Introduction
It is easy to forget that all goods purchased were at one point transported via truck. It is no exaggeration to say that trucks form the backbone of any logistics endeavor. This has led some industrious individuals to start their fleet of trucks or further bolster their small business by entering into finance agreements to purchase their fleet. In this article, we will look at the financing options available and which suits your specific needs best.
To Lease or Not To Lease
Commercial fleet financing is big business and competitive enough to allow the small business the option to get better deals on vehicles and insurance. Growth in the market has further led to investors willing to put large sums of capital into the industry, with them seeing a great return on investment to warrant pumping millions of dollars into the industry.
While this often involves large corporations how then does the SMB owner take advantage of the money flowing into the industry? The first question to answer is whether you are going to lease or buy your future fleet of trucks.
Some quick maths is needed to see why so many business owners favor the lease model. Say you purchase a new truck outright for $30,000, on average the truck will depreciate year-on-year at around 20%. After five years of use, the truck’s salvage value is $5,000. If you chose to own the vehicle you would need to pay upfront the original $30,000, but if you chose to lease the vehicle you would need to pay the depreciation value of $25,000 across 5 years. This comes to just over $400 a month.
The major advantage of following the leasing model is that the business owner can unlock working capital that improves cash flow rather than purchasing a depreciating asset. Granted this does mean you have to play by the lessor's rules in terms of the contract you signed and understanding your contract terms is vital in preventing headaches down the road. Contracts can include varying interest rates, calculations per mile, or even caps placed on yearly mileage, while some contracts lock you in for specified periods that cannot be broken unilaterally by yourself.
Financing Options
The first financing option available for those in the cdl jobs sphere and who have a good credit record is truck-specific bank loans. As these are offered by larger national banks they tend to offer lower interest rates and longer repayment terms when compared to online and specialty lenders.
The second type worth considering, especially if your company is starting and has a lower credit score is a truck-specific specialty loan. As these are offered to those with a lower credit score they tend to have higher interest rates and shorter repayment terms. Other loans like Small Business Administrative loans and Equipment financing loans also exist and can be used to assist in funding your logistics company or branch but these often have government-stipulated conditions that need to be met and can feature more paperwork than the two loan types listed first.
Conclusion
Fleet financing is not a one-size-fits-all industry and various players in the market have developed specialized financing options. As a business owner, these may mean extra research on your part but a solution that fits your needs and makes more sense financially is out there.
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