Buying is better than renting. That is what most of us are taught, whether it involves a home, a vehicle or a piece of equipment.
That belief may be outdated in the trucking world. Many large trucking fleets today are upgrading their aging fleets with newer trucks and equipment. That increased demand, along with stricter emissions standards, continue to make it more expensive to buy new or used big rigs. The average resale price of most commercial trucks ranges from $41,900 to $69,600, according to a 2015 report by EquipmentWatch Intelligence.
Adding trucks and equipment to your new fleet through leasing or rental agreements might make better sense for your company’s bottom line. Here are four reasons why:
Leasing allows you to save cash and apply it to other parts of your business. There is no down payment with leasing, and your monthly payments may be deductible from taxable income. Leasing a truck or equipment also spares you the time and energy of seeking a line of credit to finance a purchase. Finally, you can often acquire a newer, more expensive truck through a lease agreement instead of buying it.
About 85% of small- to mid-sized businesses lease equipment, according to GE Capital. These companies realize that they can be more profitable by operating machinery instead of owning. Leasing also provides greater flexibility in case of an unforeseen expense or an economic downturn.
For your trucking company, short-term leases allow you to expand and contract your fleet as the market requires. You can also use leases to determine if new equipment is a good fit for your company before you invest in a long-term commitment.
A drawback to owning trucks or anything else is that you are responsible for their upkeep. Breakdowns in your fleet can lead to unexpected expenses and interruptions to your business. If you lease your vehicles, the leasing company can take care of the maintenance.
Trucks and equipment depreciate in value as they age and take on wear-and-tear. When you own assets that you no longer need, you have to figure out how to sell them. You will likely have to sell them at a much lower price than you paid to acquire them. Negotiating a competitive lease rate up-front on trucks and equipment eases the worry of depreciation. It also spares you the time and effort of finding a buyer, or disposing of the equipment later on.
Sources: GE Capital, Equipment Finance Advisor, Fleet Owner, EquipmentWatch Intelligence