More than three-quarters (77%) of small and medium sized businesses (SMEs) have never leased a vehicle before and more than half (54%) say they are unlikely to consider it in the future, according to a recent survey.
Lex Autolease, which commissioned the survey of around 250 senior SME decision-makers, argues that those businesses are missing out on growth opportunities because they have almost £6.7billion tied up in depreciating light commercial vehicles.
With an average purchase price of £16,448 for a new van, SMEs are faced with a significant capital outlay every time they change their vehicle fleet, which is typically every four years.
In contrast, the start-up costs of leasing a van costs on average £817 for an initial upfront payment and £221 per month thereafter.
Those businesses that do consider leasing often do so for cashflow flexibility and regular access to new vehicles.
Cost of depreciation
Lex Autolease's ‘Leasing Revolution’ report estimates that more than two-thirds (68%) of the 1.5 million vans and light commercial vehicles registered to British businesses are owned by SMEs and bought using the company’s cash reserves or with a bank loan.
Currently, the average SME-owned van or light commercial vehicle is eight years old. Based on Lex Autolease research, each vehicle will have depreciated by more than £10,000 since it was first purchased and will now be worth £6,357.
The figures demonstrate the significant cost of depreciation, but also the cash that SMEs could have tied up in a vehicle asset.
Tim Porter (pictured), managing director of Lex Autolease, said “Our research shows that SMEs have a significant amount of capital tied up in depreciating vehicle assets, which could restrict their long term potential.
"The billions invested in vehicle ownership could be better used by businesses to pursue new growth opportunities, pay down debts or upgrade essential business infrastructure.”
The survey also revealed how SMEs would invest the additional capital they saved if they leased vehicles rather than purchasing them.
Around four out of ten (43%) said the money would boost their working capital reserves, around a quarter (28%) would invest in new plant, machinery or IT infrastructure, and almost one in five (18%) would reduce their existing borrowings.
Others favoured increasing their marketing activities (15%), expanding or establishing new premises (9%investing in R&D (8%) and taking on more staff (5%).
Factors in LCV choice
One of the main considerations for SMEs when selecting a light commercial vehicle is fuel consumption with just under a third (32%) highlighting this as an issue, which suggests small firms are still struggling with the effects of high petrol and diesel prices.
Other considerations are price (27%) and driving experience (13%).
Porter continued: “While larger businesses recognise the benefits of not saddling a depreciating asset on their balance sheet, it is clear the majority of SMEs still have a strong emotional attachment to owning their vehicles.
“However as the economic recovery takes hold, businesses are gearing up for growth, and many are under significant pressure to maintain working capital.
"By not considering leasing, companies are missing an opportunity to better use their capital for future investment.
"While trading conditions might have improved, managing costs remains a primary concern, and with the price and fuel efficiency of a light commercial vehicle trumping the overall driving experience there has never been a better time to consider leasing.”