Moving Words – Leasing
Timothy Brady
“Rather go to bed without dinner than to rise in debt.” Benjamin Franklin
With all the challenges movers are facing in 2020, having cash and/or credit when needed is going to be critical. This can be multi-fold: one, you have a lull in business and need a credit line to cover expenses during the lull; two, a customer is late paying, interrupting your normal cash flow, or three, having the available cash to expand when opportunity presents itself.
Addressing number three specifically, one of the biggest drains to a small carrier’s credit line is the purchase of equipment, new or used. Any time you borrow from your available credit line to purchase trucks and trailers, it reduces your credit for other purposes.
In the past, credit enabled your company to expand, improve efficiency and diversify your operation so you could take advantage of new business opportunities. But in these still-challenging economic and political times, many moving companies must use existing lines of credit to pay bills or to make payroll as customers are taking longer to pay their invoices. Even with good credit ratings, a large number of movers find that banks scrutinize their financing requests closely. This is why preservation of your existing credit lines is so critical to your operation.
Many banks tightened their lending criteria, even though the federal government’s Federal Coronavirus Small Business Assistance, Paycheck Protection Program, and SBA Economic Disaster Loans has provided U.S. banks hundreds of billions of dollars in an effort to spur more lending.
About now you’re likely asking, “If I’m not borrowing from a bank or financial institution, then where am I going to get the financing for my equipment?”
As financing remains challenging, more movers are turning to full-service truck leasing as an alternative. Full-service truck leasing allows trucking companies to reserve their lines of credit. It also ‘gives’ them trucks equipped with the latest technology to save fuel, reduce emissions and enhance driver productivity.
When it comes to financing trucks, banks can be particularly reluctant since trucks may quickly depreciate in value. Also, since truck loan default rates are higher for many in the trucking industry as a whole, loan officers tend to lump all truck loans into a higher risk of default category. This means either they’ll decline the loan, or the interest rate and payments will be higher, which can render some equipment unable to generate a positive cash flow.
Banks tend to hesitate when it comes to trucks because they don’t know the industry, whereas truck leasing companies (specifically those directly connected to OEMs) have a far better understanding of how the industry works and what will most benefit a particular trucking operation.
In a lease, the cost of the vehicle, apportioned taxes and license, finance charges, and calculated cost-per-mile maintenance expenses, minus the calculated residual value determine your monthly payment. Usually this means a lower overall cost that’s far better than actual ownership.
Leasing your trucks and trailers will free up your lines of credit, which gives you greater control over your business. You’ll have access to greater amounts of cash than when your credit is tied up in equipment. With leasing, you may find your company is in better shape financially when the current COVID-19 crisis is over.
“You have to tackle the real drivers of debt – that’s mandatory spending, not discretionary.” Dan Crenshaw
