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Funding gap raises lease cost fears

Date: 21 April 2009   |   Author: Tristan Young

Fleets are facing a funding meltdown that could see a cut in the number of lease firms and huge differences in contract hire rates.

Several leasing firms have reported a drying-up of finance from the major banks. One industry executive said there were only two banks still offering funding to independent lease firms.

The result is that funding is now more dependent on the credit rating of both the leasing firm and its client.

"For independent lease firms there are fewer lenders they can go to," said fleet consultant David Rawlings, of Business Car Finance. "And those that remain have tightened up on their finance. Yes, it's tough, but if you're the right client then your smaller independent can get funding."

This sentiment was reflected by several small independent lease firms contacted by BusinessCar. However, all declined to be named as they were fearful of the impact on their business.

Commenting on the situation BVRLA boss John Lewis, said: "All vehicle leasing and rental companies. are finding funding more expensive and difficult to get hold of.

"The BVRLA. has briefed BERR [Department for Business] on the state of the market, we have held discussions with existing funders and we have helped bring new ones into our sector. The association has held some very constructive discussions with Barclays and HSBC and is also working on sourcing new finance through the syndication route.

"We cannot comment on the commercial arrangements leasing companies make when obtaining funding. But in these uncertain times we are advising them, and helping them, to find a greater spread of funding sources."

The drying-up of funding for small lease firms is coupled to the cost of money on the international wholesale finance market rising, making it difficult for some larger lease firms to raise funding competitively. One industry executive predicted between three and five of the current top 10 leasing firms would either stop taking new business, be sold or closed by the year end.

Rawlings recommended that business car managers regularly check they are getting the best contract hire rates available.

"Never before, in the 30 years I've been doing this, have I seen such a variance in lease rates.

"For example, we recently did a comparison with half a dozen lease rates on a Honda Civic and there was a £92 difference.

"That means that unless fleet managers go out and audit the market then they are relying on the integrity of their supplier.

"But they could get screwed."