With squeezed budgets now the norm rather than the exception, more municipalities, transit agencies, and private tour and charter bus operators are considering equipment financing to maintain their fleets in uncertain economic conditions.
Equipment financing provides a range of flexible solutions that can be customized to fit a variety of needs and circumstances, whether public transit systems or private fleets. For governments and municipalities, equipment financing is a turnkey way to bring simplified processing and budget control together as a solution, no matter how limited the funds. For private tour and charter bus businesses, equipment financing helps guard against equipment obsolescence; enables upgrading of fleets to meet new government environmental regulations; offers tax depreciation benefits; and provides flexibility in loan customization or lease terms to best meet their business needs.
Options for coach operators
Tom Giddens, president of Garden Grove, Calif.-based Pacific Coachways Charter Services Inc., used equipment financing in 2009 to acquire four motorcoaches, in part to meet new environmental regulations on engines set by the California Air Resources Board.
“With the high cost of buses, financing plays a major part,” says Giddens, whose 23-year-old company now operates an 18-unit fleet of seven buses and 11 motorcoaches. “I don’t know too many people who pay cash for them, or whether they should.”
The reasons for using financing vary, but one of the most attractive benefits for private tour and charter bus operators is the ability to preserve capital for other uses, especially in this era of tight budgets. With financing, owners and operators can acquire the equipment they need to stay competitive, but can also reinvest in their businesses and improve their budgeting accuracy with fixed monthly payments and no floating rates.
Equipment financing is also appealing because it provides protection from equipment obsolescence, which is increasingly important as the transportation industry faces additional environmental regulations on engines and equipment. In addition, equipment financing provides the additional benefits of 100% financing and flexibility in terms and end-of-contract purchases options.
Some of the most frequently used equipment financing options for private tour and charter bus operators include:
• Loan financing.
• TRAC (Terminal Rental Adjustment Clause) leases.
• Fair market value (FMV) or true leases.
Typically, a loan is the most popular equipment financing choice for customers who can use the depreciation benefit. If a customer does not need the depreciation benefit or doesn’t value the depreciation, then the TRAC lease is of value because it offers a lower rate.
TRAC leases are the most common type of leases for business owners who want the option of buying the vehicle for a pre-determined price at the end of the lease. By comparison, the FMV lease, or true lease, provides maximum flexibility and low monthly payments, with the option to purchase the vehicle at its fair market value at the end of the term.