How Commercial Fleet Vehicle Financing Can Work for You

How Commercial Fleet Vehicle Financing Can Work for You

How Commercial Fleet Vehicle Financing Can Work for You

If you have a company that needs vehicles to allow your workers to get around, deliver goods, or haul items, you’ve probably considered a commercial vehicle fleet. Construction crews, HVAC workers, landscapers, equipment dealers, solar panel installers, and general contractors all need specific vehicles to do their work. Whether you need to get goods to people or allow your workers to travel for work, a fleet of vehicles can be a major component of your business. Of course, buying any automobile is an expensive proposition, but a whole fleet of cars, box trucks, or commercial trucks is another story. 

Depending on the size and type of the vehicle, you may need to ensure you have the right licensing and registration, which can be an additional cost. Fleet management is also a consideration, which includes vehicle maintenance, driver management, safety and legal compliance, and operational management. You may need special software or equipment, like GPS trackers, to make sure you have the best possible fleet management. 

Luckily, just like with personal cars, there’s commercial fleet financing (CFF) available. 

Equipment financing is generally straightforward for small businesses that need transportation equipment, commercial equipment, or construction equipment, as long as your business is in good standing. But there are many considerations that go into choosing how you’ll finance your fleet, and it’s worthwhile to do your research. 

Depending on your line of business and specific business needs, you may need a variety of vehicles, a fleet of the same type of vehicles, or just one or two vehicles to deliver your services. You’ll also want to consider accounting issues like cash flow, your business credit score, and your overall likelihood of getting credit approval. 

Read on to find out how you can get financing for a commercial vehicle fleet.

How Do You Finance a Car Fleet?

For business owners who need a car fleet, there are two ways to finance it: buy or lease. Buying means you pay for the fleet outright (generally with a loan) and own the equipment when you’ve paid it off. Leasing means the vehicle or fleet serves as collateral and you have the option to purchase it outright later.

Deciding whether to lease or buy depends on a number of factors. Leasing requires less capital up front, and your monthly payments will probably be lower. They’ll also be matched to the vehicle’s market value. Leasing also offers more flexible terms than buying, and can offer you more flexibility with your cash flow. You also have more control over standardization, and will have less age-related maintenance costs over time because you’re not responsible for the maintenance.

Buying a fleet can mean you have to handle selling or disposing of the vehicle fleet when you’re done with it. You’ll also have to be more careful with budgeting and forecasting in order to afford higher payments and the high initial cost. However, buying a fleet can help you establish equity and give you more options when it comes to vehicle variety. 

Buying a Commercial Fleet 

Unless your small business has a lot of money lying around, buying means securing a loan, just as you would with a personal vehicle. But there are multiple pros and cons to consider. A trucking business loan, for instance, may not require cash collateral because the truck itself is the collateral. There may also be a longer repayment period than smaller loans, which may translate to an overall lower monthly payment, meaning this is less of a burden on your monthly cash flow. Equipment purchases like commercial vehicle fleets are also a tax write-off for your business, which can help you save on taxes.

However, this type of loan requires a large down payment, usually between 5-25% depending on your credit scores. And since there will be considerable depreciation on the vehicle or fleet over time, you may not make much off of reselling them. 

As with personal vehicles, there are also financing options for pre-owned fleets or individual commercial vehicles. You have a good chance of finding a good-as-new fleet 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 from a vehicle manufacturer or your bank so that you can use it to pay for new or updated vehicles and equipment over time. 

Leasing a Commercial Fleet

Because buying a fleet can mean more capital upfront, many small businesses choose leasing a commercial fleet instead. This also frees up more capital for you to use to grow your business in other ways. You can also write off a lease on your taxes by deducting lease payments from your income statement for an operating lease or claiming depreciation for a capital lease. 

For leasing, there are several options you may consider:

  • Operating lease, which allows you to operate the vehicle or fleet without owning outright
  • Capital lease, which allows you to use an asset on a rental basis, but shows up as ownership in accounting
  • Sale-and-leaseback, where the owner would sell the vehicle or fleet and then pay the new owner to lease it
  • Terminal Rental Adjustment Clause (TRAC) lease, which allows you to purchase the vehicle or fleet outright at the end of the lease
  • Fair market value leasing, which allows you to upgrade to newer versions of equipment (generally for a heavy truck or semi truck)

Each of these leasing options comes with its own pros and cons, and the right lender can help you figure out which financing program is right for you and your business needs. 

Commercial Truck Fleet Types

There are a number of 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, like florists, food delivery, or Amazon and UPS
  • Specialty vehicles like tow trucks, garbage trucks, street sweepers, and fire trucks

There are also vehicle fleets whose service is to a customer, such as:

  • Rental vehicle fleets
  • Passenger vans
  • Buses
  • Motor coaches

Commercial Trailer Fleet Types

A commercial trailer has to be pulled by a motor vehicle, and is intended for larger and longer transportation of goods. Long-haul delivery trailers, shipping companies, and large equipment companies will use a commercial trailer fleet. These may include box trucks or semi-trucks

These fleets require special licenses to operate and registration from state to state. You’ll want to check with your state department of motor vehicles (DMV) to ensure you have the operating requirements covered. 

How to Apply for Commercial Vehicle Fleet Financing

Applying for commercial vehicle fleet financing is similar to applying for other business financing or personal financing. 

In order to apply for commercial vehicle fleet financing, follow these steps:

  • Determine which vehicle or vehicles you want to purchase or lease and who you want to buy from
  • Determine which lender is right for you and what offers you qualify for (something Nav can help you with)
  • Gather the required information and documentation
  • Gather the down payment
  • Get insurance

You can apply with many lenders and finance programs online, or in-person if you choose a more traditional bank. 

Qualification for Commercial Vehicle Fleet Financing

In order to qualify for commercial vehicle fleet financing, you’ll need to meet the specific requirements of your lender. You can expect any lender to consider:

  • Your personal credit score
  • Your business credit score
  • Credit history
  • How long you’ve been in business
  • Annual revenue
  • Experience in the industry
  • Commercial drivers license (CDL), which may depend on your lender

In general, you should expect to make a down payment of 5-25%, again dependent on qualifications. Higher credit scores will 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, like years in business, business and personal credit score, and annual revenue, to find financing from reputable lenders that you’re 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 commercial fleet.

This article was originally written on April 14, 2022 and updated on April 20, 2022.

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