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A loaned asset is one in which the user has borrowed money from a financial institution to buy the asset. Loaded asset tracking involves the use of connected devices that track assets wherever they go, ensuring them against misuse or theft and supporting proper maintenance.
For those using telematics systems for loaned asset tracking, commercial equipment or assets can include everything from telephone systems to construction site equipment and rolling assets such as forklifts, trucks and trailers.
Telematics is useful for either loaned commercial equipment or leased commercial equipment. Tracking systems connect high tech sensors that collect and send data in real time to a centralized computer system, including location and use time. Loaned asset tracking using telematics also can provide information on any mechanical problems and keep track of routine maintenance needs.
Loaned vs. Leased Assets
A loaned asset means the company is repaying a financial institution for loaning them the money to purchase the asset. Once the loan is repaid, you fully own the equipment.
A leased asset involves making a monthly payment to the owner for use of the equipment at a set price over a set time. Businesses typically pay leases on a monthly basis, and length of lease usually lasts about three years.
Both approaches have their pros and cons.
Loaned Commercial Equipment
Ownership is the main attraction of loan commercial equipment. By taking out a loan to purchase a loaned asset, companies can have full ownership and value of the equipment once they have paid off the loan.
That’s the major pro of loaned commercial equipment – the value of eventual ownership. Also, there’s typically a small down payment. However, the cons include the fact the equipment must depreciate over years to deduct the full amount. There is also a lot of paperwork involved, and if you go through a bank, there’s a high chance they will decline you.
Leased Commercial Equipment Explained
With leased commercial equipment, you pay for use of the equipment over a set period of time. At the end of that period, you can return the equipment or choose to buy it.
People go with fleet leasing for a number of reasons. Typically, payments are lower than they are with a loan. Also, the payments are usually 100% tax deductible in the year you pay them. There is usually a low down payment, if there is one at all. It’s also easier to qualify for a lease.
The major con is if you decide to purchase the equipment, you will have to pay a lump sum – the fair market value residual – that covers the remaining value of the equipment.
There is no such thing as a “one size fits all” approach when it comes to financing a major equipment purchase or lease. It’s best to run the numbers and let the math help you decide. In many cases, leasing commercial equipment may work better for you by allowing you to write off more of the cost to business expenses. In other cases, taking out a loan to purchase the equipment makes better sense. In either case, using telematics for leased or loaned asset tracking makes sense to safeguard your equipment, keep up with maintenance and ensure that you get the maximum value for your investment.