If you need a new truck to replace your old truck or add a truck to your existing fleet, you can either buy the truck outright with cash or finance the purchase. You may even lease it. Most new buyers are usually divided between these options. There are clear benefits to these choices. In certain scenarios, financing a new lorry would be better than paying the money outright. However, if you’re going the finance route, kindly note not all lending companies are the same.
The payment route you take primarily depends on the total amount you need, the truck class, business type, and your credit profile. A loan is basically an agreement to borrow funds and could be either unsecured or secured. A lease, on the contrary, can be viewed as a kind of rental agreement for equipment. It’s almost always secured. Typically, a lease would entail lower monthly payments compared to a loan. But leases are not as common as loans.
Reasons to Finance or Pay with Cash
Before arriving at a decision, engage with a finance expert or accountant to determine the criteria that help you ascertain whether to get a loan, pay money outright, or lease the truck.
The main benefit of paying cash is you would not be paying any interest. The negative is that you will have less cash for business expansion, marketing, recruiting, or contingency scenarios. If you are a small business, you need to ensure there’s enough money in your reserves to run the enterprise. The bills would come in fast and thick in a continuous stream. Also, you may require cash for investment in business growth and efficiency and to manage unexpected expenses. In case you buy a truck outright and have little money to spare, you may later find yourself in a rut if you must immediately buy another truck to meet heightening customer demands.
If you are looking to loan or lease a pumper truck, shop around. There are lenders available for different business sizes and every type and class of truck. The right type of finance, when particularly customized to your business requirements, could offer several key benefits – usually the total freedom and flexibility to make sure everyday functioning priorities are met without being hindered by cash shortfalls. There is no debating that well-managed, effective cashflow is critical for any successful enterprise. It makes things easier for all its stakeholders, from drivers to management to support staff.
Financing makes sense as it helps preserve cash. Equipment buys are usually done using after-tax dollars. Loan payments or monthly leases are seen as pre-tax business expenses. Financed trucks generate money to serve debt and generate positive cashflow. Over time, the loan pays for itself.
Most operator-owners generally go with loans. It completely depends on the way the truck is being used, tax treatment and depreciation. Not to mention, there are loan brokers who can pair you up with lenders. Some offer packages particularly devised for truck owners.
There are a few other factors that you must consider when trying to choose between a finance arrangement and an outright purchase. The most important consideration is the credit class you belong to. Operators with varying credit profiles need different operational processes and underwriting considerations. Also, consider the period you’ve been in operation. Operators who have not been in business for two years or more would need specialised truck finance solutions.