There are 30.2 million small businesses in operation according to a 2018 study released by the Small Business Administration. That vast number of organizations do everything from writing marketing content to transporting goods across the country.
On the subject of transportation, any business owner that relies on hauling to generate an income will have to consider leasing a truck or buying one at some point.
Leasing a truck versus buying comes with several implications depending on which option you choose. To help you make the best choice for your organization, we briefly explore the pros and cons of both alternatives.
Buying a Truck
Buying a truck as opposed to leasing a truck carries a number of savings and tax advantages. Here are a few of the key positive and negative outcomes that you’ll experience when buying:
The first advantage to buying a truck is that it will typically be much cheaper than leasing one. While leasing does require less cash up-front, when you consider the miscellaneous costs that leases carry (more on that later), you’ll usually end up saving significantly more by buying a truck than by leasing.
A second advantage of buying is that you’ll enjoy more tax flexibility. When you buy, you could write off the total amount of cash that you spent on your vehicle in a given year verbatim. Alternatively, you could write off your vehicle gradually via the depreciation model which will offer you a steady stream of tax breaks for years.
Lastly, buying a truck means being in charge of how you choose to leverage it. That’s a big deal since the last thing you want when using a truck for business is for someone to tell you what you can and can’t do with it.
The credit and proof of income that you’ll have to show in order to obtain the financing required to purchase a truck can be more burdensome than what you’d need to show for a lease. This could create problems for cash and/or credit poor companies.
Another big disadvantage to buying is that bought trucks are typically kept for long periods of time which leads to heightened maintenance costs. Those costs can put a serious strain on a company that’s not prepared to shoulder them.
As a final con, since bought trucks cost you more money up-front, your company will have less money in its bank account after purchase than it would if you opted for a lease. Less operating cash means less flexibility when it comes to making other investments that could help you scale your company.
Leasing a Truck
Leasing a truck has become a popular alternative to buying because business owners love how leases offer low up-front costs and less in the way of commitment. Here are several key considerations to keep in mind when opting for a lease:
Businesses need to be able to rely on their equipment in order to get the most out of their operation. A big advantage of leasing a truck and trading up every year is that you can be sure that you’ll always be driving a state-of-the-art and reliable vehicle. This will reduce the odds of you needing to back out of a job due to equipment malfunction.
Furthermore, leasing means that you’re just borrowing a truck year to year. That gives you the flexibility to get rid of your vehicle if you ever needed to at the end of your lease as opposed to having to sell it.
Another excellent advantage of leasing a truck is that you’ll have more financial liquidity in your company. That will enable you to expand your fleet of trucks and your business much faster than you would with buying.
Leasing these truck options as opposed to buying them might seem like a good deal. When you consider the amount of money that leases ask for in the way of restrictions and fees though, a lease can turn out to be costly.
When you buy a truck, you’re building equity in a piece of machinery that you can resell. With a lease, you’re renting your equipment so you’re not building equity while simultaneously needing to fork over cash for everything from paint scratches to worn tires.
In addition to those disadvantages, leasing companies want to resell your leased truck in excellent condition or re-lease it to somebody else once your lease is complete. To accomplish that, they’ll heavily restrict how you use your truck to ensure that it stays in great shape.
Finally, if you plan on putting your company’s logo on the side of your truck or installing a flat-bed cover, you may find your leasing company inflexible when it comes to making those modifications. That reality may hurt your ability to operate or at very least diminish your company’s image.
Our Leasing Versus Buying Recommendation
You now know the implications of leasing a truck versus buying one. So, which option is better for most business owners?
Unfortunately, without having detailed knowledge regarding your business model, we can’t offer a one size fits all recommendation. What we will say is that if your intention is to use your truck regularly for commercial purposes, you may find that leasing creates a number of headaches that might be best avoided.
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