How financing commercial vehicle fleets can work for you
If you have a business that needs vehicles to help your employees get around, deliver goods, or transport items, you’ve probably considered a commercial vehicle fleet. Construction crews, HVAC workers, landscapers, equipment dealers, solar panel installers, and general contractors all need specialized vehicles to get their jobs done. Whether you need to get goods to people or enable your employees to travel to work, a fleet of vehicles can be an important part of your business. Of course, buying a car is an expensive affair, but owning a fleet of cars, vans or commercial vehicles is another story.
Depending on the size and type of vehicle, you may need to ensure you have the correct license and registration, which may incur additional costs. Fleet management is also a consideration that includes vehicle maintenance, driver management, safety and regulatory compliance, and operations management. You may need special software or devices like GPS trackers to ensure you have the best possible fleet management.
Luckily, just like with private cars, Commercial Fleet Financing (CFF) exists.
Equipment financing is generally straightforward for small businesses that need transportation equipment, commercial equipment, or construction machinery, as long as your business has a good reputation. But there are many considerations that go into deciding how to fund your fleet and it’s worth doing your research.
Depending on your industry and your specific business needs, you may need a variety of vehicles, a fleet of the same vehicle type, or just one or two vehicles to deliver your services. You should also consider accounting issues such as cash flow, your company’s credit rating, and your overall likelihood of loan approval.
Read on to learn how to get financing for a commercial vehicle fleet.
How do you finance a fleet?
For entrepreneurs who need a fleet of vehicles, there are two options for financing them: purchase or leasing. Buying means paying for the fleet directly (usually with a loan) and owning the equipment once you’ve paid it off. Leasing means that the vehicle or fleet of vehicles acts as security and you have the option to buy it directly later.
The decision to rent or buy depends on many factors. Leasing requires less upfront capital and your monthly payments will likely be lower. They are also adjusted to the market value of the vehicle. Leasing also offers more flexible terms than buying and can give you more flexibility with your cash flow. You also have more control over standardization and have less age-related maintenance costs over time since you are not responsible for maintenance.
Buying a fleet of vehicles may mean that you have to deal with selling or disposing of the fleet when you are done with it. You also need to be more careful with budgeting and forecasting to be able to afford the higher payments and the high upfront costs. However, buying a fleet can help you build equity and give you more options in terms of vehicle variety.
Purchase of a commercial fleet
If your small business doesn’t have a lot of money lying around, buying means securing a loan, just like buying a personal vehicle. But there are several pros and cons to consider. For example, a truck business loan may not require cash collateral since the truck itself is the collateral. There can also be a longer repayment period than smaller loans, which can result in an overall lower monthly payment, meaning it takes less of a toll on your monthly cash flow. Equipment purchases such as fleets of commercial vehicles are also a tax write-off for your business that can help you save on taxes.
However, this type of loan requires a large down payment, usually between 5-25%, depending on your credit rating. And since the vehicle or fleet will depreciate significantly in value over time, you may not be able to make much from reselling it.
As with private vehicles, there are also financing options for used fleets or individual commercial vehicles. You have a good chance of finding a new fleet of vehicles from former fleet owners who need to sell their equipment.
In addition to securing a loan, you may be able to find a commercial line of credit with a vehicle manufacturer or your bank to pay for new or upgraded vehicles and equipment over time.
Leasing a merchant fleet
Because purchasing a fleet upfront can mean more capital, many small businesses choose to lease a commercial fleet instead. This also frees up more capital that you can use to grow your business in other ways. You can also write off a lease for tax purposes by deducting lease payments from your income statement for an operating lease or by deducting depreciation for a capital lease.
When it comes to leasing, there are several options you can consider:
- Operating leases, which allow you to operate the vehicle or fleet without fully owning it
- Capital leasing, which allows you to use an asset on a rental basis but shows up as ownership in accounting
- Sale-and-leaseback, where the owner sells the vehicle or fleet and then pays the new owner for the lease
- Terminal Rental Adjustment Clause (TRAC) lease that allows you to purchase the vehicle or fleet outright at the end of the lease
- Fair market leasing that allows you to upgrade to newer versions of equipment (usually for a heavy truck or tractor-trailer)
Each of these leasing options has its own pros and cons, and the right lender can help you determine which financing program is right for you and your business needs.
types of commercial vehicle fleets
There are different types of commercial truck fleets. Many vehicle fleets provide a service themselves, such as:
- Utility fleets, including water, electricity and internet service providers (ISP)
- Delivery fleets for local deliveries from transit centers such as florists, grocers or Amazon and UPS
- Special vehicles such as tow trucks, garbage trucks, street sweepers and fire engines
There are also fleets of vehicles whose service is for a customer, such as:
- rental car fleets
- passenger car
Commercial trailer fleet types
A commercial trailer must be towed by a motor vehicle and is intended for larger and longer haulage of goods. Long distance delivery trailers, shipping companies and large equipment companies will use a commercial trailer fleet. This can be box vans or articulated lorries.
These fleets require special operating permits and registrations from state to state. You should check with your state Department of Motor Vehicles (DMV) to ensure operational requirements are covered.
How to apply for commercial vehicle fleet financing
Applying for commercial fleet financing is similar to applying for other business financing or personal financing.
To apply for commercial vehicle fleet financing, proceed as follows:
- Determine what vehicle or vehicles you want to buy or lease and who you want to buy from
- Determine which lender is right for you and what offers you qualify for (Nav can help you with this)
- Gather the necessary information and documents
- Collect the deposit
- make an insurance
You can apply to many lenders and finance programs online or in person if you choose a more traditional bank.
Qualification for commercial vehicle fleet financing
To qualify for commercial vehicle fleet financing, you must meet the specific requirements of your lender. You can expect any lender to consider the following:
- Your personal creditworthiness
- Your business credit score
- credit history
- How long have you been in business
- annual sales
- experience in the industry
- Commercial Driver’s License (CDL) which may depend on your lender
In general, you should expect a 5-25% deposit, again depending on qualifications. Higher credit scores also qualify you for better interest rates.
Nav can help you find the right financing for your commercial vehicle fleet by helping you access and build your business credit. We use your specific data points, such as fiscal years, business and personal creditworthiness, and annual revenue, to find financing from reputable lenders that you are most likely to qualify for. Sign up for a Nav account today if you haven’t already, and start finding the right financing for your fleet.
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