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Fleet Management

What Is Fleet Leasing And How Does It Work?

fleet leasing

Acquiring the right vehicles to keep your business running and profitable can be an expensive endeavor. Fortunately, fleet leasing can help.

In this article, we discuss how fleet leasing works, the benefits it has to offer, and the best way to fuel that fleet once it’s on the road.

Table Of Contents

Two Paths To Fleet Operation

Fleet operation (a.k.a. fleet management) starts with acquiring the vehicles your business needs to be successful.

Depending on the type of company you run, your fleet may consist of anywhere from five to 500 different types of vehicles. But regardless of the type of vehicles your business uses, there are two options available for acquisition:

  • Ownership
  • Fleet leasing

Ownership involves purchasing the vehicle or vehicles yourself and taking on the responsibility of keeping everything in good working order, maintaining government-mandated paperwork, ensuring compliance, and verifying that repairs are done correctly and in a timely manner.

Purchasing a fleet outright is a major up-front expense and introduces a lot of variables that your business may not be ready to handle.

That’s where fleet leasing comes in.

What Is Fleet Leasing?

A fleet of electric yellow delivery vans are parking in front of green trees.

Leasing is similar to renting, but the former is structured more toward the long term, while the latter is structured more toward the short term. For example, a lease contract may last a year or longer, while a rental contract involving a vehicle may only last a week or two.

With fleet leasing, Company A (the owner of the vehicles) and Company B (your business, for example) enter into a contract whereby Company A charges Company B a certain dollar amount in exchange for the ongoing use of one or more vehicles.

Again, this is similar to leasing a single vehicle for personal use but often involves multiple vehicles and different types of rolling stock.

How Does Fleet Leasing Work?

Woman learning about Fleet Leasing

It’s important to note that most fleet leasing companies have a minimum number of fleet vehicles you can lease and, as a result, may not work for some small businesses. Be sure to check this requirement for any company you’re considering.

Depending on what the leasing agency has to offer, you can choose to lease multiples of the same vehicle — work vans, for instance — or mix and match cars, vans, and trucks according to your business needs.

Once you choose your vehicles, you’ll work out the terms of the lease agreement. That brings us to the two types of contracts available: open-end and closed-end.

Open-End Lease

An open-end lease is ideal for companies with short-term fleet leasing needs. In most cases, the initial contract ends after one year, but your business can choose to keep the vehicles on a month-to-month basis after that.

The advantage of an open-end lease lies in the fact that your business gets the vehicles it needs with no long-term commitment.

The disadvantage of an open-end lease lies in the fact that it won’t always include vehicle repairs and maintenance, especially after the first year.

Open-end leases may also include a terminal rental adjustment clause (TRAC). Such clauses hold your company (the lessee) responsible for ensuring and maintaining the vehicles’ defined resale value.

If the actual resale value is less than the defined resale value, you are required to pay the difference. That can add an extra and unforeseen expense to the existing contract.

Closed-End Lease

A closed-end lease is geared more toward companies with long-term fleet leasing needs. In most cases, the initial contract is in effect for a minimum of three years or more. Because of that extended time frame, a closed-end lease will cost more than an open-end lease.

In addition to the increased price, a closed-end lease may include such caveats as a mileage restriction or a location limitation (e.g., the vehicle is prohibited from traveling outside a certain radius).

There are, however, significant benefits to a closed-end lease if your business will need the vehicles for more than a single year.

Many closed-end leases include repairs and maintenance in the premium so you (as the lessee) do not have to pay out of pocket for those types of expenses.

Similarly, most closed-end leases don’t include a terminal rental adjustment clause. You may pay higher monthly premiums, but this extra money covers the costs for normal depreciation, wear and tear, and other resale value adjustments.

Benefits Of Fleet Leasing

Man enjoying the benefits of fleet leasing

1) Lower Initial Costs

One of the most significant benefits of fleet leasing is the lower initial cost your business will have to shoulder. Purchasing vehicles outright — buying them new or even used — may be more of an expense than your business can handle.

Leasing the vehicles you need to get things started can give your business time to save up to purchase its own fleet (if that’s your goal). And in some cases, long-term leasing may make more sense than trying to purchase vehicles.

Whether you eventually want to own your own fleet or you want to use someone else’s vehicles for the life of your business, leasing is a great way to keep costs low at the start.

2) Reduced Tax Burden

Another benefit of fleet leasing is that such vehicles are not considered corporate assets by the IRS. Because your business doesn’t own the vehicles, you don’t have to report them as assets or debts on your annual taxes.

Instead, the IRS considers leased vehicles — and the payments you make to operate them — a business expense. That small switch from asset to expense can significantly reduce your overall tax burden and help preserve your bottom line in the long run.

3) Maintenance Handled For You

Auto repairman explaining car engine malfunction to a businesswoman in a workshop.

