More companies turn to full-service leasing as an alternative for truck, tractor acquisitions
Apr 1, 2010 12:00 PM
LEASING is giving carriers financial flexibility, which is critical in a volatile economy that is showing signs of life but still struggling.
“In these challenging economic times, many companies find they must use existing lines of credit to pay bills or to make payrolls as their customers take longer to pay on their accounts,” says Chris Maccio, director of sales-East for PacLease. “Or they must have access to ready sources of credit. That ready access will allow them to take full advantage of new business opportunities quickly should stimulus efforts by governments in North America and around the world boost the global economy. Even with good credit ratings, a surprising number of businesses both large and small find that banks scrutinize their requests closely. That's why preservation of existing credit lines is so critical to their operations.”
As financing remains challenging, Maccio says he is seeing more companies turn to full-service leasing as an alternative — primarily for trucks, as opposed to tank trailers. Full-service leasing like that offered by PacLease allows companies to reserve their lines of credit. It also allows them to acquire trucks equipped with the latest technology designed to save fuel, reduce emissions, and enhance driver productivity.
When it comes to financing commercial vehicles, banks can be particularly reluctant since trucks can quickly depreciate in value, especially when they are not specified correctly, Maccio adds. Also, since truck-loan default rates are higher among owner-operators, bank loan officers tend to lump all truck-loan applicants into a higher risk of default category.
“Banks tend to hesitate when it comes to trucks because they don't know the industry as well as we do,” Maccio says. “Our business is to understand trucks. We work with our customers and Kenworth and Peterbilt engineers to determine the best truck specifications. Our goal is to optimize a truck's residual value and performance and minimize its operating expenses. Plus, PacLease is part of PACCAR's financial services segment, which has total assets of $10 billion and an AA credit rating. So, we're well capitalized to offer any size company a variety of leasing options.”
Debt to equity
Olen Hunter, director of sales-West for PacLease, says before banks and lending institutions make new loans or extend additional lines of credit to businesses, they typically establish certain debt-to-equity ratio requirements. These requirements can help them feel more confident about their customers' ability to repay their loans.
Any time a company borrows money to buy assets, such as trucks, the company must record the loan on the liability side of its balance sheets as well as the truck(s) on the asset side, Hunter says. That can impact productivity ratios or profitability ratios such as return on investment (ROI), return on assets (ROA) and return on equity (ROE). Some banks may look at a company's ROA and ROI to determine the interest rate or premium they will charge. Investors and stockholders also look closely at ROAs and ROIs.
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