For any kind of business growth, you’re going to need working capital to finance expansion, implement new strategies, and take on new employees. However, working out what your business can afford in the future can be tricky.
Asset payments can include a variety of monthly payments that a business must make in order to retain its assets, pay off loans or lines of credit, or meet lease payments. Expansion may include taking on new equipment to expand services or even paying for more real estate to open new branches. This means that asset payments are likely to grow as you grow.
In this article, we’re going to take a closer look at asset payments and how they relate to the kinds of assets you should buy as a trucking business. Take a look below to learn more about new and used equipment in trucking and how your asset payments may vary.
What Are Asset Payments?
Asset payments refer to a number of different aspects of monthly payments, including rental payments, interest payments, and depreciation payments. When you purchase or lease an asset, like a piece of equipment, you pay monthly to meet the initial cost or rental fee but also will likely pay interest on top of it.
If you own the asset, you also pay what is known as depreciation payments. These are the payments that represent the gradual expensing of the cost of an asset over its useful life. Depreciation is a common factor that businesses assess when deciding whether to spend their money on new or used equipment, as it affects how much of the initial expense you will get back when it comes time to sell the equipment.
New Vs. Used Equipment in Trucking: How to Make the Decision
When it comes to buying new equipment, a decision often needs to be made between new and used options. There are, of course, benefits to both kinds, but each will have a different impact on the amount you’re paying for your assets each month.
In the table below, you’ll see the factors that need to be taken into consideration when choosing between new and used equipment.
Trucking Equipment Comparison
| New | Used | |
|---|---|---|
| Initial Cost | The initial cost of new trucks and other trucking equipment is almost always higher than that of used equipment. | Used equipment tends to be older and in worse condition, which makes it cheaper to purchase. If you have a smaller budget, then used trucking equipment may be your only option. |
| Equipment Lifespan | New equipment, obviously, will have a longer lifespan than used equipment. | While used equipment may have a shorter lifespan than new equipment, this doesn’t necessarily mean buying new is always better. Take lifespan into account when working out, which is the choice for you. |
| Technology and Features | Newer trucks and equipment are always going to have the most up-to-date tech and features. If this is something you need for your business, then buying new is the best option. | On the other hand, if you’re in an industry where the tech hasn’t updated much in recent years, you may be able to get away with saving money and buying used. |
| Maintenance and Repair Costs | New equipment is less likely to break down than used equipment, but it is not unheard of. However, as new equipment typically comes with a warranty, you’re likely to spend less on unexpected repairs. | Used equipment may not come with a warranty if it is being sold secondhand, though this does depend on where you buy it. |
| Depreciation | Depreciation is a huge part of the financial analysis you should conduct before purchasing equipment. It refers to the rate at which the value of an asset decreases over its lifetime. New equipment depreciates much faster than used. | Used equipment has already been through its fastest depreciation phase by the time it gets to you, which means its lifetime depreciation costs are always smaller than when you buy new. |
| Availability | If you need equipment right now, you may have trouble getting the latest models. Lead times are often much longer on new trucks and equipment. | On the other hand, used equipment is not only easier to get your hands on, but you tend to have a bit of choice and can benefit from online reviews/user reviews of the trucks as they’re a few years old. |
| Quality | New trucks and equipment tend to be in better condition than used. | When buying a used truck, it is always important to inspect its quality. Ensure you buy from a reputable vendor. |
| Industry Standards | The industry you work in may impact your choice between buying new and used. This is because some industry regulations may require you to use specific models of equipment to be compliant. | If your industry has no such standards, then buying used is a good choice. |
| Resale Value | At some point, you will decide to upgrade your equipment again, and at this point, you may choose to sell yours. Newer models will usually sell for more than used. | Of course, you may decide to use the equipment until it’s of no use to anyone, and at that point, the resale value hardly matters. |
| Environmental Impacts | If sustainability is important to you, you will likely find that new models have a less significant environmental impact. Indeed, for trucking businesses, electric vehicles are an advancement that may interest those looking to upgrade and limit their carbon output. | Used models with older features may not be suitable if you’re looking to reduce your environmental impact as a business. |
| Financing Options | It’s important to consider financing options. If you buy your equipment from the manufacturer, you may be able to access their financing options. | On the other hand, financial institutions, like Essex Lease, offer lines of credit and asset-based loans that allow you to purchase used (and new!) equipment with terms that might be more favorable. |
| Insurance Options | Lastly, insurance costs will vary depending on the age of the equipment as well as its total value. This means that you will need to research the difference between insuring new or used equipment. | Insuring a used piece of equipment may be cheaper because it costs less upfront. |
Accessing the Assets Your Business Needs
So, what does all of this mean for your asset payments as a business? How can you access the assets that you need and ensure that your business has the finances to keep up with payments? Below are a few steps you should take to ensure that your business can support your asset payments in the long run.
#1 Create a Budget
This is probably the most obvious step we could have included in this list, but there is no easier way to get a handle on your finances than to make a budget and stick to it.
Begin by including all sources of income and all of your outgoings. The money that is left over is, essentially, all you have left for growth. By creating a budget and regularly reviewing and adjusting the budget, you can work out where you’ve got money to spare, what monthly payments you can afford, and where you might be able to cut down on costs.
You can also monitor your monthly cash flow to see when it may dip and when it may increase. Getting to know your finances is the first step to growth and increasing the assets your business owns.
#2 Build Up an Emergency Fund
An emergency fund covers any kind of expense or financial challenge you may encounter. This might be when a crucial piece of equipment suddenly needs repair, having to take on agency staff to cover illness, or needing to lease a specific piece of equipment for a special project.
#3 Prioritize Your Payments
Making your repayments the priority will give you the control you need over them. Ensure that you meet all your crucial obligations before spending on anything extra, and give important status to the asset payments that have the most impact on your business, i.e., the payments on an essential piece of equipment!
#4 Build a Relationship With Your Lender
Lastly, one of the best ways to ensure that your business can support your asset payments is to build a rapport with your lender. This will benefit you when negotiating your contract and if you ever need to renegotiate. If you’ve got a relationship with them, they’re more likely to allow longer repayments or be flexible with repayment amounts.
Asset Payments With Essex Lease
At Essex Lease, we can help you get your hands on the assets that you need with a number of financing options. Our equipment financing options include:
As a business, we’re committed to the success of all our clients, which is why we offer many ways to finance your growth. If you’re a business in the Calgary area, then Essex Lease is your best choice for equipment financing options.
Unlike banks and other traditional financial institutions, we are all about relationships. We look at each of our clients as more than facts and figures, and while we will take your finances into account, we want to work with you rather than just wait for your repayments in our account each month.
So, what does this mean?
First and foremost, it means that as a lender, we’re not just going to look at your financial history and credit score when going through the approval process. We will also take your character into account. We’re more understanding than banks and know that businesses often go through financial blips that shouldn’t impact whether you get the opportunity to grow and expand.
Secondly, it means we’re always flexible with our repayment plans. We want our financing options to suit you, which means we will work with you to create terms that suit both of us. If you’re looking into whether your business can support your asset payments as you try to expand, then Essex lease should be your first call.
Conclusion: Can My Business Support My Asset Payments?
There are many ways that can help you determine whether or not your business can support your asset repayments. However, the key to managing your assets and finances in the most efficient way is knowing your finances back to front and choosing the right lender.
With Essex Lease, we don’t just want your business; we want to build a working relationship with you, so we’re going to ensure that your business can support your payments and give you the opportunity to grow. Your success is our success, too.
Contact Essex Lease today to find out more about our equipment financing services and how they can benefit your asset management.