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The difference in underwriting criteria between vehicle finance and asset finance in the UK
| Guest post by: Al Shea |
Article Overview: Many people think that vehicle finance and asset finance have the same underwriting criteria, this is incorrect and here we examine why some funders will not lend money even to successful hauliers with large fleets, even if their existing funders continue to offer them ongoing finance options for new vehicles.
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The difference in underwriting criteria between vehicle finance and asset finance in the UK
Over the many years I have been involved in business finance I have dealt with a great deal of leading telematics companies looking to offer finance on their vehicle tracking units to their customers, so they can budget more effectively and see a faster return on investment. Obviously a great deal of these clients were in the haulage sector with 10's sometimes 100's of vehicles they needed to track. On occasions the underwriters would not look to lend any further money to these hauliers, even if they had no problems getting finance for more trucks, HGVs and trailers which each can cost upwards of £50,000. So why would the asset finance underwriters not underwrite a facility for them to get new telematics units when the vehicle finance providers had no issues lending more money?
The reason is simple - vehicle finance involves underwriting an asset that has a very strong residual. Therefore if the client stops paying, the funder can simply pick up the vehicle with the knowledge that it has a good second hand value and therefore the chances of the funder making their money back on any bad debt once it's sold is very good - therefore the risk is fairly low. Compared to underwriting a telematics unit which could be £1,000 or more per unit (take 30 trucks = £30,000 facility). There is no true second hand value to a telematics unit, no residual that the funder can rely on should their client stop paying, so the risk is therefore much higher in the funders eyes. The funder cannot simply pick them up - they are all installed within the vehicle - and sell them on the second hand market because they need specific software, mapping, airtime contracts and more to function. Because of these reasons, underwriting a facility for telematics units even into a very good credit client with hundreds of vehicles these days can sometimes be a big task.
The best advice for underwriting finance on telematics units would be to add them to the vehicle lease whenever you are buying a new vehicle, very often the funder is fine with that because they are also leasing the vehicle to you. Alternatively for existing vehicles you wish to track, find a broker with a great deal of experience in underwriting finance for vehicle tracking units as they will have relevant funding contacts who can no doubt be of more assistance than simply 'any broker' you find on the internet.
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About the Author: Al Shea RSS for Al's articles - Visit Al's website Click here to visit Al's website   What is an Operating Lease and who uses them UK Business Finance Do I Need To Insure My Equipment The difference between fixed term and minimum term business finance agreements Equipment Suppliers Can You Offer Finance Options To Your Customers Should I just Use My UK Bank For Asset Finance and Commercial Loans |
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