Financing and Capital Markets

The Financial Advantages of Leasing Your Fleet

The Financial Advantages of Leasing Your Fleet

When a blizzard hits the Midwest, the owner of a snowplow company shouldn’t have to worry about whether his old fleet of vehicles can run through the night. When a beverage distribution company wins a big contract, the company shouldn’t disappoint its new client with slow service because the company doesn’t have enough trucks. For business owners, investing capital to obtain, expand or replace their fleets of vehicles can have a significant impact on the success of a business. 

The reality is, you must spend money to make money in business, and when your business relies on a fleet of vehicles to make money, you may think you have to spend a lot up front.

Luckily, you don’t. Faced with the steep price of financing a fleet, more than 80 percent of businesses opt to lease their equipment rather than purchase it outright. Leasing frees up your cash flow by spreading out your payments. Plus, it can cover the entire cost of equipment, so your business doesn’t need to come up with a down payment.

Whether you need a fleet of rental cars or amphibious vehicles for your port-city tours, here are some key considerations when deciding whether leasing is the right option for your business.

Benefits for your finances and your fleet

Typically, leases provide fixed-rate financing for the life of the vehicles, with payments lower than those associated with traditional loans. The combination of lower payments and fixed rates gives your business more predictability in its finances, as well as more capital to reinvest back into the business.

Leasing a fleet also creates a trading cycle because you can match the term of the lease with the useful life of the fleet. “Matching the lease term with the useful life of the equipment allows a company to replace or upgrade its fleet at regular intervals,” says Mike O’Hare, senior vice president of SunTrust Robinson Humphrey Equipment Finance Group.

Tax advantages of vehicle leasing

There can also be significant tax benefits associated with corporate vehicle leasing. “A TRAC lease can be completely off balance sheet,” says O’Hare, referring to the Terminal Rental Adjustment Clause. With this clause, the company your business leases from owns the fleet for tax purposes, depreciates the fleet and passes some of the depreciation on to you. At the end of the TRAC lease, you have the option to pay the TRAC amount and own the fleet.

TRAC leases can be considered either operating leases or capitalized leases on your financial statements. An operating lease is not listed as an asset or liability on a balance sheet. The lease obligation is typically footnoted on the balance sheet. A capital lease, on the other hand, is treated as a purchase. By assuming some of the risks of ownership when your business is leasing the vehicles, you can claim depreciation on the fleet each year and deduct the interest expense of the lease payments.

Accessing fleet-management expertise

Companies that own their fleets are responsible for a variety of administrative duties. The titleholder has to deal with everything from taxes to license renewals. When leasing a fleet, however, your leasing provider can perform many of the fleet-management tasks.

As far as where you lease from, O’Hare says having a bank owner like SunTrust can be advantageous to customers. “Our clients get our expertise in leasing and in fleet management, combined with the bank’s robust financial products,” he says.

“A leasing company with years of experience and a large volume of business can provide fleet management expertise,” O’Hare says. He recommends choosing a lessor like SunTrust, which can act as a one-stop shop for leasing your fleet, managing titles and paperwork, retrofitting vehicles, and even setting your business up with gas cards that can help you manage spending and save on annual fuel costs and maintenance.

Fleet leasing offers great opportunities to access the equipment your business needs, while saving you time and money by letting your lessor manage administrative tasks. And the less you have to worry about, the more time you’ll have to focus on growing your business.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.