Not all leases are built the same and depending on overall needs, there are three main options to choose from. - Image: Terex

Not all leases are built the same and depending on overall needs, there are three main options to choose from.

Image: Terex

Telecom and utility providers are critical to our infrastructure, but many co-ops and municipalities are faced with making short-term decisions focused on cash management.

The following frequently asked questions were posed to the Terex Financial Services team to help fleet operations managers better understand their options for maintaining as much financial liquidity as possible without compromising investment in mission critical equipment.

Q: Historically, we are a cash buyer of utility equipment. I have been charged with maximizing cash flow in order to build up cash reserves for emergency use. What are financing options that will allow me to do that while maintaining my fleet purchase plans?

“If you have concerns, it is important to be proactive to establish the financing options available to you,” said Al Herndon, Financial Services Business Partner for Terex Financial Services. “Terex Financial Services can offer lease and finance options that include deferred and skip payments to keep your fleet replacement cycle on track,” he said.

Terex Financial Services offers three kinds of leases:

  • Fair Market Value Leases, also known as Operating Leases, can lower monthly payments and give you end of term flexibility, allowing you to update or replace equipment more often. In addition, lease payments may be tax deductible, and we encourage you to consult with your tax adviser where applicable. Generally, this option has the lowest monthly cost.
  • TRAC or Split TRAC leases refers to Terminal Rental Adjustment Clause and is used for over the road equipment. This lease has a set residual at lease end, which gives you the option to have a fixed buyout while still having the option to return at lease end.
  • Capital Leases allow the lessee to show the equipment on their balance sheet and claim depreciation.  This is a common lease for municipalities that look to pay for their capital equipment over time. Lease can be set up with annual payments to mirror annual budget.

Q: Is leasing a more cost-effective way to acquire fleet than cash purchase?

“It is important that the fleet manager considers the true cost of using and maintaining a piece of equipment over its life. The longer you keep equipment, the greater the maintenance costs. Sometimes, it is actually less expensive to lease equipment,” said Herndon.

Another benefit is that a new warranty is issued each time equipment is replaced, potentially saving out of pocket expenses for downtime and repairs. Leases also eliminate costs associated with disposal and transfer of equipment at the end of its life.

Q: I currently have equipment on order. What are the repercussions if I decide to delay purchase or delivery?

During times of crisis when cash flow is a concern, investment in capital equipment is often postponed. However, it is important to balance that with capital investments that are necessary for supporting essential infrastructure, and to consider what equipment will be needed on the rebound.

“The electric utility industry is considered a critical infrastructure industry. The need to maintain your fleet does not change, nor does the need to have a reliable fleet. Co-Ops and municipalities should be cautious of adjusting their buying cycle. Delays now could mean long lead times later,” said Jamie Gibson, Global Director, Terex Financial Services.

Originally posted on Work Truck Online

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