Financing your truck can be a critical step in making your business a success. The many available financing options can seem overwhelming, particularly if you’ve never tried financing your truck before or are worried about the state of your credit. Regardless of your financial background or experience in trucking, there are still options available! The following tips are useful ways to make financing your truck a reality.
1. Choose a truck you can afford
This might sound almost too obvious, but you need to make sure you’ve chosen a truck that you can afford to finance in the first place. It’s tempting to pick the greatest model available, with the most horsepower and best extra features. That temptation can be especially great if you’ve already been approved for a loan of a certain amount.
But whether or not you’re cleared for a loan won’t make a difference if you aren’t realistically able to make the payments on that loan. Sit down and write out a realistic payment timeframe—and take into account the fact that you might not be making as much money as you have at the peak of your success—and use that to determine what kind of loans you should be looking for as well as what kind of truck you should be trying to finance in the first place.
2. Have your documents in order
When applying for a lease, a loan, or any other form of financing, you want to come across as a reliable professional. Have all of your paperwork in order before taking any other concrete steps towards financing your truck. This paperwork should include your previous tax returns, your profit and loss statements, and your credit information, but also more basic information like how long you’ve been working in the trucking industry and how many trucks you’re interested in.
Having your documents in order also means having a thorough understanding of the paperwork you’ll be receiving from your financing partner. Review your lease structure, interest rates and monthly payments, and always keep your lease agreement length in mind. Keep all this information in an easily accessible place. If possible, having an accountant look these documents over can also be a good option to make sure everything is sustainable and above board.
3. Don’t restrict your cash flow
Ideally, your financial program should help free up your cash, not tie it up. It’s a good idea to find a program that doesn’t expect you to pay cash for equipment, for example, which is difficult to do and unrealistic overall. Having a streamlined cash flow can help you manage day to day costs and stay on top of expenses separate from your larger loans. It can be easy to forget about your small expenses when you’re thinking big-picture, but staying on top of them while managing bigger loans can make the difference between a smooth financial period and a stressful one.
4. Check your calendar
Know when it’s the right time to make a purchase. Generally, that will be at the end of the financial year. This way, you’ll have the option to write off the expenses for the second half of the year, even if you’ve only owned the truck for a few weeks. You’ll lose this opportunity if you make a large purchase at the beginning or even the middle of the year, which can make things more difficult than they need to be in the future.
5. Understand your lease options
If you decide a lease is right for you, it’s important to know what you’re looking at in advance. There are two common leases out there to choose from, so make sure you pick the one that works best for you!
Once a capital lease has run its course, the truck belongs to you—there may be a moderate buyout price first, but it will be significantly less than the vehicle’s market value. While the loan is in effect, you are considered the owner of the vehicle. This means handling taxes, maintenance, and all the other little things that make up vehicle ownership. On average, capital leases last around 48-60 months, show as debt on your balance sheet, but also offers the depreciation write-off on your income statement.
While a capital lease is similar to a loan, an operating lease can be considered more of a rental. Via the leasing company, you’ll be able to use one or more trucks for a monthly fee. These leases usually last less than 75% of the economic lifespan of the truck. An operating lease won’t show up on your balance sheet, so it doesn’t show as debt and you can write off the whole lease payment.
Running a trucking company can be stressful and expensive! Learn more about how Provident can help turn your accounts receivable into cash here.
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