Ever-Changing Economic Conditions
Ever-Changing Economic Conditions
Ever-Changing Economic Conditions Requires Fleets to Look at Financing Options - Aug 2013

Now may be the time to replace those older trucks with newer models and comfortable interiors to attract and retain qualified drivers, new engine technologies to gain greater operating efficiencies and fuel-saving components to improve fuel efficiency.

But with so many needs your company may have set aside during the recent recession and resulting credit crunch, what options should you consider in acquiring credit for new trucks and how do you go about choosing the right financing? Captive financing through PACCAR Financial can offer an option.

Consider Captive Financing

With expertise in transportation funding and its close association with Kenworth and Peterbilt, PACCAR Financial understands the value of the trucks and the specifications you choose. The company’s financing experts can work with you and your dealer to come up with the best financing packages to obtain those trucks.

PACCAR Financial can provide in-depth analysis to determine your company’s financing needs by looking at acquisition costs and equipment utilization. Its experts can then come up with a financing plan that employs options to meet your company’s business goals.

For example, cyclical operations like those of produce, grain or livestock haulers, or contractors and other construction-related businesses can benefit from the structured loans PACCAR Financial offers. Those loans give them the ability to pay more when their trucks are running and generating income – less when business is slow.

Obtaining financing for trucks has become easier recently because banks are flush with cash from the Federal Reserve’s policies of quantitative easing and a near-zero discount loan rate. However, banks don’t have the expertise that PACCAR Financial offers in providing a variety of financing options to meet different business needs, including fixed rate and variable rate loans and leases. With PACCAR’s A+ credit rating with Standard and Poors, PACCAR Financial can offer these financing options at competitive rates.

PACCAR Financial Offers Unique Options Like FMV Leasing

PACCAR Financial can also provide financing options that many banks simply can’t. Because Kenworth and Peterbilt trucks are in high demand in the used truck market, they maintain high resale values throughout the life of a lease. That allows PACCAR Financial to offer leasing options with attractive and competitive terms.

For example, PACCAR Financial offers a fair market value (FMV) lease option. FMV leasing allows your company to make a lower monthly payment than under a standard finance loan. The payment is based on the purchase price, the term of your lease and what PACCAR Financial estimates the truck will be worth at the end of the lease term. Your desired buying cycle, annual mileage and usage can also be factored into the lease payment. At the end of the lease, your company can just return the truck to PACCAR Financial and walk-away or purchase the vehicle for its fair market value.

Under current U.S. Generally Accepted Accounting Principles (GAAP), FMV leasing is not a capital lease. Therefore your company can operate with lower debt-to-equity ratios, which can facilitate other traditional financing with banks for other operating needs. Although changes in lease accounting rules being considered by the Financial Accounting Standards Board may alter how FMV leasing is handled in the years to come, so companies should discuss the implications of those rule changes with their accountants.

TRAC Leases Can Help Your Company Meet Loan Covenants

If your company wants to eventually purchase its trucks, another leasing option PACCAR Financial offers is a “terminal rental adjustment clause” or TRAC lease. This option allows your company to finance a truck with a set purchase price at the end of the lease. Through a TRAC lease, your company can acquire trucks with less upfront cash than would otherwise be required for financing under a traditional loan.

It’s not uncommon for companies to be operating under agreements called loan covenants. Generally, there are two types of loan covenants. One is an affirmative covenant, which can require borrowers to maintain certain financial ratios. The other is a negative covenant, which prohibits borrowers from engaging in certain transactions, like selling certain assets to raise cash flow.

Some banks have debt covenants that can narrow your company’s borrowing base, or the amount of money your company can borrow in relation to its accounts receivable.

That could be a particular issue for your company if your customers take longer than 30 to 60 days to pay invoices, or if your company sells off assets it deems as unnecessary or if it builds excess inventory in anticipation of a more robust market. PACCAR Financial can work with you to develop financing options that would not be in violation of your company’s loan covenants.

PACCAR Financial also offers a modified TRAC lease, which is similar to a TRAC lease except that your company would be partially responsible for the residual. Again, you should discuss these options and accounting treatment with your accountant.

Banks and other traditional financing institutions may be able to offer financing for your trucks but for how long and what financing expertise can they offer to further your company’s business goals? Operational flexibility includes having the right truck equipment that can help you control operating expenses and attract and keep good drivers. PACCAR Financial’s financing experts understand these needs and can offer you excellent alternatives to traditional forms of financing to meet them. On top of that you can preserve your company’s cash flow and lines of credit for other business needs.

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