Sale Leaseback Financing for Tow Trucks

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Do you own Sale Leaseback Financing for Tow Trucks or have a fleet of tow trucks? Do you need cash to finance business expansion or working capital? Are you having difficulty getting a loan or line of credit? If so, then a sale and leaseback of your existing tow trucks is a good option to put capital back into your business. It is a great way to get cash back into your business by using your existing assets.

A sale and leaseback program is popular in the real estate sector. It has also become popular in other business sectors too. The transport sector has also adopted sales and leasebacks as an effective way to monetize tow trucks and two-truck fleets to inject funds to take care of its business needs.

The principal benefit of a sale & leaseback program is that you can pledge the trucks to get cash while continuing to operate the trucks.

What is the sale & leaseback for tow trucks?

Tow trucks are a significant investment and you would have spent quite a bit of capital to buy them. These trucks are at the core of your business. Operating these trucks is the core of how your tow truck business earns money. And as an owner of a tow truck business, you would like to grow your business. This calls for funds, and sometimes raising funds is tough.

Generally, if you want a loan, you need to have a good credit history and strong financials to be eligible. In case you wish to get a line of credit, it calls for a good relationship with your banker. If you don’t meet these requirements, then raising funds could be a problem.

A sale and leaseback on your tow trucks will help you get the funds you need. With this program, you will sell your tow trucks to a lender. The lender would then enter into a leaseback agreement with you. As per the terms of the agreement, the tow trucks would be offered at a lease to you. This ensures the trucks remain with you, so you can keep using them in your business.

When you sell the trucks, the lender will offer you the money you need. Since a leaseback is executed, you need to pay the lender a lease amount every month. This is how you can use a sale and leaseback to get cash using your tow truck fleet.

How do sales & leaseback for tow trucks work?

A tow company can make full use of the sale & leaseback program to raise funds for its business. They can use it effectively for managing the life cycle of their trucks. Let us assume a scenario where a towing business has a fleet of trucks of different ages.

  • Trucks that are more than six years old can be sold and the money is used to purchase new trucks or for other needs.
  • Trucks that are one to five years old can be used to raise funds under the sale & leaseback program. Here, the leaseback period would be short-term (depending on when the truck was bought).
  • If there are trucks bought one year back, they can be leased for five years.

This helps in the effective management of the fleet’s lifecycle. By doing so, the trucks remain with the company and can be used daily. At the same time, funds can be generated through the lease agreement. These funds can be used either to buy new trucks, upgrade existing trucks, or for any other business purpose.

With an augmented fleet, the company can look forward to increased revenues. They can then use part of the revenues to pay the monthly lease amount. The truck sale & leaseback program would thus be very beneficial for truck companies.

This is how the sale & leaseback would work:

  • You need to find a lender with whom you will enter into the sale & leaseback arrangement. The best way to do this is to talk to different lenders and find out their terms. You can negotiate with the lenders to get the best terms. Sign up with the lender who offers the best terms. The terms here refer to the amount of money you get for the tow trucks. Also, you need to be clear about the monthly lease payment to be made and the duration of the lease.
  • Before finalizing the terms, the lender would carry out a valuation of your tow trucks. The truck valuation is done based on factors like the age of the truck and its condition. You cannot expect a valuation at market price. The price fixed would be less. Further, the amount you get will be less than the valuation. This is standard practice in sale & leaseback programs.
  • Once all the terms are finalized, you can sign the agreement with the lender. The agreement comes into effect and the sale takes place. In return, you get the money you need for your business.
  • Along with the sale, the leaseback also comes into effect. Both the sale and leaseback happen immediately. You first sell the trucks to the lender who then transfers them back to you under a lease. From being the owner of the truck fleet, you are now the lessee. The lender becomes the lessor who is offering you the lease.
  • In exchange for the lease, you need to pay a lease amount every month. This needs to be paid for the entire duration of the lease. All these are outlined in the sale & leaseback agreement. You must understand the terms of the agreement clearly before signing it. Consulting your accountant or an attorney would ensure the terms are favorable to you.
  • You must make the monthly payment on time. You need to plan your finances such that you have sufficient money to pay the lease amount. Failure to pay this amount can lead to serious consequences. If you default on the payment, the lender has the right to repossess your truck. The lender can then sell the trucks and recover the money lent to you.
  • A question you may have is – “what happens on completion of the term of the lease?”. Since the truck would now be old, you would not have any need for it. The truck can be disposed of, and it would be the responsibility of the lender (who is the owner) to dispose of the truck. Depending on how the agreement is made, the truck may come back to you and you can then sell it.

Benefits of sale & leaseback of tow trucks

There are many benefits to making use of the sale & leaseback program for tow trucks. These benefits explain why this program is very popular.

1) Cash for the business

A prime benefit you get from sale & leaseback programs is that you get ready cash. Whenever a business needs cash for its operations, it looks at financing options. Sale & leaseback is an excellent way to raise funds. You can use the money to grow your business.

2) You retain the vehicles

Even though there is a sale aspect involved, the sale is followed by a leaseback. As a result, the vehicles continue to be with you. The tow trucks don’t have to leave the premises of your business. The only change is you are not the owner but the lessee. You can continue to use the trucks for your business.

3) Off-balance sheet funding

You can remove the tow trucks from your balance sheet by making use of the sale & leaseback program. Since the trucks are assets that depreciate, it makes sense to do this. Doing this can help improve your accounting ratio and can help in your financial management. More importantly, you can get credit lines easily thanks to the improved balance sheet.

4) Budgeting is easier

Budgeting becomes easy with this program. There are no hidden costs or additional charges involved. The lease payment amount is fixed, and you know in advance how long you have to make the payment. This helps you make a budget and plan your finances effectively.

5) Reduces your risk

Your risk is reduced when you enter into a sale & leaseback arrangement. The responsibility of the tow trucks is now with the lender. When the time comes to dispose of the trucks, the lender who is the lessor has to take care of it. The risk of fluctuations in the residual value has to be borne by the lender.

6) You benefit from the lessor’s expertise

The lessor or the lender would have executed many such sale & leaseback arrangements. You can benefit from their expertise by ensuring the transaction happens smoothly. The responsibility of the tow trucks would be with the lender, and you can be assured that their expertise would lead to better fleet management.

The many benefits of this arrangement explain why you should take advantage of this program. Contact a lender to get into a sale & leaseback for your tow trucks and raise funds.