- Country: Bulgaria
- Industry: Banking, Finance, Accounting, Insurance
- Stage: Start-up
- Investment size: $2,000,000 / min. $1,000,000
- Type of investment: Debt
Setting up the current leasing company requires a circulating capital for financing the leasing activity, to the amount of €1,000,000 (one million Euros).
The money will be needed to pay for the used cars that will be purchased from car salerooms and sold under leasing contracts. The period needed for acquitting the debt is 6 years altogether.
Car leasing is exceptionally popular since it provides an attractive way of acquiring a car by means of deferred payment for a period of up to 5 years. Leasing allows lower monthly instalments compared with the traditional consumer credits.
About one in every four cars sold by the official car importers in Bulgaria, has been purchased through a leasing company. Statistics are very different as regards the sales of used cars.
The idea is that the leasing company should start its development with sales of used cars, under the conditions of finance leasing. My first objective is for the sales to reach an average number of 150 – 180 cars per year.
Examining the constantly changing conditions on the car market, I have found that the most favorable and financially advantageous leasing period is up to 36 months, with an initial installment of 20 to 30 %. I would also like to offer leasing with no initial installment, for a period of 12 months and for cars with a selling price under 5000 levs.
The leasing contract includes as a mandatory condition the 'Casco' (Motor Own Damage), 'Liability' and 'Accident' insurances on the lessee for the period of the contract. These will be taken out through the medium of the leasing company, at discounts of up to 30%.
The servicing of the cars during the period of the contract, as well as the repairing of possible damages from insurance events, will be done in service stations appointed by the leasing company, based on servicing contracts.
To guarantee the regular payment of the leasing installments, contracts will be made for the buy-back of the cars at their residual value, by the car shops they were first purchased from.
Notwithstanding, each contract will be backed with a 'Financial Loss' insurance and the customer's condition will be investigated by the insurers and if an adverse opinion is obtained, signing a leasing contract will be denied. Though somewhat conservative, this policy will lead to positive results from another point of view – the leasing installment collection rate will be very high.
The existing leasing companies offer financial terms that are extremely unfavourable for purchasing used, or the so called 'newly imported', cars.
Rationale for the deal
The market of used cars in Bulgaria offers ample opportunities.
The existing leasing companies cannot satisfy the needs of customers in this market, since any car they purchase and resell is inevitably taxed with 20% VAT, which makes buying it under a leasing contract pointless.
My idea is to register the newly set up leasing company under Article 143 of the Law for Value Added Tax, as a car dealer, which will enable it to pay VAT on the margin only. In this way the conditions offered by the leasing company will be acceptable to the lessee.
Opportunity for the investor
Assurances applied to the requested credit:
1. The credit for each leasing sale is assured in the first place with the car, which is registered on behalf of the leasing company.
2. Each sale is secured with an insurance on the leasing contract against non-payment by the lessees.
3. A contract with the respective importer for the buy-back of the car at residual value in the event of non-payment of 4 installments by the lessee.
I hope the assurances offered above will prove sufficient to guarantee the amounts of the credits granted for the purchase of cars.
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