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How to Get Commercial Truck Financing: Everything You Need to Know

By John Csiszar

It can be hard to make the transition from behind the wheel to behind the desk. Starting your own trucking business without a lot of money in the bank feels impossible, but it’s not. It doesn’t matter if you want to start a fleet, become an owner-operator with a single truck or have terrible credit — there are business financing options for you. And there are plenty of reasons why now happens to be the right time to start a trucking business.

Commercial trucking is a backbone of the American economy. As a vital link between businesses and consumers, even small businesses often have the need for one or more commercial trucks, which range in size from light delivery vans to 53-foot semi-trucks. But there’s also a major driver shortage right now - the industry is in need of an estimated 60,000 drivers, according to a report by the American Trucking Associations, so there’s room for new or expanding businesses like yours to succeed.

If you don’t have the cash on hand to buy your own vehicles outright — or sometimes, even if you do — the commercial truck financing market is there to assist you with both loan and lease options. Although commercial truck financing generally functions somewhat similarly to personal vehicle financing, there are some very important differences. Here’s a look at all of the ins-and-outs of commercial truck financing, from what you’ll need to qualify to what some of your financing options might be depending on your personal financial circumstances.

Compare The Best Truck Financing Options

Type of Borrower Funding Source Funding Type Loan Amount Fees May Include Rates Down Payment Terms Take Action
$0 Down Operating Lease or Truck Loans Loan or Lease Up to $80,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% <$0 down Up to 5 years
Bad Credit Commercial Truck Lenders Loan or Lease Up to $80,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% 10-50% of truck value Up to 3-5 years
Fair Credit Capital Lease or Truck Loans Loan or Lease Up to $80,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% 0-30% of truck value Up to 7 years or longer
Good to Excellent Credit Semi-Truck Financing Companies Loan or Lease Up to $500,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% 0-25% of truck value Up to 7 years
Startups Alternative Lender Specializing in Startups Loan or Lease Up to $500,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% 0-25% of truck value Up to 7 years or revolving line of credit
Fleet Direct Lender Specializing in Fleet Financing Loan or Lease Up to $500,000 Application fee, fees for large loan amounts, credit check fee 5.99%-36% 0-25% of truck value Up to 6 years
Semi-Truck Semi-Truck Financing Companies Loan or Lease Up to $80,000 Application fee for large loan amounts, credit check fee, truck appraisal fee 5.99%-36% 0-25% Up to 10 years, although many lenders keep loans to 7 years or less

Top 7 Options for Truck Financing

1. $0 Down

How to Get Truck Financing With No Money Down

If you don’t have thousands of dollars saved in the bank but still want to get your trucking business off the ground, look for no money down financing options.

When you buy a personal car, you typically have two options: lease or buy. Commercial truck financing is similar, but different terms are used: operating or capital leases. In particular, you might consider looking into an operating lease. There are typically $0 down options for both loans and leases but getting approved will depend on if you meet certain qualifications.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

A no money down lease or loan is exactly what it sounds like. You lease or finance one or more trucks without having to put money down up front, which is appealing to those who don’t have a sizeable amount of money saved. A no money down loan functions just like a loan in which you do put money down, but because you’re putting no money down, you’ll ultimately pay more in interest since you are financing 100 percent of the truck’s value rather than a fraction.

Another option is an operating lease, which is more like a car lease than a purchase financing option. With an operating lease, your company never takes actual ownership of the asset. An operating lease is more like a rental contract, in which the title rests with the leasing company until the end of the term, when you return the truck. Operating lease terms for semi-trucks are for less than 75 percent of the value of the vehicle, according to Smart-Trucking.

Commercial truck financing rates can vary dramatically, but generally, rates are between 5% to 30%. The rate and terms one person gets on a commercial truck loan or lease can be entirely different from the rate another person gets. Since financing is a competitive industry, different lenders typically offer incentives to try to gain your business. For example, some lenders advertise that they will work with borrowers who have a bankruptcy on their credit report, whereas others offer $0 down payment loans so choose the option that’s best for you.

As with any other form of borrowing money, the rates you get are highly dependent on your credit score, either personal or business. The better your credit, the better the rate you’ll qualify for. Rates can be anywhere from around 5.99% to 36% depending on your credit score and lender.

