Finance for transport, logistics and earthmoving

In most sectors asset finance is something that happens now and then. In transport it is the capital structure. The fleet is the business, it is bought on debt, it wears out on a schedule, and the decisions compound: what you sign this year decides what you can sign in three.

Which makes this the sector where structure matters more than rate, and where the most expensive mistake is the one that makes the first year look easiest.

What actually differs

What a balloon actually commits you to

A balloon, or residual, lowers the monthly repayment by leaving a lump sum owing at the end of the term. In this sector they are common and often sensible: terms across the market commonly run from three to seven years, four to seven for prime movers, with residuals commonly set somewhere between 10% and 30% of the asset value, and set properly the residual tracks what the truck will actually be worth when the term ends.

Set improperly, it is a refinance obligation with a date on it. Three things decide which one you have.

• Whether the residual is near what the asset will realistically be worth at that point, or above it. Above it and you owe more than you can sell for.
• Whether you intend to keep the truck, replace it, or refinance the balloon. All three are legitimate; not deciding is not.
• When the balloon falls due relative to your next purchase. Two balloons and a new prime mover in the same twelve months is a cash flow event, not a coincidence.

The add-backs a transport operator has

Depreciation dominates here in a way it does not in any other sector on this site, which is precisely why a transport file assessed off the tax return understates the business so badly.

One caution specific to this sector. Adding depreciation back is standard, but a lender assessing a fleet-heavy business will often apply its own allowance for the capital the business must keep spending to stay on the road. Trucks are not a one-off purchase, and a file that adds back every dollar of depreciation without acknowledging replacement capex invites the question rather than answering it. The stronger file raises it first.

What those add-backs are worth

The categories above at the illustrative amounts shown, $144,000 in total, against the three terms a transport business actually borrows over.

Read the first two rows together, because that is the trade you are actually making. Stretching from five years to seven lifts what the same earnings support from $453,000 to $581,000, which is real money and is also two more years of paying for an asset that is two years older. The right answer is the working life of the truck, not the bigger number.

The fleet decides your next facility

Every repayment on every truck is an existing commitment in the next serviceability assessment. That is the whole reason a transport business that is busy and profitable gets told it cannot fund the next contract: the capacity was spent, in instalments, over the preceding three years.

Which means the fleet plan and the finance plan are the same document. Before you sign for the next prime mover, model it against what you already carry and against what you intend to buy in the following two years. That is a ten minute exercise before the fact and an insoluble one afterwards.

Security, age caps and the PPSR

Trucks are good security by the standards of most commercial lending: identifiable, valued against a known market, and registered on the PPSR so a financier's interest is visible to everyone who looks. What limits the deal is age. Lenders look at what the asset will be at the end of the term rather than at the start, so an older truck on a long term reaches a point where the numbers stop working regardless of the borrower.

Where the business owns or is buying a depot or yard, that property is stronger security than the fleet and is usually the facility to structure first. Levels vary by lender and every lender sets its own.

What the file needs

• Two to three years of financial statements and tax returns, plus current management accounts.
• A fleet schedule: each asset, its age, what is owed on it, the term remaining and any balloon with its date.
• The contracts or rates you are running on, and how much of the work is contracted rather than spot.
• The asset register, which is where the depreciation argument is evidenced.
• Details of every existing facility, because the new debt is tested on top of what the business already carries.
• Your replacement plan for the next two to three years, because the lender is going to ask and it is better to arrive with it.

The acronyms, in one place

What we can and cannot tell you

Andorra Advisory Group is a commercial finance brokerage and advisory practice. We build the analysis and the documents, and we arrange the facility where you want us to. Nicholas Clunes: Credit Representative Number 530711 is authorised under Australian Credit Licence Number 387856. The advisory fee is fixed, quoted before the work starts, and payable regardless of whether finance is approved or what the analysis concludes. Where a lender pays commission on a facility it is paid to The Lending Lab Pty Ltd; it is not payable on every transaction and the amount is not ascertainable at the time of quoting. You are free to take the analysis to any broker or lender you like, at the same fee.

So no lender is named here and no policy is quoted. Every threshold is a level commonly seen, and every lender sets its own. We give no taxation advice, no legal advice and no financial product advice. How a residual is set for tax purposes, and which structure suits your position, are questions for your registered tax agent.

General information only. Not credit advice, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria.