Bus Fleet Financing Tips


More than four and a half billion passenger journeys are made by local buses throughout England (including London), according to government statistics.

If you are running one of the companies responsible for these journeys, you are almost certain to have seen a relative decline both in passenger numbers and the annual mileage covered by your vehicle fleet.

As ever, for any bus company, one of the key ways for attracting and retaining a loyal population of passengers is to invest in new buses – if only suitable and affordable bus finance was available.

With that hurdle in mind, here are some bus fleet financing tips and suggestions:

Take a long-term view

  • when approaching the need for such hefty investment as bus finance, it may be helpful to take a longer-term view by deciding whether your aim is the ultimate ownership of the rolling stock or your exclusive access to its use over a given period of time;
  • in this way, you may narrow down your financing options with ownership or leasing in mind;

Hire purchase

  • hire purchase is probably one of the most established, tried and tested means of finance;
  • it requires an initial deposit – for the purchase of a single vehicle or a fleet of buses – and regular monthly repayments, until your payment of a final instalment clears the outstanding balance on your hire purchase agreement;
  • until that final payment, ownership of the bus or buses does not pass to you but remains with the hire purchase company – so you may not sell or otherwise dispose of the assets without clearing the hire purchase balance and obtaining the permission of the hire purchase company;
  • since outright purchase of the rolling stock is your ultimate aim, the expenditure appears as an acquisition of assets in your balance sheet statement;

Lease

  • conventionally, there have been two main types of leasing arrangement for bus finance – operating leases and finance leases;
  • an operating lease runs for a given number of years – typically between three and five years – with a guaranteed residual value assigned to the assets from the outset;
  • at the end of the lease, you may return the vehicle or vehicles, with nothing more to pay to the lessor, or, if you want to take ownership of the buses, pay to the lessor their residual value;
  • until very recently, accounting standards have allowed your expenditure on an operating lease to appear in your statement of profit and loss, rather than the balance sheet – an accounting practice which may improve your capital gearing and carry additional tax advantages;
  • a finance lease is distinguished from an operating lease in that it typically extends for the entire working life of the asset;
  • throughout that period, the bus or buses are effectively hired by you and returned to the lessor at the end of the lease;
  • since you are enjoying exclusive use of the bus or buses throughout their entire working life, the expenditure typically appears as an acquisition of assets in your balance sheet statement;

Bus finance relies on your first deciding whether your ultimate aim is ownership or exclusive use of the assets by way of a lease. If you pursue the latter route, future accounting standards demand that the expenditure is recorded is also reflected in your balance sheet, rather than your statement of profit and loss.