Financing Truck Fleets: One Size Doesn’t Fit All

by Ray Ellingsen

Ray Ellingsen is Senior Vice President, Syndications & Operation at Corcentric. He has more than 25 years of experience in the syndication, equipment lease finance and commercial banking industry. At Corcentric, he is responsible for growing and maintaining national funding source relationships with complementary valued-added financial institutions and equipment finance organizations, as well as developing customized, customer-focused, life-cycle fleet management financing programs.

Financing trucks is easy. However, finding the right financial partner to ensure flexible financing solutions and optimal fleet operation performance is a bit more difficult. AmeriQuest’s Ray Ellingsen gives some advice on how to tackle the challenge.

You’ve decided it’s time to finance new trucks and trailers for your business. So how hard can it be?

The truth is it’s easy to finance trucks.

However, there’s a challenge, which is continually pursuing and competitively obtaining flexible financing solutions that will promote optimal fleet operation performance while driving organizational financial performance objectives.

Before you embark on your financial partner search, I recommend that you ask – and thoughtfully answer – these 10 critical questions, as all lenders will be applying different fleet finance considerations to each of them, and to different extents.

  • What is your realistic credit profile/financial condition assessment?
  • What is your business type? Private fleet or dedicated carrier?
  • What is the size of your fleet?
  • What is the asset mix of your fleet? Type of trucks? Type of trailers? Any specialty yard assets, etc.?
  • What finance/lease structures best support organizational financial goals?
  • Is your organization comfortable with asset ownership risk?
  • Do you know the optimal asset replacement cycle, and/or finance/lease term?
  • Do you conduct ongoing asset run-cost analysis?
  • When is the most opportune time to add business growth units?
  • Do you have the internal expertise to sort through all of the above to most effectively fund your fleet?
  • Once this exercise is completed, the next hurdle is figuring out which type of funding partner, or partners, will be most compatible with your
  • business profile and objectives. More importantly, who can do it most effectively and competitively?

Here are your organizational options:

Banks – Most large money center institutions typically offer the lowest cost of funds and the best interest rates for the best lessee credit profiles. Some banks will go down market in credit quality for private fleets, but rarely for dedicated carriers. Since credit quality is high, banks tend to provide the most flexible lease structures and typically have the ownership/tax appetite to finance fair market value operating lease transactions.

But banks are often more cautious when it comes to lessee credit and residual risk appetite versus OEM’s and independent fleet management companies who tend to be more knowledgeable about the transportation asset value marketplace. Banks do not buy and sell trucks (new or used), nor do they participate in day-to-day fleet operations management.

Finance Companies – These institutions take a very similar market approach to banks, but since they typically have a higher cost of funds, they tend to take on more credit risk, and may have less restrictive risk regulatory guidelines and perhaps more appetite for asset risk. In addition, asset knowledge and equipment remarketing capabilities tend to improve with finance companies.

OEM’s – OEM’s are primarily in the business of selling trucks, not necessarily financing them. Cost of money will be more in the ballpark of large finance companies, and not quite as cheap as bank money. Offsetting the cost of this money gap is margin availability on the equipment sell side. If manufacturing and finance arms work in concert, OEM’s are hard to beat, especially in the enterprise account space.

That said, there is a propensity for OEM’s to lean more heavily towards immediate asset sale profit-taking rather than waiting for probable finance income, and/or potential residual investment risk returns. Margin capacity also allows OEM”s to strategically fund and structure companies with higher risk profiles.

Privately owned fleet optimization firms: These firms and other value-added lessors have the least regulatory scrutiny of all sources referenced above. These asset management sources leverage operating flexibility with in-depth asset and market channel knowledge to develop comprehensive custom client focused finance solutions.

This funding segment typically carries the highest cost of funding. However, sophisticated firms utilize syndication operations that leverage the most appropriately competitive funding capabilities of all the funding sources I’ve referenced to fund their clients transportation asset desires. By doing so, these firms maximize client credit availability through their syndication network and ensure sustained access to competitive fleet finance capital.
In summary, treasury managers and fleet operators alike would be wise to self-assess organizational financial condition, identify funding option availability and cultivate long-term relationships with a number of knowledgeable and reputable funding partners.

Employing an effective financing strategy is operationally vital, but keep in mind that financing fleet fixed costs represents only 23% of a truck’s total operating costs. Prudent fleet operators also incorporate a comprehensive asset management optimization strategy to maximize asset performance to drive operational and financial performance.

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Terry Mulreany
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