Businesses and owner-operators who want to purchase one or more used semitrucks have several options available to them. Which of the following buying options is best for you depends on the specifics of your business and situation.
Businesses that have the financial means to do so can purchase a used semitruck outright by writing a check for the truck.
This option is typically available to businesses that have substantial funds available because used semitrucks can cost between $15,000 and $100,000. Some may be even more. For businesses that have this type of money available, though, purchasing outright offers a couple of benefits.
First, a truck that you buy outright doesn’t add to a business’s debt. Some businesses may not want to take on debt at all, and those that are comfortable with debt might still not want to use it to purchase a truck. Instead, they may prefer to reserve their borrowing ability for other investments they want to make.
Second, businesses that avoid loans don’t have to pay interest. Avoiding interest both yields substantial long-term savings and eases a company’s monthly cash flow.
Don’t feel bad if you’re unable to purchase a truck outright, many businesses and owner-operators can’t afford this option. If you are in a position to buy a truck upfront, though, consider whether the benefits make sense for your business. Avoiding debt and interest makes sense in a lot of situations, but there are times when you’re better off if the capital is available for something else.
Finance with a Loan
A traditional loan makes it possible to pay much less than a semitruck’s full up-front price and still eventually own the truck outright. While there are requirements to qualify for a loan, these are widely available to both businesses and owner-operators in the industry.
Without loans, ownership would be unattainable for many businesses — and ownership has advantages. Once a business pays off a used semitruck loan, the business benefits in several ways:
- Cash flow improves since the business no longer makes monthly loan payments.
- Profitability increases since the business doesn’t pay interest any more.
- Overall worth goes up since the business now owns a substantial asset.
Additionally, the business can choose to sell the truck and pocket the sale price after you have repaid the truck’s loan. If your business sells the truck before the loan is repaid, any equity that’s built up can be pocketed.
Businesses that want to qualify for a used semitruck loan typically need a credit score of at least 600 and 660 may be required by some lenders. If you don’t have this high a credit score, however, you might still be able to get a loan by offering alternative collateral against the loan or getting a cosigner who has the required credit score.
If you eventually want the benefits that come with ownership, a loan is likely the most realistic way to make an actual purchase. Even before your business generates enough revenue to build up substantial savings, you can use a loan to begin moving toward complete ownership of a truck.
Buy Through a Capital Lease
Capital leases are technically leases or rental agreements, but they’re specifically designed to be a path toward ownership.
In a capital lease agreement, a business doesn’t merely pay for use of the leased vehicle but also gets full ownership rights of the vehicle for the entirety of the lease. This means the business is responsible for maintenance and repairs. The business also gets to write off those expenses, insurance premiums, and asset depreciation, though.
At the end of a capital lease, the leasing business is extended a bargain purchase option. This means that the business can buy the leased truck for a below-fair-market price once the lease ends. Because the price is below fair-market value, businesses often take advantage of this option and purchase the vehicle.
By rule, capital leases must last for at least 75 percent of a truck’s expected life span according to Investopedia.
The tax advantages of ownership often make this leasing option attractive for smaller businesses and owner-operators. If you aren’t able to get a traditional loan, this type of lease can provide many of the same benefits even though it’s structured differently. It might even be preferable to a loan, as the length of a capital lease makes the monthly payments quite low.
Rent Through Operating Lease
A more traditional lease agreement is the operating lease route, in which a business essentially rents access to a used semitruck on a long-term basis. The lease documents outline how the truck can be used.
Because an operating lease doesn’t convey ownership costs, your business might not have to worry about repairs under this type of agreement. You should consult a specific lease’s document to find out whether you or the lessor would be responsible for repairs.
Operating leases that require the lessor to pay for repairs are a good option if you don’t have much capital for unexpected breakdowns.
If you need help financing a used semitruck, contact Arrow Truck Sales.