Depending on the type of leasing contract you agree to, maintenance and repair costs may be included in the premiums you pay. In many cases, maintenance and repairs are even handled for you by the leasing company.

You don’t have to worry about finding a qualified mechanic or ensuring that the repairs are done correctly and are up to spec. Since the leasing company still technically owns the vehicles, they are responsible for keeping them roadworthy and in good working condition.

4) Lower Labor Costs

Some businesses that own their own fleets also employ staff to care for the vehicles. And, since labor costs are one of the highest expenses that most companies have to contend with, maintaining a team of mechanics can get quite expensive.

But, as we mentioned, often when you lease your vehicles, the leasing agency handles maintenance and repairs for you.

As a result, your business will be able to operate with less staff, and you can avoid the extra expense of paying employees to care for your vehicles.

5) Management Support

Leasing vehicles through an established provider gives you access to a number of fleet-management support tools, including:

  • Mileage tracking
  • Location tracking
  • Insurance claims assistance
  • Repair assistance
  • Fuel expenditure records
  • Maintenance reminders and recommendations

Help such as this can remove a number of the speedbumps that come with fleet management, boost productivity for fleet managers, and enhance the workflow for support staff and drivers alike.

6) Improved Business Image

The vehicles you choose to put on the road can have a positive impact on the way the public views your business.

Fielding a fleet of attractive, dependable, and well-maintained vehicles goes a long way toward establishing a professional and reputable image and brand within your community.

Fleet leasing can make that easier to achieve. When you contract with a vehicle provider, you can choose how long you want to keep the vehicles after the initial contract has expired.

So, if the vehicles are still in good shape, you may decide to keep them as part of your fleet. If, however, the vehicles are starting to show their age and mileage, you can switch them out for a newer model with lower mileage.

7) Access To The Right Vehicles

Commercial leasing companies can locate vehicles both locally and from other parts of the country.

So, no matter your business’s needs and requirements, a leasing agency can typically find exactly what you’re looking for.

Access to a larger pool of vehicles may, in some cases, even lower your overall cost of maintaining the fleet. Commercial providers can often find well-maintained, used vehicles so your business isn’t forced into paying a premium for brand-new ones.

8) Roadside Repairs

Some fleet leasing programs come with the option to add roadside repairs to the list of services that you include in your policy and pay for in your premiums.

Such a resource can be invaluable in the case of a breakdown or an accident and is especially useful for fleets that travel large distances away from their home office.

If a vehicle breaks down four states away, the leasing program will likely have a list of service providers you can contact to help your driver get back on the road.

If your fleet stays largely in one geographic area (e.g., a city or county), you might not need to include this option in your lease because you’ll have your own list of service providers you can call on for roadside repairs.

Talk to a fleet leasing agent to see if this option is right for your business.

9) Less Stress For Business Owners

pile of paper

Fleet management comes with a lot of responsibilities, including taxes, license renewals, maintenance paperwork, compliance, and a long list of others. Keeping track of all that can be too much for one fleet manager to handle.

Many fleet leasing companies will handle a large portion of the paperwork for you. Some even go so far as to monitor the condition of your vehicles in order to keep all government-mandated reports and to ensure that maintenance and repairs get done in a timely manner.

By outsourcing much of the vehicle monitoring, maintenance, and compliance to the leasing company, fleet managers can reduce the stress and strain on business employees, save time and energy, and free up resources that can help the fleet grow.

10) Improved Cash Flow

Leasing your fleet instead of buying it outright can free up funds that you can then redirect to other essential business activities.

In most cases, lease premiums will be lower upfront than purchase payments and create an improved cash flow that allows you to respond to business needs and opportunities more efficiently.

How To Find The Right Fleet Leasing Program

Fleet Leasing

1) Establish Fleet Needs

Before engaging in any fleet leasing program, take the time to establish your fleet needs so you can find the policy that works best for your business.

Keep in mind that needs will change as your business grows and evolves. So, even if you’ve operated a fleet for years, it can be beneficial to reexamine how things operate to see if there are ways you can cut costs and improve the lease terms and conditions.

Determine The Types Of Vehicles You Need

Determining the types of vehicles your fleet needs is a big first step in finding the right fleet leasing policy.

Costs escalate as the vehicles get larger and more expensive.

So, if your fleet of computer repair technicians can do everything they need with a sedan instead of a pickup truck, your business may save hundreds, if not thousands, on lease payments (not to mention gas and maintenance).

This can have a significant impact on your bottom line and is worth the time and effort it takes to find the right vehicle for the job.

Determine The Number Of Vehicles You Need To Run Smoothly

Like determining the types of vehicles your business needs, determining the number of vehicles your business needs to run smoothly can save you money in the long run.

