Financing your Dump Truck You’re looking to buy a dump truck. Maybe you’ve been in business for a while or have just decided to start your own business. There are obviously many things to consider. Let’s focus on one of them. How will you pay for the truck?

Most people, including many bankers, only know of two options. Pay for the truck in cash or get a loan. Paying in cash is usually not an option for most people. Not too many of us have $50,000 or more in cash ready to spend. Even if they do, paying in cash may not be the best use of that money. That aside, let’s talk about a third option and compare it to a loan.

Equipment leasing is the third option but that certainly doesn’t mean it is third best. In fact it is commonly a better financial decision than a loan and is generally a lot easer to get an approval.

What is Equipment Leasing? Before we discuss why it may be a better option, describing what equipment leasing is and how it works is in order. Equipment leasing is essentially a long-term rental agreement with a buyout clause. The equipment is owned by the leasing company during the lease while the business has possession of and continual use of the equipment. Since the lender owns the equipment, the equipment itself is usually the only collateral. The buyout clause determines the business’s options at the end of the lease. Some typical buyout examples are based upon a percentage of the original sale price (e.g. 10% or 20% buyout) or a fair market value (FMV).

Why would you want an Equipment Lease instead of a Loan?

1. Easier to qualify. Banks usually require financial history of at least 2 or 3 years. Some leasing companies will finance equipment for start-ups with a simple credit application.
2. Improve your cash flow. A new or growing business needs to control cash expenditures. Equipment leases rarely require a down payment. -- if anything, only a few payments in advance. Loans require a significant down payment of up to 25% or more.
3. Tax advantages. Leases are frequently 100% tax deductible. If you are shopping the cost of a loan vs a lease, this is a very important factor that can make the lease a significantly better financial solution.
4. More for your money. Since the initial cash outlay is lower you can get more or higher quality equipment.
5. Other advantages. There are some other advantages depending upon specific situations including balance sheet impacts, seasonal payment options, protection from equipment obsolescence, to name a few.

Who provides Equipment Leases? Many large institutions and small companies provide leases. Some of these lenders are focused on credit (good or bad), a specific type of equipment (e.g. dump truck financing or medical equipment), large or small ticket, leaseback financing.

Many lenders specialize to be more competitive. If they are working with clients who have less than perfect credit they need to effectively manage any defaults. If a typical bank were to give out a loan on a dump truck and the business defaults, the bank would likely loose a lot of value when trying to sell it. To offset this risk, banks usually require a significant down payment. A specialized leasing company can minimize this default loss and can therefore provide better terms.

How do you find an appropriate lender? A good small business loan broker will have access to many funding sources and will be best able to find the right lender for a client. These brokers are similar in function to a mortgage broker where they select the lender and process the paperwork to facilitate the entire lending cycle.

Back to your Dump Truck.

So you may want to talk to a business loan broker regarding the advantages of leasing your dump truck. A lease may help you get started sooner, get a better truck, and save more of your cash. And it might just save you a lot of money in the long run.