Borrowers with a lengthy operating history, a sizeable amount of cash saved, and a spotless credit history are more likely to qualify for the best rates, as well as no money down options. Bad credit could mean a lender will require a down payment in order to approve financing.

The approval process for an operating lease is the same as with any commercial truck financing option, though it could be easier to qualify for a lease than a traditional loan. Upon approval, you’ll also need to provide proof of insurance for the leased vehicle.

As with any other form of borrowing money, the rates you get are highly dependent on your credit score, either personal or business. The better your credit, the better the rate you’ll qualify for. Rates can be anywhere from around 5.99% to 36% depending on your credit score and lender.

In order to qualify for no money down financing you’ll typically need a credit score of at least 620 or higher FICO score, and your chances of getting approved will increase with better scores. Without fair to excellent credit, the lender might require you to put as much as 20 percent down to get financing regardless if you’re leasing or owning. Lenders reserve their best offers for borrowers with the best credit.

If you’re just on the cusp of having good credit, research ways you can improve your credit score. For example, if you have existing debt, paying some or all of that debt down could push your credit score high enough to qualify for no down payment truck financing at a reasonable rate, which could save you hundreds or thousands of dollars in the long run. A little effort now can pay off later.

With a truck lease, you can typically finance the entire cost of the truck — or trucks — minus any down payment, if any, that you put down. Getting approved for financing, however, will depend heavily on personal criteria you meet. Additionally, qualifications will vary by lender, so it’s recommended you compare different options. Factors that can impact the financing you’re approved for include but are not limited to:

  • Personal and/or business credit score
  • Down payment amount (or lack thereof)
  • Experience
  • Truck Mileage
  • Age of Truck

Depending on your personal situation you might be able to get all the financing you want, nothing at all or somewhere in between. It varies person to person.

Different lenders might require different documents, but typically you’ll be required to provide some or all of the following documents:

  • Applicable permits
  • Business license
  • Commercial driver’s license
  • Personal identification
  • Personal identifying information such as your Social Security number so the lender can pull your credit history
  • Proof of insurance, or the ability to acquire it at the time of financing
  • Information which types of trucks you plan to finance, including how you’ll use them
  • Tax records, in some cases
  • Financial records, in some cases

Don’t assume that providing these documents will mean you’ll automatically be approved for financing. For example, having a commercial driver’s license is critical, but some lenders require you to have had a CDL for a minimum of five years. If you’re new to commercial truck driving, that could impact your ability to get financing even if you have a valid CDL.

Research the lenders you’re interested in to ensure you meet the minimum qualifications for approval. Having all the required documentation handy when the lender needs it helps keep the process moving and avoid delays.

The terms of your lease or loan will depend on the lender you ultimately go with. Banks for example, typically have longer terms, whereas alternative lenders have shorter terms. You can expect terms of anywhere from one to 10 years.

Just like with a personal car lease, an operating lease for a commercial truck comes with lower monthly payments than other financing options. The reason is that you are simply paying a rental fee for the depreciation of the vehicle during the time you operate it. When the term of your lease expires, you have to return the truck to the lender. While this could save you money in the short term, you aren’t building any equity either, meaning you’ll have to continue leasing vehicles. This can be more costly in the long term. Weigh your options to determine the best choice for you financially.

2. Bad Credit

How to Get Truck Financing With Bad Credit

If you have bad credit — regardless of if it’s a personal or business credit score — it doesn’t mean that you can’t get commercial truck financing, it just means that it will likely cost you more. It also means you’ll likely have to look harder for a bank or other lender that’s willing to extend you a loan.

Bad credit makes you a less desirable borrower so your search for funding will be limited but not impossible. Top-tier options, like the banks you already know by name, are probably not your best option for bad credit truck financing. You can also find commercial truck lenders that specialize in working with truckers with bad credit just like you.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

With bad credit, the loan you’re shopping for will fall in the category of “subprime loans.” There’s an active subprime lending sector that’s full of competitors that cater to the trucking industry, so you’ll likely be able to find at least some type of financing. Research various subprime lenders that might be able to offer you a commercial truck loan based on your personal financial and credit situation.

