There are distinct advantages to buying outright and financing pumper trucks. Let an expert help you decide which path is right for your business.
There’s no denying it any longer. Whether your current truck is on its last legs or you’re looking to add a new vehicle to your fleet, you’ve suddenly found yourself in the market for a new pumper truck. The question is, should you buy it outright or finance it?
Typically, there are three ways your company gets new equipment: paying out-of-pocket, getting a loan or leasing it. There are clear advantages to all those payment options, but every company is different, and not every option is right for every business.
The term “equipment financing” has become something of a catchall term in the industry, and it’s used to describe both loans and leases. LeaseQ CEO Vernon Tirey says the difference between the two can range from subtle to obvious.
“It depends on the amount of money being requested, the class of truck, the type of business entity and the credit profile of the operator,” he says. “Although, generally a loan is a contract to borrow money and can be either secured or unsecured. A lease, on the other hand, could be considered a type of rental contract for equipment and is almost always secured by the equipment seller. Traditionally, a lease will have lower monthly payments than a loan, as well.”
Why pay with cash? Why finance?
Before you make any decisions, work with an accountant or business finance expert to come up with criteria to help you decide whether to pay outright, get a loan or lease a new truck.
The main advantage of paying cash for a truck, according to Tirey, is that you’re not paying interest. “It’s just like when you pay cash for a car,” he says. “It’s yours, and you don’t owe any interest or fees to the bank. The disadvantage of purchasing is that you won’t have that cash to, say, invest in marketing, expand your business, hire workers or save for a rainy day.”
Those looking at leasing or loaning a pumper truck should shop around. There are lenders for every business size and every class and type of truck, according to Tirey. “These lenders specialize in their specific verticals and speak the operator’s language,” he says.
So, why would anyone choose to pay interest on a truck if they have enough liquid cash? Tirey says it’s not always that simple and that smart business owners often finance trucks to preserve cash. “Equipment purchases made with cash are made with after-tax dollars, while monthly lease or loan payments are considered a pretax business expense. Equipment financing is the first financing any business owner should put in place. A financed truck generates revenue to service the debt and produce positive cash flow. It pays for itself over time.”
Most vocational fleets financed through LeaseQ opt for leases, according to Tirey, while owner-operators usually go for loans. “It entirely depends on how the customer is using the truck, depreciation and tax treatment.”
There are a couple factors that business owners should consider when they’re deciding whether to buy or finance. First, what credit class do you fall in? No single trucking lender handles everything from A++ to D credit. “Operators with different credit profiles require different underwriting considerations and operational processes,” Tirey says.
Also, factor in the length of time you’ve been in business. Those who have been in business less than two years require special startup finance solutions, while many lenders offer breaks to septic companies that are more than 5 or 10 years old. “Vocational vehicles 10 years old and newer tend to get better rates and have more options for financing,” Tirey says.
Vernon Tirey is the co-founder and CEO of LeaseQ, an online marketplace that connects business owners, equipment sellers and lenders. The company provides trucking borrowers and sellers instant financing quotes with a single application.