“Towing” the Line: How Tow Truck Financing Can Lead to Smart Growth

Let’s face it.  There’s no shortage of finance companies offering some kind of program for any and every kind of truck out there.  We help provide leasing and financing options for everything from bucket trucks to water trucks.  Tow trucks, however, are kind of unique.  Here’s why: tow trucks are directly linked to a specific work function: towing.  Now, that might sound simple enough, but if you think about why that matters, it can really be a game changer.

Tow companies earn revenue literally based on the number of tows they have, and, provided they’re operating at full capacity, the number of tows they can execute in a given day is directly tied to the number of trucks they have on hand.  So, buying a tow truck, regardless of the interest rate, assuming it can be put to work, is always going to be a net profitable purchase.

For this reason, we’ve begun to help towing companies calculate the cost of their financing in a novel way: by looking at return on investment (or ROI).  The calculation is fairly straightforward: You take the number of additional tows per month the new truck will add times the average cost per tow times the financing term.

Second, you divide that result by the total interest paid back over the life of the tow truck loan.

For example:

Recently, we helped a towing outfit in Jackson, Mississippi finance a new Ford F650 wrecker at a monthly payment of $911 per month.  This truck adds the capacity for four to six additional tows per day times twenty-four working days per month for around 125 tows per month.  With an average revenue stream of $200 per tow, they expected to gross an additional $20,000-$25,000 per month as a result of the tow truck’s acquisition.

It’s easy to ponder interest rate and think about the total payback being $55,000 on a $40,000 truck, but over that same 60 month period, the company will now gross $1.5 million more in revenues.  When you take that $1.5 million divided by the $15,000 cost, the return on investment is an exceptional 100 to 1.

We have run through this same mathematical exercise with a number of companies considering a tow truck lease, and have developed benchmarks for what constitutes a worthwhile investment.  In truth any tow truck that won’t at least produce a  3 to 1 or 4 to 1 return is not worth financing from a practical standpoint.

Wrapping Up:

So, why is ROI so much more important than interest rate in the evaluation of a tow truck financing offer?  Simple, because you’re not buying a jet ski or an RV.  Because this isn’t just a material possession, but rather a means to production of revenue you will almost always be worse off by not financing a wrecker than you are by financing one at a higher rate.

At American Leasing & Financial, we’re so passionate about tow truck financing (having financed thousands of rollback and wreckers over the last twenty-five years), that we actually created a special financing program just for tow trucks.  Tow Truck Finance.com is a niche tow truck loan processor backed by two dozen boutique lenders and our very own in-house funding arm, American Leasefund.  We pride ourselves on offering flexible tow truck lending programs, regardless of credit issues, for startups and established businesses alike.  Learn more at www.towtruckfinance.com OR apply now for an tow truck financing approval in as little as 24 hours.