Subprime loans function similarly to other types of loans, but with less desirable credit, you’ll also get less desirable rates and terms.

Rates for commercial truck financing range from about 5% to 35%. As a subprime borrower, you can expect a rate on the higher side of that range. The rate you get approved for will always be based on several different factors, so it’s impossible to say exactly what rate you might get. Being a bad credit borrower means you’ll have a harder time getting approved for a low rate than someone with excellent credit.

Additionally, having bad credit can mean additional financing stipulations. In the subprime category, you might be expected to put up a down payment as large as 25 to 50 percent, or to have a short- or intermediate-term loan instead of a long-term loan. Make sure to perform your due diligence with any subprime lender.

Ultimately, having bad credit will cost you more as a borrower so it’s important that you are prepared to take on higher rates and more strict terms than someone with excellent credit.

Bad credit isn’t unusual in the trucking industry, so there truly is a lender for everybody. While you won’t get approved for the best truck financing rates with bad credit, you’ll still have some options, though limited.

That said, having bad credit isn’t permanent. There are actionable ways you can improve your credit score if you do a little research. Additionally, there are things you can avoid to prevent your score from going down further. For example, don’t open several new credit cards before applying for financing as it could cause your score to drop.

The amount of financing you get approved for will vary by lender, type of loan or lease and your personal financial situation such as the amount of money you’re able to put down and your personal credit history.

Truck lenders know financing a truck is pricey, so they often offer truck loans for as much as $500,000, but whether they approve you for such a high amount or not is contingent on many factors. It’s best to determine how much money you’d like to borrow before seeking out lenders. Show that you’ve done your research and you know exactly how much financing you need. There are no guarantees in financing approvals but going in prepared certainly can’t hurt.

The documents required for financing might vary from lender to lender, but generally you should be prepared to provide the following:

  • Personal identification
  • Business license
  • Relevant permits
  • Commercial driver’s license
  • Social Security Number, which can be used to pull your credit history
  • Proof of insurance
  • Information on the trucks you want to finance and their intended use
  • Tax records, in some cases
  • Financial records, in some cases

The length of your loan repayment will depend on the lender you ultimately go with as well as your personal credit history. Subprime lenders will typically have shorter terms with more frequent payments to ensure you’re meeting your financial obligations. Make sure you understand repayment terms and are prepared to make payments on time.

3. Fair Credit

Commercial Truck Financing Options for Fair Credit

If your business or personal credit score is fair, you’ll have more available financing options than someone with bad credit but fewer options than someone with excellent credit. With a credit score in the mid-600s and at least some operating history, you’re likely to find decent options for financing. You’re also likely to get slightly better rates than if your score were in the 500s or lower. However, you probably still can’t be financed by the largest, most well-known banks.

That being said, you won’t have to go searching for completely unknown companies to find financing. Having decent credit opens up your options, but for truck financing in particular, semi-truck financing companies are likely your best bet in getting the rates, terms and service you need.

Two good options for fair credit borrowers are truck loans or capital leases. Capital leases are different from operational leases so it’s important to know the difference.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

A capital lease is more akin to a traditional car financing contract. In fact, the International Federation of Accountants, or IFAC, refers to capital leases as finance leases.

With a capital lease, the commercial truck you finance is your asset. With a capital lease, once you fulfill the terms of your lease, the truck is all yours. The term of a capital lease for semi-truck financing is more than 75 percent of the useful life of the vehicle, according to Smart-Trucking. With a common capital lease, lenders put up 10 percent as a down payment, with the remaining 90 percent of the vehicle value being paid over the term of the lease.

The interest rates you get — whether you finance or lease a truck — will always come back to one major factor: your credit score. Your lender uses your credit to determine how desirable of a borrower you are and how likely they are to get repaid. A higher credit score proves to the lender that you have been and will be a responsible borrower that will repay their loans.

A fair credit score tells a lender that you fall somewhere in middle — not good or bad. Simply put, fair credit is average. Because of this, you’ll qualify for loans and rates that bad credit borrowers won’t. But at the same time, you won’t qualify for the rates or terms someone with excellent credit would.

