If you are planning to start your own trucking business, you have likely considered leasing as an option to get rolling. But what does entering a Lease Program really entail? Let’s take a closer look at what it means to lease equipment, types of lease programs, the benefits, and the challenges of entering a Lease Program.
What’s the difference between Leasing ON and Leasing FROM a Carrier?
First things first, let’s clarify the difference between Lease ON and Lease FROM in the trucking industry. In this blog, we are discussing Lease FROM which includes an operator leasing equipment from a carrier and the operator does not own the equipment. This is very different from Leasing ON with a carrier which is when an owner-operator already owns their equipment but uses another carrier’s operating authority (this is typically called being an Independent Driver). The biggest difference is Lease ON is when an operator owns the equipment and Lease FROM is when the operator does not own the equipment.
Now that we’ve clarified the difference, we can continue the discussion on Lease FROM arrangements.
What does it mean to lease equipment?
When you lease equipment, you do not own the equipment, but you pay rent for the right to use the equipment. The rent you pay is a monthly fee that has interest, like leasing a car. Not all lease programs require a down payment, though down payments are still useful for lowering monthly payments. When leasing equipment, you will sign and enter into a contract with a provider for the term of the lease. You can use the equipment during the life of the lease.
Larger carriers such as Schneider, Prime, Ryder, Penske, and Landstar will allow drivers to lease the carrier’s equipment and use their carrier authority to conduct business. In most lease programs, the lessor (the carrier or leasing company) will have revenue-sharing arrangements with the lessee (the lease operator/driver). The specific terms of the revenue-sharing agreement, including the percentage of revenue to be shared and any applicable thresholds or conditions, are typically outlined in the lease agreement between the lease operator and the lessor. The carrier (lessor) will typically pay the operator (lessee) a specified rate per mile for the loads that they haul and the carrier (lessor) will keep the remaining revenue. The revenue sharing is in addition to the lease payments made to the carrier. The operator is also responsible for business expenses such as fuel, maintenance, insurance, etc. However, the carrier may offer programs to help cover these costs such as maintenance fees.
In some instances, a driver may be allowed to use their own operating authority which may enable them to negotiate a higher share of revenue in their contract agreement. However, this is extremely rare.
There are two types of lease programs:
Lease Purchase Program/Lease-To-Own: Down payment required ($10,000-15,000) and equipment is owned by the driver at the end of the contract.
Lease Operator Program: Pay no money down and equipment must be returned at the end of the contract.
The Lease Purchase Program/Lease to own option usually requires a down payment ($10,000-$15,000) and the driver will own the equipment at the end of the contract.
A Lease Operator Program is essentially like a standard rental contract. You will rent the equipment from the carrier and return it at the end of the contract.
Leasing equipment makes sense when the company is a startup, the company needs to free up cash, or the organization is worried about the longevity of the operation. Leasing equipment also makes sense for carriers with poor credit scores, as the requirements to enter a lease are less strict.
What are the benefits of joining a Lease Program?
Pick the equipment that meets your specific needs
Newer equipment
Self-Employment – the ability to set your own rules, hours, and preferences.
Typically higher pay than company drivers
Flexibility
Quicker pay terms (depending on agreement terms)
Access to carrier knowledge and programs
Customize lease agreement length
Carrier perks and programs
Administrative benefits (load management, dispatching, etc.) (depending on agreement terms)
Easier to acquire with ‘bad’ credit.
What are the downsides of joining a Lease Program?
Unfavorable contract agreements or unmet promises
Lower pay than independent truck driver or owner-operator
Early payoff penalties
Less flexibility than independent truck driver or owner-operator
No benefits package (retirement, health insurance, etc.)
Additional costs and expenses (licensing, insurance, maintenance, fuel, etc.)
No guarantee of income
Accounts Receivable
Shared revenue with carrier
Still need to manage expenses, tax reporting, and insurance
Higher business failure rate than other roles
Termination fees for breaking the lease contract
WARNING:
While not all Lease Programs are guilty of this, be aware that some carriers have been known to limit your loads or source lower-paying loads toward the end of your lease to prevent you from paying off your equipment. This is not always the case, but operators have been left in the dust after committing to a Lease Purchase Program.
Joining a lease program allows drivers to experience a form of business ownership. It is also an option for those with limited resources and poor credit ratings. Lease Programs come with their benefits, but certainly their own sets of risks and challenges. If you are considering the option of joining a Lease Program, be sure to do your research! Evaluate the contract terms, the revenue share, the costs, the flexibility, and the opportunities. You may find that the traditional owner-operator or independent truck driver route is a better option for you if you are seeking greater flexibility, freedom, and more opportunity for revenue growth.
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Soshaul Logistics LLC and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. It is meant to serve as a guide and information only and Soshaul Logistics, LLC does not assume responsibility for any omissions, errors, or ambiguity contained herein. Contents may not be relied upon as a substitute for the FMCSA's published regulations. You should consult your own tax, legal and accounting advisors before engaging in any transaction or operation.