Vehicle Conversion Finance UK: Funding Specialist Commercial Vehicles

A logistics, food or pharmaceutical business may require a van or truck fitted with temperature-controlled equipment.

The lender may want details of the refrigeration system, installation, warranty and completed vehicle. Any finance assessment would depend on the applicant and the complete transaction.

Welfare vehicles may include seating, washing facilities, heating, power, storage or other equipment for teams working away from permanent premises.

The degree of customisation and the finished vehicle's potential resale value may be relevant to the assessment.

Trades, construction businesses and field-service operators may require racking, benches, tools, power systems or vehicle-mounted machinery.

Standard racking may be assessed differently from loose tools, consumables or highly specialised equipment. An itemised quotation is therefore important.

A commercial vehicle may require ramps, lifts, restraint systems or internal alterations to support an organisation's transport service.

The business should provide a full vehicle and conversion specification. Whether a particular vehicle or adaptation can be financed will depend on the provider's criteria and the proposed use.

Construction businesses may require vehicles fitted with storage, access equipment, welfare facilities, power systems or other job-specific equipment.

The base vehicle and conversion should be clearly separated within the quotation so that each element can be assessed.

Utility contractors and service businesses may need internal storage, workstations, electrical equipment, safety systems or external fittings.

The lender may examine whether the conversion is integral to the vehicle, removable or transferable.

A catering conversion might include preparation areas, refrigeration, extraction, water, power and cooking equipment.

These transactions can combine a vehicle, fixed equipment, installation and other costs. It should not be assumed that every element will qualify for the same finance agreement.

A business may need lifting equipment, generators, compressors or other machinery fitted to a commercial vehicle.

Funding may be possible in some circumstances, but the vehicle, equipment, installer and completed asset would need to be assessed.

The lender may consider the age, mileage, condition and value of the base vehicle. If it is used, the proposed agreement also needs to make sense in relation to its remaining useful life.

The conversion does not remove the need to assess the underlying vehicle.

An established specialist converter may be able to provide detailed specifications, warranties, certifications and stage-payment information.

The lender may need to review the converter as well as the vehicle dealer. Finance should not be assumed merely because the converter is willing to begin work.

The total project cost and the finished vehicle's recoverable market value may not be the same.

A £20,000 conversion does not necessarily add £20,000 to resale value. A highly specialised fit-out may be commercially important to the buyer but of limited value to another operator.

A lender may consider this difference when assessing the transaction.

Some projects have one supplier delivering a completed specialist vehicle. Others involve:

• 1. a dealer supplying the base vehicle;
• 2. a conversion company carrying out the fit-out;
• 3. separate suppliers providing machinery or equipment; and
• 4. another business installing or commissioning it.

Multiple suppliers can create questions about payment timing, ownership and responsibility if the project changes or is not completed.

There may be a gap between purchasing the base vehicle and completing the conversion.

Businesses should establish:

• when each supplier expects payment;
• when the finance agreement begins;
• who owns the vehicle during conversion;
• who carries the risk while work is underway;
• what happens if the conversion is delayed; and
• whether the vehicle can be used before completion.

The proposed funding arrangement should be agreed before non-refundable commitments are made.

Hire purchase may be considered where the business wants to spread the cost and work towards owning the completed vehicle.

The finance provider normally owns the asset during the agreement. Ownership generally transfers after all required payments and any applicable final fee have been made.

Whether the full conversion cost can be included depends on how the lender assesses the completed vehicle. A contribution may be required, and some costs may need to be funded separately.

Businesses should check:

• what is included in the financed amount;
• when suppliers will be paid;
• who owns the vehicle during conversion;
• any mileage or use conditions;
• maintenance and insurance obligations; and
• the total amount payable.

A finance lease may allow a business to use a qualifying converted vehicle in return for rentals over an agreed term. The finance provider retains legal ownership.