Shop around and if you find that lenders aren’t offering you the rates you want, make an effort to improve your credit score. A little work fixing your credit up front could save you a considerable amount of money in the grand scheme of things.

A capital lease has the same qualification requirements as other financing options. The less risk you can demonstrate to the lender — in terms of a solid credit history and an established, profitable business — the more likely you are to qualify for the best rates.

With fair credit, you should be able to qualify for financing without issues. Online banks and alternative lenders are available if you can’t meet the most stringent lending standards.

With fair credit, you can likely get the majority if not all of your desired funding amount financed, though your rates and terms won’t be as favorable as someone with excellent credit.

You’ll also have to keep in mind that the type of financing you choose can affect your monthly payments. Having affordable monthly payments is key for a new business with minimal cash flow. For example, the monthly payments under a capital lease will usually be higher than with an operating lease. However, those payments can be considered an investment, as you’ll own your truck outright at the end of your lease term. Over the long run, you’ll likely have higher maintenance costs, but once your lease ends, you’re off the hook for additional monthly lease payments.

To finance a truck, you’ll need to provide personal information as well as official documentation, such as:

  • Business license
  • Permits
  • Commercial driver’s license
  • Personal information, such as a Social Security number, to pull your credit report
  • Information on which types of trucks you want to finance and information on how you’ll use them
  • Tax records, in some cases
  • Business financial records, in some cases

The length of time you have to repay financing will vary, but you can sometimes negotiate terms that work for both you and the lender. Most repayment plans will last a number of years, sometimes as high as seven years.

It’s important to realize that the longer your terms, the more interest you’ll pay. While a longer term might make your monthly payments more affordable, you’ll ultimately be paying more money. If you can afford to pay off a loan sooner, assuming the lender doesn’t charge prepayment penalty fees, then you should make an effort to do so. This will save you money and get you out of debt faster.

4. Good to Excellent Credit

Get Better Truck Financing Rates With Good or Excellent Credit

From the perspective of a lender, the most highly sought-after clients are those with good or excellent personal or business credit scores. Although lenders might not earn as much in interest, they can be highly confident that the borrower will make the required loan and principal payments.

Good or excellent credit isn’t just a subjective analysis. Although other factors could play a role, you’ll typically need some or all of these characteristics to qualify:

  • 700+ credit score for good credit
  • 740+ credit score for excellent credit
  • 3 to 5 years of operating history
  • No history of delinquencies
  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

If you have good or excellent credit, you’ll have several financing options. You can expect to receive top-tier financing options, including large banks that are household names. You can take your pick between a loan or a lease from a semi-truck financing company, bank, online or alternative lender. The choice is yours.

With good or excellent credit, you can expect competitive rates. Take some time to shop around to explore your options. Lenders want your business and will make it worth your while.

Rates for larger commercial trucks generally run between about 5% and 35%. Those with excellent credit are most likely to get a rate of about 5.99%, but other factors will still be considered when calculating your rate. The size of your down payment is up for negotiation with your potential lenders, and you might be able to get the lowest rates if you’re willing to put up a larger down payment.

If your credit score is 700 or higher and you meet any other lender-specific requirements, you’ll likely be eligible for just about any loan or lease. That said, if you have a great credit score, but don’t meet other requirements, it could get in the way of you getting approved. Besides credit score, some additional requirements can include:

  • Operating history
  • Cash reserves
  • Insurance
  • How many years you’ve had a CDL

With excellent credit, the sky’s the limit. Some lenders might finance as much as $10,000,000, though an amount that high will have even stricter requirements. As a borrower that meets many requirements and has excellent credit, you should be able to lease or borrow the amount you need within reason. For example, financing one or more trucks at the average price of around $75,000 to $80,000 per truck should be doable with great credit as long as all other requirements are met.

Regardless of your credit score, you’ll need to provide several documents, which might include some or all of the following:

  • Business license
  • Commercial driver’s license
  • Permits
  • Personal information, such as your legal name and Social Security number, to pull your credit report
  • Information on which types of trucks you want to finance such as make, model and mileage
  • Tax records, in some cases
  • Business financial records, in some cases

As a desirable borrower, repayment terms will be more flexible than what someone with bad credit might get. Generally, you can expect repayment terms anywhere from one to seven years.

