMEs

There are sound financial and management reasons for leasing rather than buying commercial vehicles

For decades, commercial vehicle leasing was seen as the preserve of those larger companies that had 20 or more vehicles on the road, but increasingly it is becoming the favoured option for SMEs, even those with only one company car or van.

One development which has made leasing more accessible is the decision by the Strategic Banking Corporation of Ireland (SBCI) last year to make more affordable car-leasing finance and other types of development finance available to SMEs. "The finance being provided by the SBCI means that SMEs have access to reduced interest rates that were only available to larger companies and corporations," says Paul Dunne, head of partnerships at Merrion Fleet Management. "For an SME, the lower interest rate means a saving of between €10 and €40 per month on the cost of leasing a vehicle, depending on the vehicle and the contract terms."

There is no actual transfer of ownership under the terms of a typical lease. You pay a set monthly amount to a vehicle rental for an agreed period, typically between three and four years.

"Instead of a deposit, you usually play three months rent in advance," says Michael Hegarty, general manager at Hertz Fleet Services, "So you have a two-month grace period at the end of the contract where you are not paying any rent. At the end of the contract, you don't have the hassle of disposing of a second-hand vehicle. You can walk away or you can enter into a new contract hire agreement – it is a good way of ensuring that you have a well-maintained, modern fleet on the road."


‘One fixed monthly cost’

Jonathan O'Brien of Johnson Perrott Fleet says contact hire usually includes an agreed maintenance and servicing programme, including oil and tyre changes, road tax, insurance, and breakdown assist. "It's all one fixed monthly cost that you budget for," he says. "The company vehicles are not depreciating assets on your balance sheet, so you are not tying up capital that could be more strategically invested in developing the core activities of your business. Purchasing a vehicle outright only makes sense if you are a cash-rich company and there are very few of them."

O’Brien adds: “SMEs should also know that there is a portion of VAT that you can claim back on contract hire, providing that you are a qualifying company, and 95 per cent of Irish businesses are, that the car you are hiring was registered post 2009, emits less than 156g of carbon per kilometre, and 60 per cent of its use is for business.”

All the leasing firms offer driver apps to help companies ensure the vehicles are being driven responsibly and in line with health and safety requirements.  These apps include a means of recording the results of the daily ‘walk around check’ required for all goods vehicles and light commercial vehicles. “It is the employer’s duty to ensure that these checks are carried out,” says Hegarty. “Our app will allow the driver to automatically notify us of any issue that he notices while making his daily check, but it will also notify his company if that daily check hasn’t been recorded by a set time, say 10am, on a particular day.”

The apps also use telematics to measure how individual drivers are driving their vehicles: do they keep within the speed limit or are they prone to braking too severely or accelerating at speed? “Telematics is mainly about ensuring the driver is driving safely for his sake and for other road users,” says Dunne. “Where telematics are used, insurance companies will offer discounts on premiums. Also, by helping reduce wear and tear, telematics reduce the overall costs of keeping a vehicle on the road.”