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Two Ways in Which Company Car Acquisition Deals are Financed by Sammy Carter
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Two Ways in Which Company Car Acquisition Deals are Financed |
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Automotive
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There are two major ways in which company car acquisition deals are financed. We will be exploring them at some length. In this context, when we talk of ‘how car acquisition deals are financed,’ we are simply making reference to the ways in which companies get the money to buy cars for corporate use. This is a question that baffles many people, especially those who are aspiring to entrepreneurship, and who are interested in understanding how companies manage to acquire some of these assets. The discussion on how these corporate car acquisition deals are financed can also be of interest to students of finance and management in general. Now, the first way in which company car acquisition deals are financed turns out to be through credit. This is where, in simple terms, a company borrows the money it needs to purchase cars for corporate use. Having opted to take this route, the company in question doesn’t have to use its own funds at that point in time (for instance, proceeds from its business activities) to purchase the cars. Subsequently, the company in question has a chance to avoid cash-flow disruptions that would otherwise manifest if it opted to finance the car acquisitions using its own money. That is an advantage. But on the downside, having opted to finance the car purchase through credit, the company in question has to contend with interest expenses on the borrowed money -- and interest rates can often turn out to be rather hefty. The second way in which company car (we Danes call it Find din næste firma bil)acquisition deals are financed turns out to be through the use of cash proceeds from the respective companies’ businesses, or from the company owners’ equity. In this case, no money is borrowed to purchase the said cars. The company in need of the cars uses its own money to buy them. Thus, it doesn’t incurinterest expenses (which would be inevitable if the car purchases were to be financed through credit facilities). On the downside, opting to finance the car purchases in this way can land the companies in question in major cash-flow disruptions. Many companies actually tend to end up with both options being open to them whenever they contemplate buying cars. In such cases, careful analysis has to be done, to figure out the best way to finance the company car acquisitions. There are situations where it may be better to buy the cars using credit facilities, even if the companies in question can afford to finance the purchases with their own cash. Then there are other situations where it is best to finance the car purchases through the use of the respective companies’ cash, notwithstanding the availability of credit facilities. For instance, in cases where credit facilities are available for this particular purpose, but the cost of credit is too high, it may be better to pay for the cars in cash. Of course, in this case, there would be opportunity costs: in terms of the ‘returns’ that the cash used to acquire the cars would have brought, had it continued to circulate in the business. But where the potential returns turn out to be lower than the interest that would have been paid out had the cars been acquired using the credit facilities, it definitely becomes better to finance the car purchases using hard cash. If you're really interested in purchasing a car in the manner described, take a look here
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