As a borrower with excellent credit, you’re savvy enough to know that the best way to keep your credit score high is to pay off your debt. Regardless of your payment term, it’s financially advantageous to pay off your debt as soon as you can to save money on interest and fees. Check with your lender to ensure they don’t charge a prepayment penalty. If they don’t, pay back your loan as quickly as is financially feasible for you so you can save money and put it towards other business expenses like truck maintenance.

5. Startups

Commercial Truck Financing For Startups

The one thing that all startups need is operating capital. While a startup might be able to raise general financing from angel investors or other lenders, it might not be enough to finance one or more commercial trucks, which cost around $80,000 for one truck on average. For this reason, you should consider a company that specializes in equipment financing and/or startups.

Seek Business Capital, for example, helps startups and early stage businesses find the lending option that works best for their personal situation. Without much business history, options for startups are limited, and new business owners might not qualify for traditional commercial truck loans. Seek Business Capital can help your startup get prequalified $5,000 and $500,000 in funding in a just a few minutes. In fact, over 92 percent of applications are approved within hours, providing fast-growing companies with fast access to funds needed.

Additionally, startups and small businesses oftentimes need more personalized service that’s tailored towards the needs of new entrepreneurs. As each individual small business is different, it can be helpful to work with a company that doesn’t adopt a one-size-fits-all approach when it comes to designing a financing plan.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

There are variables in any lending transaction, but you’re far more likely to get approved for a commercial truck loan if you’ve been in business for a long time. Consistency of business is important when it comes to reducing risk for lenders.

If you’re a startup or have been in business for less than two years, you might have better luck applying for small business funding through Seek Business Capital. A short operating history or lack of down payment might hinder you from getting traditional truck or business loans so it’s important you explore other options.

As a startup business with no business credit score or thorough history, the rates you get will be heavily impacted by your personal credit score. Just like when you apply for a personal loan or personal credit card, lenders will give better rates to borrowers with better credit scores.

Startup companies are a category all their own. If you’re just beginning this type of business, it can be hard to get in the front door at any financing company or bank because you have no operating history at all. Even existing companies operating at a loss might have an easier time qualifying for financing than a startup, because at least they have an operating history that could show a trend towards profitability. As a startup, you have little to offer by way of business documentation.

The good news is that there are some lenders and companies out there that understand the special needs of startups when it comes to commercial truck financing. Seek Business Capital focuses on financing startups by making the process as easy as possible. Just like your rates, eligibility will be based on your personal credit history, since your startup does not yet have a business credit score.

Seek Business Capital can help startups get financing amounts between $5,000 and $500,000, depending on what you qualify for, plus you can be pre-approved in as little as two hours.

When you look for traditional financing, lenders will typically ask for some or all of the following documents:

  • Permits
  • Commercial driver’s license
  • Social Security Number to pull your personal credit history
  • Information of the type of trucks you’re looking to finance, as well as information on how you plan to use them
  • Tax records, in some cases
  • Financial records, in some cases

As a startup business, however, you might have personal finance documents but likely majorly lack business documentation or maybe even a CDL. As a new business with no financial or profit and loss statements, borrowing options are limited. Startups applying for financing with Seek Business Capital don’t need to supply any tax returns or financials, and they don’t need to supply any collateral.

The length of repayment will depend on the form of financing you get. Ultimately, repayment terms are dependent on how you borrow, which will be determined by your qualifications. With a line of credit, for example, your credit revolves, meaning you can use it over and over again. Instead of paying off a loan over several years, you make monthly payments on the credit you use. If you don’t use any credit, you have no payment to make, similar to how you manage your personal credit cards. You have access to a certain amount of credit, but you only pay for what you use, which can vary from month to month. This can provide much needed flexibility for startups since one month of business might look very different from the next.

6. Fleets

How to Finance Your Fleet

The size of your commercial vehicle fleet can affect your ability to qualify for a loan, usually for the better. For starters, if you’ve financed trucks successfully in the past, it means you likely have a good credit history. Not only were you able to get prior truck loans, but you have shown that you can make payments on the loans you take out. Assuming you didn’t default on your loan or make many late payments, this makes you a desirable borrower.

