How To Finance Bigger Revenue-Generating Buses

Posted on April 17, 2017 by Tom Halligan - Also by this author

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(LCT image courtesy of Prevost)
(LCT image courtesy of Prevost)
As an increasing number of seasoned operators, along with industry newcomers, consider adding higher capacity mini-buses and motorcoaches to expand their transportation offerings, how to get the best financing terms is a different game than buying a typical sedan or SUV.

When financing new motorcoaches, “they’re like a second mortgage,” says Mike Villani, owner and president of Auto One Capital in Melville, N.Y. With more than 20 years in the commercial livery lending business, Villani says smaller operators interested in motorcoaches need financial counseling to look at their options after their initial “sticker shock.” Purchasing a used bus at half the cost is often the prudent strategy to get in the business, he adds.

A newbie doesn’t understand that the bus business is different. — Mike Villani, Auto One Capital (LCT image courtesy of Mike Villani)
A newbie doesn’t understand that the bus business is different. — Mike Villani, Auto One Capital (LCT image courtesy of Mike Villani)
“We always have a conversation with operators because if they will spend $500,000 on a new bus, we ask them why they think they can make enough money to make it work.

“A newbie doesn’t understand the bus business is different. If you have to pay $5,000 a month, plus the costs of maintenance, which isn’t cheap, plus hire drivers, insurance, etc., can he make $10,000 a month to cover everything and make a profit? We don’t want to see them get into a position where they could possibly lose their company. That’s why we might recommend buying a used bus for half the cost to get them in the game if they know they can earn enough money per month to make it worthwhile.”

Build Equity
Running a successful full-service chauffeured and charter transportation business is all about building equity by closely managing the financing of your fleet, says Stephen Story, owner of James River Transportation, Richmond, Va. Ranked No. 40 in the LCT annual 50 Largest Fleets List (July 2016) with 27 shuttle/mini buses and 34 motorcoaches, Story firmly believes in short-term vehicle financing to build equity in his company.

I’ll share how we are doing every quarter. — Stephen Story, James River Transportation (LCT photo courtesy of Stephen Story)
I’ll share how we are doing every quarter. — Stephen Story, James River Transportation (LCT photo courtesy of Stephen Story)
“We’re aggressive in our terms and never finance over five years,” says Story, whose company has been in business for more than 85 years. “Of course, financing varies because you look at the total cost of owning and operating the vehicle, how much cash you put down, financing rates, and the amount of debt you are comfortable with.”

For example, Story’s baseline financing terms are five years for motorcoaches, two to three years for used motorcoaches, and three years for sedans. “You get better interest rates with shorter terms because you are not financing all of your vehicles at the same time. That builds equity because you own assets and that frees up cash to put into your facilities and operation.”

Financing The Big Picture
Larry Kole, president of Autoline Capital Corp. (Cronton-on-Hudson, N.Y.), says interest rates are slowly creeping up, which obviously translates into higher financing payments.

“We’re seeing small incremental increases in our internal rates and when we get squeezed that translates into higher rates for customers,” Kole says. “I don’t have a crystal ball into the economy, but there are many finance and lease options available that can help payments while maintaining cash flow.”

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