We get it – running a business is tough! You must consider the day-to-day operations while continuously looking for innovative ways to set your business apart from the competition. And choosing to fleet lease cars or trucks for your business may be the perfect way to create the all elusive competitive advantage.
What Is Business Fleet Auto Leasing?
Business fleet leasing offers you the flexibility to tailor each of your vehicles to the exact needs of your company. It’s similar to renting a vehicle. But instead of keeping the vehicle for a week or a few days, you can customize your lease to last two, three, four, or more years.
Once the lease ends, you’ll have the option to keep the vehicles and purchase them at market value or return the vehicles to the lessor. Business fleet leasing typically offers lower monthly payments because you’re only paying for the portion of the vehicle you’ll use — instead of paying for the entire vehicle.
Fleet Auto Leases Offer Flexibility
When you decide to lease a fleet of vehicles for your business, you have the option to customize the lease to your specific needs. In general, you can choose between two different types of leases: open-ended leases and closed-ended leases.
Open-Ended Fleet Leases for Businesses
Open-ended fleet leases start with a minimum lease term of usually a year. After the initial leasing term ends, open-ended leases allow a variety of flexible monthly options based on your preference.
At the end of the lease, you have the option to sell the vehicles. If the sale renders less than the predetermined value of the vehicles, you may be required to pay the difference. If the sale generates more, the lessor may be required to pay you.
Open-ended fleet leasing is especially attractive to those looking to keep the vehicles for longer periods or upfit the fleet to meet a specific business need.
To make budgeting even easier, many open-ended fleet leases allow you to choose:
- A fixed rate lease that locks in your monthly payments, or
- A floating rate lease that is an attractive option in an environment of decreasing interest rates.
Closed-Ended Fleet Leases for Businesses
As the most common type of lease, closed-ended fleet leases have a fixed monthly payment, fixed term, and will usually include a predetermined number of allowable miles. In the event you’re unsure about the mileage, you can customize your lease to the unique needs of your business:
- An unlimited mileage program is a popular choice if you expect significant travel or out-of-state travel.
- A mileage credit program will pay you credits at the end of the lease for any miles you originally contracted but didn’t use. With the mileage credit program, you’ll only pay for the miles used.
At the end of a closed-ended fleet lease, you simply turn the vehicles back in or purchase them. The fleet management company or dealership assumes any type of risk associated with selling the vehicle and depreciation.
Whether you choose a closed-ended or open-ended fleet lease will depend on your business needs and objectives. In either case, it is important to conduct an intuitive analysis prior to deciding.
How Can Fleet Auto Leases Make Dollars?
As the old adage goes, a penny saved is a penny earned; and business auto leases can position you to save/earn much more than mere pennies. We’re talking balance sheet-altering dollars. Check out how business fleet leases can save and earn your business money.
Preserve Working Capital with Auto Leases
When you choose fleet leases for your business, your monthly payments will be lower than if you purchased the vehicles outright. This allows your company to preserve and redirect precious working capital for more stringent day-to-day business expenses, unexpected business expenses, or to fund expansion.
Create More Attractive Balance Sheets
When you preserve working capital with lower monthly lease payments, it will be viewed as a business expense instead of massive capital debt. And less balance sheet debt will make your business more attractive to banks, credit unions, and other financial institutions. In the end, fleet leases represent a win-win scenario for businesses.
Leases Offer Lower Maintenance and Fuel Costs
In addition to lower monthly payments and balance sheet allure, leasing a fleet of newer vehicles means fewer visits to gas pumps and repair shops. Engineered with more modern, fuel-efficient technology, today’s vehicles can go much further on a single tank of gas.
At the same time, the newer equipment is more reliable and will have fewer mechanical failures. Even if there is a breakdown, the manufacturer’s warranty covers the repairs. This means no out-of-pocket costs to you. It also means your fleet of vehicles will spend more time on the road with lower fuel costs and lower maintenance costs compared to older purchased vehicles.
And this isn’t just theory. For example, St. Lawrence County in New York City decided to lease 23 vehicles for its Highway Department in 2016. Medium-duty trucks, half-ton pickups, and sedans comprise these service vehicles. The county leased these vehicles to replace the oldest vehicles in their fleet. Their results were stunning:
- While the older purchased vehicles cost St. Lawrence County approximately $30,000 each year to maintain, the newer leased vehicles only cost $2,000 to maintain.
- The older vehicles averaged around $50,000 in fuel every year, but the newer leased vehicles used less than $25,000 in fuel costs.
Many fleet lease agreements either include or offer convenient maintenance options, which can further reduce the cost of ownership by anywhere from 10 to 20%.
Save on Administrative Costs
Who actually enjoys additional paperwork? Since most businesses don’t, leasing a fleet of vehicles may be the ideal way to reduce administrative tasks and associated costs. When you lease vehicles, your business isn’t on the registration, title, or property taxes owed.
This means you can say goodbye to license and tag renewals, property taxes, payment of title retention, and a bevy of other costs. Instead, the leasing company handles these administrative functions.
