Whether you’re an owner-operator, small fleet owner or manager of a large fleet, having adequate access to financing is integral to growing your business. Having said that, with so many different financing provider out there, evaluating your choices can seem daunting. Here is a look at some of the different alternatives.
When it comes to equipment financing there are generally three main options; you can go for a bank, an independent lender or a captive finance company.
Banks can generally provide loans for a variety of purposes – from financing buildings to trucks. A typical bank supports a wide portfolio of commercial as well as consumer activities as diverse as automobile acquisitions and home purchases. While banks can often help you with many different parts of your business, they may not be able to provide much industry specific know-how and may lack flexibility and speed, due to more stringent underwriting requirements and regulation.
Independent lenders on the other hand, are often industry specific. They can normally offer more flexibility than banks but are often only focused on particular market segments or equipment types within an industry and they can sometimes charge higher rates.
Captive finance companies, including Volvo Financial Services, are partnered with truck brands (OEMs) and the branded dealer network to provide lending options and services to the entire spectrum of truck buyers but specifically dedicated to supporting the trucking industry.
So why should you choose one over the other? I think that the strength of the captive finance option is understanding the industry niche that truckers compete in and having the kind of lender that knows what you do and what makes you successful can prove vitally important. Captives combine trucking and transportation industry knowledge with financial acumen, and that can be very powerful.
Seasonality and cyclicality can affect your business. Or, certain business opportunities or equipment-related costs can come up unexpectedly. In both cases, a captive lender can typically provide faster and more flexible solutions to help you manage your business through tough times, and help you easily acquire trucks during good times. One example of flexibility is, in many markets, for a captive to offer “skip” or “token” payment structures during a slow-season so that customers can preserve cash while revenues are down.
Whatever option you choose, my advice to customers, especially during the start-up phase, is to secure adequate capital. Having worked in truck financing for 23 years now, I have seen that this is something that people sometimes get wrong starting out. You’ll also need to be prepared to put some skin in the game as you acquire equipment early on.
The other thing I would suggest is to plan for the unexpected. At the end of a day, trucking is a cyclical business and sometimes – life just happens: bad weather or equipment failure can have a major impact on your business in terms of lost revenue. Or, an opportunity might arise to expand, necessitating more trucks that you weren’t expecting. Making sure that you have a reliable lender that is knowledgeable, flexible and fast is important. Many captive finance offerings can include valuable benefits like warranties or pre-paid maintenance packages that, when coupled with competitive funding, can give you peace of mind at time of acquisition and ensure that you are well-positioned for future success.
With numerous financing and leasing options that are out there today setting out to finding a finance provider can seem daunting. But it doesn't have to be!
Determining the right financing partner starts with asking some key questions about your business, your needs and preferences. I have prepared a checklist that outlines some of the key considerations to take into account when choosing a financing provider including:
Download the checklist by clicking the link below.