Financing service vehicles and using cash to scale a trade business
Most construction equipment doesn’t come with a revenue number attached. Service trucks are the exception, which makes the finance-or-pay-cash question easier than usual. It also points to where your cash should go instead.
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How much does a service truck bring in?
With most construction equipment, it’s hard to say what any one machine earns. An excavator helps get a job done, but it doesn’t have its own P&L. A service truck pretty much does. And the trades, unusually, have real benchmarks for it.
These benchmarks come from industry consultants, not audited studies. Use them as a rough guide and check them against your own numbers.
Now the cost. A new cargo van runs roughly $48,000 to $63,000 before upfit. Add shelving, racking, and inventory, and call it $70,000 all in. Financed over sixty months at 9%, that’s about $1,453 a month, or $17,436 a year, for a truck doing $290,000 to $310,000 a year.
The payments come to roughly 6% of the revenue that truck carries.
Paying cash to skip the interest, then coming up short on inventory or payroll in a slow February, is a bad trade.
What usually holds a trade business back?
Getting a van financed is easy. Finding, training, and paying a good technician is the hard part.
That’s why, in most trade businesses, cash earns the most when it goes toward getting more out of the trucks you already have, or toward adding a person:
- Getting back unbillable time. Industry studies suggest only about 65% of paid technician time gets billed. That’s roughly 5.7 billable hours out of an 8.8-hour paid day, with more than an hour a day lost to drive time nobody pays for. Dispatch software, better routing, and well-stocked trucks go right at that.
- Truck stock. When the part isn’t on the van, somebody makes a second trip. You pay for the drive twice, and the invoice goes out later.
- Hiring ahead of demand. A new tech loses money for a while before they’re running a $290,000 truck. That ramp-up gets paid for in cash, and it’s the most common thing that stops a trade business from growing.
- Training and licensing. It doesn’t cost much compared with what it does for the work you can take on and the prices you can charge.
- Marketing that brings in calls. If you know what a booked call costs you and what your average ticket is, you know exactly what your ad spend returns. It’s usually far above your borrowing rate.
Everything on that list pays back fast and turns over several times a year. That’s what cash is for. The van will be working for five years, so put it on five-year money.
Does your mix of work change the answer?
Yes, quite a bit. Here’s how the three main types of work usually pay.
A shop that’s 80% residential service gets paid the same day and can comfortably carry more equipment debt. A shop moving into commercial new construction gets paid on a very different schedule. Large mechanical contractors have publicly reported roughly 31% gross margin on service work sold directly to owners, against about 21% on subcontracted construction, and the construction side pays a lot slower. If your mix is shifting toward new construction, hold more cash, not less.
What should you finance, and what should you pay cash for?
- Finance: vans and box trucks, bucket trucks and aerial lifts (used units commonly run $32,000 to $170,000), trailer jetters (roughly $17,000 for an entry unit to over $100,000 for a jet-vac combo), and anything else that lasts several years and has a resale market.
- Write a check: camera and inspection systems in the $700 to $10,000 range, recovery machines, hand tools, threading equipment. They’re too small to be worth the paperwork.
- In between: a full upfit package. If it’s going into a financed van, roll it into the same note. The shelving lasts as long as the vehicle does.
So where should your cash go?
I’d put it into whatever keeps your trucks busy: techs, truck stock, dispatch, and marketing. The trades have some of the best economics in construction. Service work pays fast, margins are strong, and you can put a revenue number on every truck. That’s a good case for financing the vehicles.
Just keep an honest eye on your mix. As commercial and new construction work grows as a share of revenue, your cash cushion should grow with it. And if you’re working toward financing that doesn’t need a personal guarantee, our guide to business credit for trade contractors covers what that takes.
Frequently asked questions
Should I finance or pay cash for a service van?
In most cases, finance it. A fully upfitted van runs about $70,000, which works out to roughly $1,453 a month over sixty months at 9%, or about $17,400 a year. Industry benchmarks put a service truck at $290,000 to $310,000 in annual revenue, so the payments are around 6% of what it brings in. Your cash does more good covering inventory, hiring, and slow months.
How much revenue should a service truck generate?
Industry benchmarks put the median residential HVAC service truck near $310,000 a year. The top quarter of trucks do around $380,000, and the top 10% do more than $480,000. Commercial service trucks have a slightly lower median, near $290,000, with the top quarter around $420,000. These numbers come from consultants, not audited studies, so check them against your own.
What is the highest-return use of cash in a trade business?
Usually whatever gets more out of the trucks you already have, or lets you add a technician. Industry studies suggest only about 65% of paid technician time gets billed, so better dispatch, routing, and truck stock pay off quickly. The other big one is carrying a new tech through the months before they’re profitable.
Does my mix of service and new construction work change the financing decision?
Yes, quite a bit. Residential service usually gets paid at completion and has the best margins. Commercial service commonly takes 45 to 90 days to collect, and new construction subcontract work takes 60 to 90 days or more, with retainage held on top. If you’re moving toward new construction, hold more cash, not less.
What trade equipment is worth financing versus paying cash for?
Finance anything that lasts several years and has a resale market: vans and box trucks, bucket trucks and aerial lifts, and the bigger trailer jetters. Pay cash for smaller items like inspection cameras, recovery machines, threading equipment, and hand tools. An upfit package usually makes sense rolled into the vehicle note.
Adding trucks this year?
We’ll finance the vehicle and the upfit together, so your cash stays free for the technician who drives it. Or run the numbers yourself first in the Quote Builder. No credit pull, no obligation.
This article is general information about commercial equipment financing and is not tax, legal, or financial advice, nor a commitment to finance. All figures are illustrative examples, not offers or quotes. All financing is subject to credit approval and underwriting. Rates, terms, and approval depend on the complete business and credit profile.