For fleets in particular, you might consider an operating lease. Fit for companies with limited cash flow, operating leases are also preferred by fleet owners primarily because it gives you access to new trucks every few years when your lease matures. Rather than investing in used trucks that might no longer meet your needs in just a few years, operating leases give you regular access to quality trucks in good working order. Additionally, monthly payments tend to be lower than other financing options, which can make the financial burden of multiple trucks a bit easier.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

All forms of financing will require an application and evaluation of your financial and credit situation to determine if you’re approved and if so, for what rates and terms.

If you have an existing fleet and are looking to expand, you’re already at an advantage. Borrowers with an existing commercial fleet pose less risk for lenders. Think of it this way ¬¬— if you’re looking to finance your first commercial truck, it means that the future of your entire business hinges on your use of that single truck. If it breaks down, gets damaged or for whatever reason is removed from service, you’ve lost your entire source of revenue. While insurance might cover some or all of your losses, you’ll have to suffer through an unknown time where you’re not earning any revenue. This can be devastating for you and your business. For some lenders, that risk is great enough that they might not even give you a chance.

On the other hand, if you already have a fleet of five trucks, for example, the same single damaged truck only represents a 20 percent hit to your revenue. While still not ideal, it’s not as likely to immediately put you out of business, making you less of a risk to the lender.

Rates will vary based on the type of financing you pursue. Additionally, the lender will further customize your rate based on other factors such as your personal and/or business credit, time in business, the vehicles you finance and more. If you’re an existing fleet owner in good standing, you’ll likely qualify for more desirable rates. Some commercial fleet financing companies advertise rates as low as 5.49%, but a rate that low will be reserved for the most desirable borrowers.

Before you apply for financing, it’s best to review your existing truck loans or leases to ensure you don’t have any overdue or late payments. Lenders will look at your past to assess how you might behave in the future, so check that records of your past borrowing accurately reflect that type of borrower you are.

In some ways, it’s easier to get commercial truck financing than a personal loan because your truck serves as collateral. However, there are many variables that can affect both your ability to qualify for a commercial loan and the interest rate that you’ll have to pay.

From the perspective of a lender, every loan decision comes down to a question of risk. The less likely that a borrower will be able to make payments on the loan, the less likely a lender is to extend that loan. Overall, the trucking industry is a fairly high-risk endeavor, meaning you’ll have to demonstrate to a lender that you understand the business and have an above-average chance at becoming and/or remaining profitable.

When you borrow money to fund a fleet, you are borrowing much more money than someone buying an individual truck, which can impact the lender’s assessment risk. But if you’ve already started building your fleet and have financed it successfully, you’ve already increased your eligibility.

Positive factors when it comes to the loan underwriting process include positive cash flow, profitability and a history of repaying previous financial obligations. Potential problem areas include a short operating history, financial losses or a bad credit history.

The fleet financing you’re ultimately approved for will vary, but lenders that specialize in fleet financing know you need more money than someone financing a single truck. Because of that, you can find commercial fleet lenders that finance as much as $150,000, $250,000 and even $500,000.

To improve your chances of getting approved for fleet financing with favorable terms, you’ll need to present positive financial factors during the loan underwriting process, including:

  • Documentation of positive cash flow
  • Documentation of profitability
  • Documentation showing a history of repaying previous financial obligations
  • Personal credit profile — a lender can pull this on your behalf with your authorization

Additionally, lenders will generally ask for other common documents, such as:

  • Business license
  • Commercial driver’s license
  • Information detailing how many trucks you want to finance, the make and model of each truck, as well as the intended use of each truck you are financing
  • Tax records, in some cases
  • Financial records, in some cases

Potential problem areas include a short operating history, financial losses or a bad credit history. When in doubt, the more documentation you can provide, the better.

When you seek fleet financing, lenders know you’re looking for a lot more money than an owner-operator looking to finance on truck. Because of this, you can expect stricter lending requirements as the increase loan amount also poses some increased risk for the lender. But with the right documents, good credit and positive history in business, you shouldn’t have a problem finding a lender that will finance your fleet.

