Continuing our series regarding vehicle leasing and financing, let’s talk about something that my company gets asked all the time, but doesn’t engage in – leasing or financing passenger vehicles to companies.
On the surface, it seems a little odd, right? Because there are many, many companies who use passenger cars. In fact, one of the perks for many executives is a “company car”, and many a small to medium business owner has their everyday vehicle as a company car as well.
And that’s pretty much the reason why commercial lenders (like equipment financing companies, and even the commercial arm of the bank) shy away from “personal” style / passenger vehicles (note: Even pickup trucks and normal sized vans are on the “we don’t finance that” list for some commercial lenders.)
See, these vehicles, even if designated for work under the company name, are almost always also for personal use. Even contractors who have a work truck likely run personal errands and bring their kids to the ballgame in that truck. So even if the business buys the truck, it still could technically be classified as “consumer debt”.
This is important, because when financial lending institutions (like banks and equipment financing companies) list their assets and liabilities and overall financial picture, consumer debt carries a different weight and overall risk than commercial debt (note – Section 179, which I talk about often, also treats these vehicles differently. You can’t “write off” your Buick under Section 179.) As commercial lenders, we want no consumer debt.
Thus, for an equipment financing company to finance or lease a vehicle, we want to be reasonably sure that it’s going to be used 100% for business, which means more or less “equipment” type vehicles which really aren’t practical for personal use. For example, you aren’t taking your wife out to dinner in a bucket truck, right? Or bringing the paving truck through the drive-thru?
Although those would be pretty funny – I wonder if Mrs. Fletch would have married me if I showed up to our first date in a dump truck…