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Financing Plans That Work

TORONTO, Ont. - Making the transition from company driver to owner/operator can be one of the most gratifying experiences for a professional driver. Nothing matches the feeling of driving your own tru...


TORONTO, Ont. – Making the transition from company driver to owner/operator can be one of the most gratifying experiences for a professional driver. Nothing matches the feeling of driving your own truck off the lot and it’s tough to beat the independence that comes with managing your own business.

But your foray into the world of independent trucking could be doomed from the start if you don’t properly finance your first truck.

Before buying your first rig, you must first determine if being an owner/operator is a smart decision. While owning your own truck may provide the independence and flexibility you desire as a professional driver, remember this sobering statistic: An estimated 60,0000 North American O/Os went broke in the first two years of this century alone because they weren’t able to cope with rising fuel and insurance costs.

There are, however, many successful owner/operators who have built a lucrative life for themselves – largely because of smart decision-making that starts before you even spec’ out your first rig.

Ian Loveless, managing director of DaimlerChrysler Truck Financial, says truck buyers “need to have a really good understanding of what it means to be in the trucking business – and that comes from a personal lifestyle standpoint and a financial standpoint.”

Most prospective owner/operators already have a driving background, but that doesn’t mean they will automatically be successful as owner/ops. Loveless suggests that drivers do their homework before even setting foot in the dealership by interviewing current owner/operators – both newbies and veterans.

“They can do research and the best way they can do it is to go talk to some of the owner/operators that exist out there today,” stressed Loveless. “If they’re really doing it right, they will talk to a mix of guys who have been doing it for a while as well as people fairly new to the business.”

This will allow prospective O/Os to gain a truer sense of the job and determine if newcomers get the same treatment as veterans when it comes to load distribution, etc. Once you’ve decided to take the plunge, it’s time to write a detailed business plan. For this, “You need to understand what the job is paying and the financial elements of the job,” explains Loveless. “They have to understand what they’re earning and the types of expenses they’re going to face.”

Owner/operators should also put a lot of thought into the type of company they want to contract their services to and the lifestyle that it entails. Long-haul, short-haul, day-trip and vocational are just a few options available and each can deliver widely varying pay scales and lifestyles. The application you decide to pursue will also affect your truck purchasing decision.

Finally, before buying your first truck, you must ask yourself ‘Am I disciplined enough to be an owner/operator?’ Lack of discipline has led to the demise of more than one driver turned owner/op.

“We often hear of the guy who has been a driver and gets a steady paycheck. Then when he gets his own truck, he receives a very large check at the end of the month and that looks awfully good,” Loveless points out. “Some of the guys don’t realize they’re not working in a salaried job anymore. They’re running a business now and that large check has to cover fuel and insurance, and he has got to make some allowances for future repairs and services. There are a lot of expenses that come along with this business that he’s got now.”

Once a driver decides he or she would make a good owner/operator, it’s time to find a vehicle and secure a financing package.

Richard Thomas, national director, marketing and product development with Markel Insurance (Markel offers a value-added equipment financing service for customers, called Simplus) says some potential O/Os visit the dealership with a want-list that is deeper than their pocketbooks. He suggests spec’ing a practical truck.

“Ensure you are financing the equipment you truly need,” he advises. “In our experience, all too often owner/operators are buying or leasing equipment that is far more than they actually need in terms of engine size and all kinds of options. Be very pragmatic about the equipment you are acquiring.”

Markel suggests drafting a list of spec’s that reflect your equipment needs and features that are consistent with realistic expectations for growth in the foreseeable future.

When you find that perfect rig, Thomas also suggests shopping around for the best financing package available. While most dealers will point you towards their own financing partners, remember this is one of the biggest purchases you’re ever going to make and it doesn’t hurt to get multiple quotes.

“Don’t accept the first quote that the retailer or manufacturer provides,” he says. “We suggest our policy-holders go in there armed with competitive quotes that give context to the offer the dealer would provide if the dealer provides financing.”

He also cautions against letting a financing offer impact your purchasing decision.

“We believe you should find the equipment first and financing second, and not let financing push your equipment decisions,” he says.

When choosing a finance company, there are no shortage of companies willing to lend you money (provided your credit is good). However, choosing a finance company that’s intimately familiar with the trucking industry will likely provide you with more flexibility and peace of mind.

“Whenever you have a lender who understands your business, it certainly helps the conversation and helps both parties get to the right place in terms of the contract agreement that gets stated,” points out Thomas.

Loveless agrees.

“The banks don’t have the depth of expertise with the trucking business,” he says. “They typically lend money on the basis of assets, so often times the bank will require the owner/operator to post additional assets (such as his or her house). We don’t do that.”

Another consideration is that banks will typically demand equal monthly payments for each month of the year. That may work for some owner/ops, but what if you’re in a seasonal segment of the industry such as logging?

“Not many equipment financing providers provide seasonal payment fluctuations. They tend to like to divide the annual payments by 12,” says Thomas. Most lenders who deal exclusively with trucking will allow ‘stepped payments’ so O/Os can pay more money during peak operating months and less when the truck is parked (such as during spring break-up for loggers). Loveless says DaimlerChrysler Truck Financial uses its knowledge of the trucking industry to customize customers’ payment schedules. Case in point, when a customer buys a new truck he or she must pay the GST up front. That is refundable, but not until the O/O signs up to receive a GST registration number – a process that typically takes a few months.

“We will not demand the GST portion up-front,” says Loveless. “We will balloon that into the fourth month, that way he can file that and get that check first.”

(Of course, customers should first be sure they aren’t in arrears with Revenue Canada, otherwise the feds will hold back that GST refund leaving the owner/operator scrambling to meet that fourth payment).

Lenders that work exclusively within the trucking industry are also more inclined to re-work a deal if your situation changes – say, for instance you are hauling paper products and the mill you’re contracted to shuts down.

Other considerations when choosing a financing package should include the size of the down payment. Down payments range from 0-100% – work with your lender to determine what makes the most sense for your situation, Thomas advises.

“What would you be comfortable paying on a regular monthly basis for the duration of the equipment?” asks Thomas. “How long do you want your payments to be? Some owner/operators want the smallest monthly payments they can possibly negotiate and that means a longer term. For some of them, that work
s.”

However, with low monthly payments and a small down payment, you do run the risk of getting flipped “upside down” – when your truck is worth less than the amount owing on it.

In other cases, drivers want to pay for most of the truck up front. What it comes down to is working with your lender as a business partner and hammering out the financing package that has the most positive effect on your cash flow.


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