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Benefits of Leasing Shred Trucks


Document destruction companies hoping to acquire new shred trucks — whether they are just starting up or to expand their business — may find it a bumpy road when it comes to obtaining traditional bank financing, regardless of the nation’s economic health. Terry Lee, a veteran in the truck leasing industry and truck building industries, says leasing could be the answer.

“I’ve been in the industry for 30 years and have seen a lot of changes,” says Lee, the business development manager for Denver-based Trans Lease. “But the one common element is that people need to finance equipment — trucks and trailers — and leasing has been a popular means of doing that throughout my entire career.”

Shelby Sparlin, general manager at Desert Document Shredders & Records Storage in Yuma, Ariz., agrees that leasing makes financial sense.

“When we first started DDS, we did consider financing the truck through a bank . . . ” he says. “The bank wanted too much money up-front and the payments were ridiculously high.”

Rather than deal with a bank, Desert Document Shredders leased a truck when it first started up in 2007 through Trans Lease. As the business has grown and expanded — it serves a four-county area and shreds about 60,000 pounds of paper each month — it has upgraded the truck twice since, leasing through Trans Lease each time.

Trans Lease serves the transportation industry, providing financing and leasing of trucks, trailers and specialty vehicles, such as shred trucks, to customers throughout the United States and Canada.

Started in the early 1990s, Trans Lease initially focused on supporting its own truck dealerships, including Freightliner, GMC and Western Star. It subsequently diversified into the specialty truck area, establishing ties to manufacturers of those vehicles to assist their customers with leasing or financing.

Trans Lease works with all the manufacturers of shred trucks to assist document destruction company customers with leasing and financing.

“The benefit to them [manufacturers] is we come in and understand their business,” Lee explains. “We get a good understanding of their business, of the industry, the business model, the product, the truck itself, and then can get comfortable as a lender with writing a lease or a loan to either a new venture or an existing established business,” he says.

“We can come in and partner with them and offer financing to their customers, which they typically may not be able to get through a traditional lender such as a bank,” he adds. The difficulty of obtaining financing from a bank was especially true during the recession.

“During the economic turndown, banks were more hesitant to make loans and extend credit, even to customers who were well established and had strong banking relationships,” Lee notes. “That was never the case with us. We continued to offer leases and financing to customers. That’s all we do.”

The result was that Trans Lease became a go-to source for businesses that needed to add or replace trucks.

“Without question, we saw an upturn on leasing shred trucks to the document destruction industry,” he says. “It’s an alternative to traditional bank financing and it’s easier for the companies to acquire a lease than through a traditional loan through a bank.”

Trans Lease today has grown to be among the top 80 of all independent finance companies in the U.S. and ranks ninth of independent companies in the transportation finance area, according to Monitor magazine. Trans Lease has a fleet of more than 5,000 units.

Lee cites numerous advantages of truck leasing for businesses, including those providing document destruction services. Those advantages include lower entry cost, less initial investment and reduced monthly payments.

“You put all those together and it makes an attractive package for a business owner who needs to replace equipment or add equipment,” he says.

His comments are echoed by Sparlin and others in the leasing industry, both in the U.S. and overseas.

“What prompted us to lease a shred truck was lower payments as compared to doing a traditional loan with a bank,” Sparlin says. “I would agree with what Terry said as there is a lower entry cost, lower initial investment and lower monthly payments.”

The Finance & Leasing Association, a leading UK trade association, provides a similar list of benefits for leasing.

Among the benefits it cites:

  • To buy a new piece of machinery or equipment can be costly and requires substantial capital. Leasing enables businesses to preserve precious cash reserves.
  • The smaller, regular payments required by a lease agreement enable businesses with limited capital to manage their cash flow more effectively and adapt quickly to changing economic conditions.
  • Leasing also allows businesses to upgrade assets more frequently ensuring they have the latest equipment without having to make further capital outlays.
  • It offers the flexibility of the repayment period being matched to the useful life of the equipment.

Lee agrees that leasing also allows customers to free up funds for other things. Sparlin concurs.

“Leasing has freed up a lot of funds for other needs,” Sparlin notes.

“Leasing doesn’t encumber customers’ existing bank lines . . . so they keep their credit lines freed up for other purchases they might need for their business or to assist them in the growth of their business,” Lee explains. “So there’s a benefit there as well.” “Leasing complements existing bank lines by keeping them open for short-term needs,” Trans Lease notes on its website. “Often leasing provides lower and more flexible terms than borrowing. Leasing is not meant to replace bank lines of credit, but to add a new dimension to financial planning.

“A lease-versus-purchase cash flow analysis usually shows a lease to have lower cash outlays during the early periods of an asset's useful life and higher outlays in the later years, while a purchase reflects the reverse,” it explains. “With the capital freed up during those years, leasing can also represent the most economical means of acquiring the use of the asset. Conserve your cash for other needs. There is no need to pay cash to acquire equipment you need and want.”

Trans Lease works with customers to assess their specific needs, then tailors a lease to meet those needs. That was a big reason why Document Destruction Shredders opted to lease through the company.

“We leased with Trans Lease because they were willing to work with us,” Sparlin explains. “They understood our situation with being a start-up business. After explaining our situation, they were able to tailor the lease to our needs which, in turn, made it very affordable to get our business up and going.

“Trans Lease did understand the needs of the document destruction industry, which is why we have stayed with them,” he adds.

A lease can run as long as 72 months, with the most popular term for shredding companies being five years.

The most popular lease offered is the TRAC (terminal residual adjustment clause) lease, which provides a residual value, typically 20 percent to 30 percent, at the end of the lease. At the end of the lease, the lessee has several options, including simply turning in the truck or buying it at the predetermined residual value, which Lee says is typically below market value.

A lessee also has the option to trade in the truck to a willing truck manufacturer or to sell it outright; if the price received is more than the residual, the lessee pockets the amount above that residual. If the truck is sold for less than the residual, the lessee has to make up the difference at the payoff to Trans Lease.

“A truck is going to be worth more than 20 percent or 30 percent if it was properly maintained,” Lee notes. “With the TRAC lease, customers know going in exactly what they can buy it for. They typically have equity at the end of the lease, so most customers are going to buy the truck because there’s value there for them.”

Leased shred trucks are covered by the chassis manufacturer’s factory warranty as well as the warranty from the shred truck manufacturer. All maintenance, tires and repairs, except those covered by any factory warranties, are the responsibility of the lessee.

Some companies may prefer a shorter lease to ensure their vehicles remain under warranty while they operate them. Leasing shred trucks also allows companies to keep up with any changes in technology.

Lease payments can be deducted as a business expense on tax returns.

While Trans Lease also offers loans, the vast majority of its business, roughly 80 percent, involves leasing, according to Lee.

That’s hardly surprising as businesses look for ways to operate more cost-effectively. U.S. Bank in Cincinnati, for example, reports that leasing of big-ticket items, including trucks, manufacturing machinery and medical equipment, has tripled over the past year. “There's nothing mysterious about leasing,” Trans Lease notes. “Leasing is merely using property for an agreed-to period of time for an agreed-to schedule of payments.”

Document Destruction Shredders plans to continue expanding it business, adding at least one more shred truck. When that time comes, Sparlin says, “yes, we do plan on leasing them . . .”

(For more information about Trans Lease, visit its website at http://www.transleaseinc.com)

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