When a small business needs to transport its products, it has two options for acquiring space on a semi-truck: The business can buy a truck of its own to have and use whenever and for whatever, or it can opt for a truck lease.
Leasing is similar to renting an apartment. Lessees have access to the trucks they need as long as they follow certain rules and return the trucks when the lease period ends. However, just like renting an apartment rather than owning a house, there are advantages and disadvantages to leasing a commercial fleet instead of buying trucks. The following pros and cons outline precisely why many small businesses choose to lease ― and why many others eventually opt to purchase fleets of their own.
Pro: No Upfront Costs
A new business, a struggling business, or a thriving business with little cash to spare should absolutely consider leasing because that option does not require any sizeable up-front payments.
In the transportation industry, margins can be razor-thin, allowing little room in the budget for expensive pieces of equipment. Leasing necessitates reasonable monthly expenses, which can usually be deducted on annual taxes. Later, businesses that desire fleet ownership can negotiate to purchase the vehicles they have leased, but while leasing, businesses have months or years to accumulate the funds for down payments.
Con: Lower Tax Deductions
As mentioned above, portions of some truck leases are tax deductible, but several aspects of fleet ownership can create savings on yearly taxes. Businesses can write off:
- Depreciation of the purchase price less estimated salvage value of the vehicle
- Any or all interest paid on loans used to acquire the vehicle
- Registration and property taxes on the vehicle
- Standard mileage on the vehicle
Alternatively, businesses can opt for a section 179 deduction during the purchase year of the vehicle, which allows them to deduct the truck’s entire price in one tax season. While truck owners definitely pay more for the responsibilities of ownership, they also get a few bonus deductions come April.
Pro: Free Maintenance
The most common type of commercial vehicle lease, the operating lease, allows businesses to make use of a vehicle or fleet without incurring any of the responsibilities of ownership. That means any scheduled maintenance or repairs necessary to keep the truck in good working order are the onus of the leasing agency, who also pays for insurance.
Businesses do have another option by opting for another type of lease, the capital lease. On one hand, this eventually allows lessees to make payments toward owning the vehicle or fleet they are using, but on the other hand, lessees assume many of the risks of vehicle ownership, including all maintenance costs, insurance, and taxes. Thus, this benefit of leasing depends entirely on what type of lease a business wants.
Con: Dependence on Owners
Lessees depend entirely on the cooperation of owners, which can quickly become frustrating for entrepreneurial types. In many cases, regular maintenance is only free if businesses can take their trucks to approved locations. In other instances, owners may make unreasonable demands in lease criteria that restrict how businesses can use their new fleets. Therefore, it pays for businesses to find leasing agencies with reliable and respectable reputations, like Nextran Truck Centers.
Pro: Better Vehicle Options
Technology changes fast. In just the past few years, vehicle engines have endured a number of changes to make them smaller, lighter, and all-around more efficient. Unfortunately, this means trucks are becoming obsolete faster, which is a serious problem for business who have invested money in owning fleets.
Leasing allows businesses to update their vehicles every year or so, which means their drivers have the best equipment for doing their job. Fleet owners must decide between the immense cost of selling their outdated machinery at a loss or continuing to use sub-par vehicles. When technology is important, leasing is certainly the better option.
Con: No Customization
Operating lessees surrender any rights regarding ownership, which means they cannot make any alterations to their vehicles without the owners’ permission. Few owners are willing to allow permanent modifications to their vehicles, and even temporary changes can be sufficient cause to break a lease, losing a business access to its commercial fleet. Thus, businesses that require some amount of customization of their trucks or trailers must seek specific leases, like capital leases, or else decide to buy.