End-of-term arrangements depend on the agreement and should be confirmed before proceeding. The business should also establish whether alterations are permitted and what happens to permanent conversion equipment at the end of the lease.

Some specialist vehicles or vehicle-mounted systems may potentially be assessed as commercial assets rather than through a standard vehicle product.

This may be relevant when the equipment or conversion is a significant part of the completed asset. However, "asset finance" does not mean that every conversion cost will be eligible.

The vehicle, conversion and supplier structure need to be considered together. See Tera's asset finance page for a broader explanation of the product category.

A business loan may be considered where the conversion includes costs that cannot be included in vehicle or asset finance.

For example, it might provide greater flexibility where the business already owns the vehicle or needs to pay several suppliers. However, loan availability, security, cost and repayment terms will depend on the applicant and lender.

The flexibility of a loan should be weighed against its total cost and the fact that repayments are not linked to the conversion's successful completion.

Standard vehicle-finance structures may be relevant for the base van, truck or company vehicle.

The conversion may then require separate consideration. Businesses should not assume that approval for the standard vehicle automatically covers modifications made after purchase.

The finance provider's permission may be required before altering a vehicle it owns.

The lender may review:

• trading history;
• recent financial accounts;
• management information;
• business bank statements;
• turnover and cash flow;
• existing finance commitments;
• business and director credit history;
• the purpose of the vehicle; and
• the affordability of the proposed payments.

Relevant information may include:

• make and model;
• registration or chassis details;
• age and mileage;
• new or used status;
• purchase price;
• condition;
• supplier; and
• expected use.

The lender may ask for:

• an itemised quotation;
• technical specifications;
• details of the converter;
• installation schedule;
• warranty information;
• relevant certification;
• confirmation of whether equipment is fixed or removable; and
• the value of the completed vehicle.

The assessment may also consider:

• the number of suppliers;
• when each supplier must be paid;
• deposit or initial-contribution requirements;
• whether the vehicle is already owned or financed;
• the time before the vehicle becomes operational;
• insurance during conversion; and
• what happens if the project is delayed or cancelled.

A new vehicle may provide a longer expected working life and a clearer specification. However, the funding still needs to account for the conversion timetable and any gap between vehicle delivery and completion.

Where a dealer and converter are separate, the parties may need to coordinate documentation and payments.

A used vehicle may reduce the initial purchase price but introduce additional considerations around mileage, condition and remaining working life.

The cost of a conversion should be proportionate to the suitability and expected life of the base vehicle. A substantial fit-out on a vehicle approaching replacement could create operational and financial risk.

If the business already owns the vehicle, conventional purchase finance for the base vehicle is no longer required.

A lender may consider the conversion or equipment, but eligibility will depend on whether those costs form an acceptable financeable asset. A business loan or another funding structure might be considered where the conversion cannot be financed directly.

If the vehicle is already subject to finance, the business should check whether it is permitted to modify it. Written consent may be required.

A temperature-controlled delivery business needs an additional refrigerated van.

The transaction includes a base vehicle from a dealer and refrigeration equipment installed by a separate converter. Before applying, the business obtains itemised quotations, an installation timetable and details of the completed specification.

A potential lender would need to decide whether the vehicle and refrigeration conversion could be treated as one transaction. No approval, rate or payment amount can be assumed.

A construction contractor wants to convert a commercial van into a mobile workshop with secure racking, a workbench and an electrical system.

Some elements are permanently installed, while tools will be purchased separately. The business separates fixed conversion costs from loose equipment and consumables so that the proposed finance can be assessed accurately.

Whether all or only part of the project could be financed would depend on the provider and applicant.

A service business requires a van with storage, power and vehicle-mounted equipment.

It expects the vehicle to reduce journeys back to its premises, but it tests affordability using its existing cash flow rather than relying solely on the predicted saving.

The business compares a structure aimed at ownership with a lease-based option. The comparison includes the total amount payable, end-of-term position and restrictions on alterations.