Special Treatment Under Section 179
Section 179 allows you to deduct the full cost of qualifying leased vehicles from your company’s gross income to reduce overall tax liability. This incentive was designed to spur growth within the small business sector by giving owners an incentive to lease or buy equipment and invest back into the growth of the business.
Here’s how it works: once you lease a fleet of vehicles, you may be able to deduct the entire price of the vehicle up to $500,000 per single purchase and a total lease up to $2,000,000 each tax year.
You need to ensure the vehicles you’re purchasing do qualify, but the key caveat is the vehicles must be purchased and put into service within the tax year. To learn more about the specific vehicles that qualify for Section 179, visit the IRS Guidelines for Vehicles.
Special Tax Treatment of Leases
Even if the vehicles you need do not qualify for Section 179, leases have favorable tax treatment. Leases may allow you to deduct your monthly payments as operating expenses during the period you pay them. However, when you purchase a vehicle, you’re only able to deduct interest and cost of depreciation.
Many Leases Do Not Require Large Down Payments
If you’re like most small businesses, you don’t have wads of cash simply lounging around. This makes fleet leases wildly attractive for a growing number of businesses. When you finance a fleet of vehicles, you’ll most likely be required to put up a significant amount of cash. In contrast, some leases do not require down payments, while virtually all fleet car loans will.
Why Do Auto Leases Make Sense?
In addition to saving your business money, a business fleet lease can also assist with key strategic business initiatives.
Attract and Retain Top Talent with Leased Vehicle
As a small business, your ability to attract and retain top talent is critical to your success. Some companies simply provide mileage reimbursement to their road warrior employees. But more progressive companies are finding immense benefits in recruiting, increasing productivity and bolstering morale by offering a company-provided vehicle.
As a matter of fact, Automotive Fleet Magazine reports prospective employees perceive company vehicles as important as pension benefits or health care coverage. Moreover, a GE Capital 2014 study revealed:
- 64% of company vehicle drivers are less likely to search for a new job and leave their current job due to the company vehicle program.
- 87% of company vehicle drivers said they wouldn’t consider performing their role at another company that didn’t provide them with a company vehicle.
Amplify Your Advertising with Fleet Vehicle Leasing
Almost every company spends major capital promoting and advertising their services, products, and other key messages. However, a consistent, uniform fleet of leased vehicles can exponentially amplify your efforts in a cost-efficient and effective way.
You can make your business visible to thousands of people each day with the right branding elements. A uniform fleet of leased vehicles with simple branding elements can serve as an around-the-clock moving billboard for your company. According to a study conducted by American Trucking Association, the advertising impact can be astronomical:
- 91% of people that notice ads mounted on the sides of vehicles are able to recall the information days later.
- Vehicles are the ideal way to provide mobile, targeted coverage over an entire marketing area.
- 96% of respondents suggested fleet graphics had a bigger impact than other types of outdoor media, such as billboards.
- Retail and business customers see your vehicle branding elements, such as graphics or decals.
- 98% of consumers suggest fleet graphics created a positive image for the company.
- A wrapped vehicle generated over 65,000 visual impressions in a major city and over 30,000 impressions in suburban areas.
Your advertising is always visible — whether the vehicle is parked at a gas station or traveling on the freeway. This is an unparalleled benefit not offered by direct mail or broadcast media.
Fleet Leasing Can Bolster Your Brand Image
Since you never get a second chance to make a first impression, a fleet of leased vehicles can communicate volumes about your brand to would-be customers. As a matter of fact, the previously mentioned American Trucking Association survey found one-third of people would base their buying decision on the impression they got from the vehicle.
This bias can primarily be attributed to the messaging communicated by a newer, more technologically advanced vehicle. While appearance isn’t everything, it’s essential when it comes to trying to win a customer’s business.
Fleet leasing is also an excellent way to demonstrate your brand promise. For instance, leasing a fleet of hybrid or electric vehicles can communicate your promise to greener, more earth-friendly solutions. Or leasing a fleet of luxury vehicles could be used to communicate your organization’s financial health and strength.
Business Car Leasing Makes Dollars and Sense
It’s not every day you’re presented with an innovative business solution that makes both dollars and sense. As a win-win solution, fleet auto leases offer the flexibility to customize the terms to the exact needs and goals of your business. Once you decide whether you want an open- or closed-ended fleet lease and the terms, your balance sheet will thank you.
Countless businesses and municipalities have slashed fuel costs, maintenance costs, and administrative costs through fleet leases. When you select the right vehicles, choosing a business fleet lease could be the most profitable decision you make this year.
Why? Because the amount you’re allowed to deduct under Section 179 will virtually always exceed your actual cash outlay for the year. Even if you didn’t claim the Section 179 deduction, the favorable tax treatment of auto leases makes them an attractive solution.
Outside of the financials, fleet auto leases have proven to be a powerful recruitment and retention tool for top talent. You can also give your marketing and branding efforts new wheels throughout your footprint.
In the end, there are very few business investments you can make with the potential upside and limited downside of fleet business leases.