The Advantages of Leasing Equipment for Trucking Companies
For many trucking companies, it is simply not feasible to purchase a fleet of vehicles. Not only can this be a huge drain on cash, it is not necessarily a smart business strategy considering how quickly technology changes. To keep the most modern fleet possible on the road, leasing equipment could be the way to go.
Unlike a loan, which goes on your balance sheet as debt even as the equipment is counted as assets, leasing stays off-book. This means that it is not part of a company’s debt-to-equity ratio, and it has no bearing on a company’s credit.
Purchasing equipment also comes with the downside of immediate depreciation. With a loan, you must finance the entire purchase price of the equipment. When leasing equipment, you are only financing the depreciation of the equipment over the term of the lease. At the end of a loan, you will own the equipment, but it may then be obsolete or no longer able to perform up to your standards. At the end of a lease, you can trade in the equipment for a replacement or upgrade, or you can choose to purchase it if that is the right business move for you.
Another advantage of lease payments is that they are fully tax-deductible as operating expenses for your business. Loan payments are not.
Predictability of cash flow is another significant advantage of leasing. Not only can you plan for the same outflow of cash each month over the course of the lease, but you will know exactly what your options will be at the conclusion of the lease and you can budget accordingly.
All of these advantages can be just as important for small companies as it can be for large companies. The savings associated with leasing can be realized on a per-unit basis. Regardless of whether you have a large fleet or a small fleet, any trucking company can be a candidate for leasing equipment.
Leases can be closed-end or open-end. Closed-end leases are those from which a lessee can walk away with no further obligation. These typically have a higher monthly payment and are full-service leases that cover equipment maintenance. Open-end leases include options for the lessee at the conclusion, including continuing the lease, replacing or upgrading the equipment, and purchasing the equipment for a set price.
Trucking companies must maintain a fleet of equipment, whether large or small. While it is possible to buy this equipment outright or obtain a loan to finance it, leasing equipment may be a smarter business move in the long run.