Owner Operator vs. Lease Operator: Knowing the Differences

Starting a career in the trucking industry provides many opportunities and unique advantages compared to other fields. If you want to start your own trucking company, you'll have to debate between being an owner-operator vs. lease operator and decide which route you want to take. In this guide, we'll review lease and owner-operator advantages so you can make an informed decision. 

Narrowing down your options is only one piece of the puzzle. Count on FMCA Filings to help you with your USDOT number application and other necessary permits to obtain for compliance with industry regulations for your new trucking business. 

The Basics of Owner Operator Trucking

If you're an owner-operator of a trucking business, you'll purchase all the vehicles in your fleet and maintain them so drivers can successfully deliver cargo to various places. While you may decide to work as a driver in addition to your other job duties, being an owner-operator comes with several responsibilities, including:

• Managing all business expenses
• Securing loads to haul with your fleet
• Tracking revenue
• Hiring drivers and other employees

One essential component that shifts what it means to be an owner-operator vs. lease operator is that company owners who purchase their vehicles must look closely at their finances and determine whether keeping trucks or trading them in benefits the business. You not only have to pay off your vehicles but also maintain them for the duration of their use before deciding when you should remove certain trucks from your fleet. 

How Lease-Operator Programs Work 

A standard owner-operator business model will include greater independence when it comes to working for yourself and making financial decisions. As a lease operator, you'll enjoy the same level of flexibility and independence but without as many financial commitments.

Purchasing your vehicles outright means either having enough capital upfront or financing them with monthly payments until you pay them off. If you're unsure if the trucking industry is for you or don't want to commit to a huge purchase, you should consider leasing your commercial vehicles. Some of the top lease operator benefits include:

• Having lower monthly payments than with purchase financing
• Needing minimal cash upfront for a down payment
• Returning the vehicle at the end of your lease rather than keeping it

However, since you'll borrow the vehicle from a third party, they may set strict standards for you. This typically includes termination fees if you decide to break the lease before your contract's term ends. 

Owner Operator vs. Lease Costs

One key factor will influence your debate about being an owner-operator vs. lease operator. Each position comes with financial responsibilities, so it's crucial to determine the costs that you'll face in both scenarios. 

If you decide to purchase your commercial vehicle, you'll either have to pay for the truck outright or spend months making payments until you no longer owe. This seems like a higher investment upfront, but many owner-operators find that they save in the long run. Part of your business expenses include insurance for the trucks, but rates tend to be lower for commercial truck loans than for leases. 

Be mindful of the down payment that you'll owe before you can finance your truck. A down payment isn't always necessary for individuals with excellent credit and a flourishing business with good cash flow. If you want to start a trucking business and need to acquire vehicles, you'll likely need a sizable down payment to enter a financing plan. 

Opting to be a lease operator requires monthly payments, just like a truck loan. Long-term costs differ because you'll only need to pay the provider for the duration of your lease. For some business owners, this term could be as little as one year or up to three years, though you can terminate early with a penalty. 

Potential Tax Benefits for Trucking Professionals

Are you unsure if being an owner-operator vs. lease operator is better? Individuals in both positions can face some tax benefits to help offset some costs. Whether you own or lease your vehicles, you'll have to supply them with plenty of fuel and maintenance services. 

Business owners can usually deduct these expenses for simplified tax returns. 

Launch Your Company With the Help of FMCA Filings

Beginning a trucking business requires much more than recognizing what it means to be an owner-operator vs. lease operator. You'll also have to secure vehicles for your fleet, hire a trained staff, and file the appropriate paperwork. Let FMCA Filings help keep your business compliant with industry standards. 

We provide permits and applications so you can operate a compliant trucking company and offer insight into different aspects of the industry, such as determining gross vehicle weight. For help filing for a permit, contact FMCA Filings today to connect with a knowledgeable agent.