Leasing 15 vehicles but only fielding 12 on a regular basis can be a drain on your bank account because the three extra vehicles aren’t contributing to business income in any way — they’re just an expense.

As you examine your fleet’s activities, be honest with yourself as to the number of vehicles you need to satisfy the demands of the market.

It’s often better to choose the smaller of two numbers to start, see if things work, and then add another vehicle later on.

You’ll save money in the long run, and you won’t have vehicles sitting around unused and draining your bank account.

Figure Out How Much Cargo Space You Need

row of fleet vehicles

In many ways, figuring out how much cargo space you need will dictate which type of vehicle you choose for your fleet.

If your technicians need to carry long ladders, for example, or need room for extra supplies and tools, a pickup truck or work van might be the better choice.

But, if your technicians only need to carry a limited number of tools and supplies, a minivan, SUV, or even a sedan might be better. As we mentioned, the smaller the vehicle, the more money you’ll typically save in upfront costs as well as gas and maintenance.

This also applies to larger vehicles, like semis and box trucks. Does your business really need the cargo space provided by a 50-foot trailer? Or, could you get by with a 26-foot box truck that requires fewer permits and costs less to operate?

Again, going for the smallest vehicle that satisfies your business needs can help you save money that can be directed elsewhere in your fleet.

Factor In Special Requirements

Your businesses may have special requirements for their vehicles that can affect the price of the lease premiums.

For example, you may need such things as:

The list of ways you can modify your fleet vehicles to be more useful goes on and on — and all of those options will affect what you pay for the overall terms of your lease.

Decide On Necessary Vehicle Options

Commercial vehicles come with a lot of options these days — even apart from the special requirements mentioned in the previous section.

With pickup trucks and vans, for example, you can get half-ton, three-quarter-ton, one-ton, and higher. You can get heavy-duty shocks, trailer systems (fifth-wheel and regular hitches), and transmission and engine combinations made for pulling large loads.

And that’s just the tip of the iceberg. Cars, SUVs, and vans also come with a long list of options that can make them more useful.

But those options come with a price tag that can drive up the cost of your lease.

When examining your fleet needs, choose the options that give your drivers the most utility but that don’t cause you to overspend on your premiums.

Decide On Necessary Lease Options

Leasing companies offer all kinds of add-ons to their policies. Some of those add-ons can help your fleet perform better. Others you may not need at all.

When investigating the lease options out there, take the time to talk with the leasing agent to customize the policy so that it includes everything you want and nothing that you don’t.

Keep in mind that you can always add services later if you find that your fleet would benefit from them or delete services if you find that your fleet no longer needs them.

Estimate The Number Of Miles Per Year

Miles driven on the open road

Leased vehicles are often priced according to the number of miles they travel each year. The more miles your fleet covers, the higher your premiums will be.

Make as accurate a guess as possible, or, if you have records on hand, estimate your next year’s mileage based on what your fleet has done in the past.

Try your best not to overestimate because, again, the higher the mileage, the higher your payments will be.

Settle On A Short-Term Or Long-Term Lease

After you’ve examined your fleet activities and established what it needs to function efficiently, investigate both the short-term and long-term lease options.

Again, the duration of the lease will affect what you pay in premiums and could have implications down the road, so to speak, when the lease is up and you have to extend coverage or turn in the vehicles.

2) Search For Fleet Leasing Companies In Your Area

The next step in finding the right fleet leasing program for your business is to search for companies in your area that offer this service.

A quick internet search will likely reveal companies nearby, but you can also approach local car and truck dealerships to see if they have a fleet program available.

You can also find information about fleet programs on most vehicle manufacturer websites (e.g., Ford, Freightliner, GMC, etc.).

3) Compare Prices

No two fleet leases will be exactly the same, so be sure to compare the prices of several companies in your area.

4) Get A Quote From The Top Candidates

Once you’ve settled on three, four, or five of the best candidates in your area, request a quote to see what each company has to offer.

From there, schedule some time to meet or talk with a representative. In many cases, once you explain your needs to the person face-to-face, they can help you get the best deal.

During the meeting, don’t be afraid to negotiate as many of the details of the lease as possible.

5) Choose The Best Fleet Leasing Program For Your Business

Once you’ve got all the information you need, weigh the options that each company has given you and choose the fleet leasing program that’s right for you.

Fuel Your Fleet The Right Way

Woman fueling her fleet leased car

Whether you choose to own your fleet or engage in fleet leasing, the next major expense to consider is providing fuel for those vehicles. And while your drivers are on the road, they need a simple and easy way to cover costs.

The Coast fleet and fuel card can help.

Fuel card for fleet leasing

The Coast card can be used anywhere Visa is accepted. This means your drivers will be able to remain on the optimum route and have the freedom to choose where and when they refuel their vehicles.

To learn more, visit CoastPay.com today.