Repayment terms for fleet financing can be anywhere from six months to around six years, depending on the lender and amount of financing you get. A longer repayment period can make for more affordable monthly payments but will ultimately cost you more money in interest. Whereas a shorter term will save you money on interest but could make for less affordable monthly payments. Look for a payment term that is a happy medium for you, so you can enjoy both reasonable monthly payments as well as save some money on interest.

7. Semi-Truck

How to Finance your Semi-Truck

Semi-truck financing is its own separate category because it pertains to a certain type of trucking. Whereas other commercial truck financing may apply to vocational trucks, such as delivery trucks or other short-haul vehicles, a semi-truck is specifically designed to carry heavy freight loads over long distances. As such, lenders view these loans a bit differently as they carry different risk characteristics. The extra loads and miles that semi-trucks bear means they require diligent maintenance and may last for shorter periods than less heavily used trucks.

The truck itself is typically the primary loan collateral, lenders may require a truck appraisal before you’re offered a loan. This is particularly true if you’re buying a used semi-truck.

  • How Does It Work?

  • What Are the Rates?

  • Am I Eligible?

  • How Much Can I Get?

  • What Documents Do I Need?

  • What Are the Terms?

Commercial truck financing is an exchange of promises. A lender promises to pay for your new truck, and you promise to pay that money back plus interest. Since lending is a business, however, your word isn’t likely to go very far when it comes to qualifying for a loan. A lender will want to review your credit history and overall financial position to determine the likelihood that you can pay back your loan. The greater your ability to meet your financial obligations, the better the loan terms you’ll be able to get.

Financing for semi-trucks, in particular, is a delicate balance between risk and reward, both for operators and for lenders. On the plus side, semi-trucks are capable of generating tremendous revenue, due to their ability to carry large amounts of cargo over long distances. On the downside, semi-trucks are expensive, and their heavy workloads can make them more prone to service outages and maintenance downtime.

When a lender reviews your application, it will take all of these truck characteristics into account. If your finances, credit history and business plan are all in order, you’re more likely to get approved with favorable terms.

Loan rates of all kinds vary based on the risk-reward characteristics of the transaction. With semi-truck financing, the lowest rates are available to established operators with multiple sources of collateral and proven profitability. On the other end of the spectrum, new operators with no assets and bad credit aren’t likely to qualify for any type of semi-truck loan at all.

For the average commercial truck operator with a credit profile somewhere in the middle, rates are likely to be found in the 7% to 10% range. The more you can clean up your credit and show a positive operating history, the more likely you are to snag a more favorable rate.

Since semi-truck financing can be challenging to obtain, make sure you have all your finances in order before you begin applying. At the very least, ensure that you have as clean a credit history as possible, with no missed payments or overdue obligations.

If you’re financing a semi-truck, you’re “in the big leagues” when it comes to truck financing. Fully outfitted semi-trucks can easily cost $80,000 or more. Whether you plan on buying one semi-truck or a fleet, you’re going to have to demonstrate that you’re extremely likely to pay your lender back.

As discussed above, from the perspective of a lender, loans are all about risk and reward. Since semi-trucks are both expensive and take a lot of beating from the heavy loads they carry over long distances, they’re a bit of a risk. If you’re using your semi-truck as collateral and that truck becomes incapacitated, the lender stands to be out a lot of money.

To help alleviate this risk, you’ll want to be prepared with a solid business plan and top-tier credit before you apply for a semi-truck loan. The more likely that you can keep your trucks operating and providing revenue, the more a lender is likely to believe that you’ll have no problem paying back what you owe.

For startup companies, this can prove to be a challenge. You’re much more likely to secure semi-truck finance if you’ve already been operating for a number of years as a profitable trucking company, even if you have only been using local commercial vehicles. If you’ve got borderline credit and/or a short operating history, your best bet for getting a semi-truck loan is to deal with an alternative lender that specializes in trucking loans for newcomers.

If you qualify, the amount of your semi-truck loan is likely to be large. Semis are expensive pieces of equipment, and if you’re financing the bulk of the vehicle, you’re likely to need a loan north of $50,000. If you’re looking to finance a fleet of semis, with good credit and a positive operating history you can likely take out a loan as large as $500,000.

