How to fund your fleet in the GCC

Regional banks and dealers are working to meet the financing needs of fleet owners

PHOTO: Vikas Thapar, CEO of Emirates Money Credit: Supplied

As various industries like construction, infrastructure and logistics report rising growth in the GCC, there is bound to be an increased need for transportation services. Consequently, firms across the region will need to purchase new vehicles to keep up with the growing demand.

According to estimates from Emirates Money, the consumer finance arm of Emirates NBD, about 16,000 units of heavy and light commercial vehicles were sold in Dubai alone in 2013, 15% growth from the previous year. Around 35% of these vehicles could be classified as heavy commercial vehicles, while the rest were light and heavy buses.

This growth trend is not expected to be confined to the UAE, and commercial vehicle manufacturers are optimistic about the potential of the Gulf region as a whole. However, for any business looking to build a new fleet of vehicles or expand an existing one, access to easily available financing is undoubtedly a key consideration.

With a variety of funding options that can be customised according to needs available, fleet customers can now obtain loans without much trouble and save their capital for other requirements, finance providers say.

“Traditionally, the PMV sector has been slightly under-served, but there are now a lot of financial options available for fleet owners,” says Vikas Thapar, CEO of Emirates Money, which offers a comprehensive range of fleet financing solutions with loans of up to AED7 million ($1.9 million) for commercial vehicles and construction equipment. Payment options on the loans are customised according to customer requirements, and interest rates vary but typically range between 3-5%.

“On certain occasions we have tie-ups where we come up with joint offers which offer better value for customers,” Thapar says. One example is the recent signing of a preferred partnership agreement with CNH Capital, the financial services business of CNH Global. The agreement foresees financing activities for commercial vehicles and equipment sold under CNH Industrial brands, which include Case Construction Equipment and Iveco.

The partnership with CNH Capital will help customise financial solutions for fleet owners, Thapar notes. “We’re working in terms of giving competitive pricing, limits, services and turnaround times to our customers. We are also looking at some bundled options where we look at certain low down payment options for our customers.”

Emirates NBD has partnerships with other major dealers in the UAE as well, through which it offers special financial arrangements to customers, he says.

Meanwhile, other banks are also looking to capitalise on the fleet segment. Abu Dhabi Islamic Bank (ADIB), for instance, caters to a client base including rent-a-car, transportation, logistics, trading and manufacturing companies, says Mahdi Kilani, head of Business Banking at ADIB. The bank also provides heavy equipment financing, and offers up to 48 months finance at an interest rate starting from 4.5% flat per annum.

It’s not just banks; dealers are also increasingly offering financing options for customers. Al Futtaim Auto and Machinery Company (FAMCO), has a financial services division to help fleet owners with their funding needs.

“We understand that cash flow and financing are as important as the quality and reliability of equipment,” says Mahmoud Turkieh, head of Financial Services at FAMCO. “Our aim is to help customers to conserve their capital and cash for where and when they need it the most, which is to grow their business. With this in mind, we provide flexible, cost-effective and tailor-made solutions to meet our customers’ financial requirements.”

FAMCO uses multiple funding sources to find the right fit for each customer based on his needs and credit profile, he notes, recounting different instances where the dealer has helped meet client needs. “Our solutions have covered a range of customers, from small businesses looking to obtain a fleet of Volvo Trucks to large corporations seeking to secure new projects across the UAE.”

Despite the abundance of options available for existing and potential fleet owners, Thapar notes that the segment is a niche that requires professionals well-versed in customer needs.

“At Emirates Money, we have been working in this industry for the past five to six years. We have hired people from within the PMV industry to understand the usage of assets, the mileage of assets, what kind of returns and what kind of revenue can be generated from each asset. They can also advise our customers in terms of where to get the best pricing.”

While it may be easy enough for customers to get a loan, paying it back is generally where the challenge arises, and fleet owners might have to deal with uncertain payment schedules. However, Thapar is quick to assure that this has been accounted for.

“We understand our customers’ payment schedules very well, and we understand the risks associated with their contracts. Obviously, in any lending business, you come across certain industries, certain sectors where customers might have certain difficulties.

“We are able to do a full comprehensive evaluation of our customers’ [needs] and offer them better terms and conditions and better limits. We are also able to advise them in terms of what kind of assets they should buy.”

About 60-70% of Emirates Money’s loans in a month are made to existing customers, he adds.

Meanwhile, Turkieh points out that it can be challenging to arrange financing for small businesses and start-ups. FAMCO tackles this using thorough analysis and leveraging its relationships with different banks to meet customer needs. “Our multi-bank approach and financial services expertise helps find the perfect fit for our customers’ requirements, to secure the best rates and terms based on the customer’s credit profile.”

Advice to fleet owners

Even when finance is readily available to meet your fleet needs, it is prudent to exercise caution when taking out a loan, Thapar says. “First of all, customers should obviously match the financing requirement to the contracts which they have, so they should not over-leverage themselves. They should ensure that they only come to financiers if they have a genuine use of these assets.”

Fleet owners should also consider the returns said assets can provide. “Second, fleet owners should maintain their credit history with banks and ensure that they don’t miss on payments even for the short term, because that can skew their credit history in a negative direction, which won’t be good for the future. They should ensure that their credit history is immaculate,” Thapar stresses.

Kilani advises fleet owners to maintain a healthy cash flow and manage income and expenses through assigned bank accounts.

Although banks appear willing enough to lend to established customers, are they also keen on giving loans to first-time buyers? Thapar says Emirates Money is, provided the applicants have been in business for a while.

“What we primarily look at is at least one year of continuity in the business. If they’ve had another company in any other industry which is doing well and which has got a stable financial performance, we can look at giving a loan to a new company based on the performance of the sister concern. where the partners are common.”


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