Regardless of the type of truck you’re looking to finance, you’ll likely need a combination of the following documents to get approved for any loan:

  • Business license
  • Permits
  • Commercial driver’s license
  • Personal information, such as a Social Security number, to pull your credit report
  • Information on which types of trucks you want to finance and information on how you’ll use them
  • Tax records, in some cases
  • Business financial records, in some cases
  • Proof that you can acquire insurance for your semi-truck

If you’re looking to finance a semi-truck, you’ll need to provide evidence that the truck you’re buying or leasing is in good working order. For one thing, a financed truck that can’t deliver cargo is essentially worthless, because you won’t be able to use it to earn money to pay your loan. Equally as important, your lender needs to know that your truck is a viable asset that can pay off your obligation if repossession becomes necessary.

Repayment terms for semi-truck financing can be flexible, depending on your credit qualifications and the lender you choose. For some companies, a longer term, such as 5 to 10 years, might prove more flexible in terms of a monthly payment, which would be lower. However, you’ll end up paying more interest than if you took a 2- or 4-year loan, for example.

Some lenders may not be willing to extend a loan longer than five years, as that’s the useful life of a semi for accounting purposes, according to Trucker’s Life. In that case, you’ll have to determine if the payments required for a loan of 5 years or less are affordable when compared with your expected revenue stream.

Frequently Asked Questions About Truck Financing

Financing a truck or fleet is a complex endeavor, especially the first time. The process can be confusing, so it’s important to ask questions along the way. Here are answers to the most frequently asked questions about truck financing:

What Is Commercial Truck Financing?

Commercial trucks are a vital component of many businesses, but they aren’t cheap. Even a used Freightliner semi-truck can cost $80,000 or more, while used box trucks might run $25,000 to $40,000 or more. As some businesses have to plow a significant portion of their working capital into growing and expanding the business, there’s often not a lot left over to purchase trucks outright, particularly for small businesses.

This is where commercial truck financing comes into play. Companies can turn to the commercial truck financing market to raise the needed funds to get one or more trucks. Lenders are willing to make these loans, even to young or growing businesses, because financed trucks can be used as collateral. While investing in an unknown business can be risky, if a business defaults on a commercial truck loan, the lender can usually repossess the financed truck to make good on the loan.

Will Bad Credit Prevent Me From Getting Commercial Truck Financing?

The commercial truck financing industry is accustomed to working with clients that have bad credit, so there are options available to those with poor credit. While bad credit might limit your options or come with higher rates, you still have options. You also have the option to improve your credit.

Don’t fret if you don’t already have top-tier credit. Credit scores are a snapshot of your financial situation on a particular date. Over time, credit scores change. With some work and dedication, you can improve your credit score, thereby improving your options for commercial truck financing.

Credit scores are determined by an analysis of five different variables: your payment history, amount owed, credit mix, length of credit history and new credit. For the most part, time is your friend when it comes to improving your credit score. With few exceptions, it’s hard to immediately improve your score by 50 points of more. However, demonstrating a history of reliable credit practices will get your score moving in the right direction. For some financing companies, the trend of your credit score can go a long way towards overlooking a low absolute score that was the result of long-ago credit missteps.

For the most part, improving your credit score is pretty straightforward. Payment history is the single largest credit score component, so the longer you can make on-time payments, the more your score will improve. Similarly, the length of your credit history obviously improves over time, which will improve your credit score, as long as you aren’t continually opening new accounts or closing old accounts that shorten your average account life.

The one area where you can make a large and nearly immediate improvement to your score is with your amount owed. If a large outstanding balance is weighing on your credit score, paying that off will immediately perk up your score. If you’re looking to apply for a new commercial truck loan, wiping out any of your existing loans first can go a long way towards improving your loan options.

Will a Short Operating History or Low Profits Prevent Me From Getting a Commercial Truck Loan or Lease?

Your credit score isn’t the only factor that can improve your truck financing terms. Getting your company on solid financial footing can play an even bigger role. Of course, this isn’t a quick fix either. But if you can put the time and effort in to make your company profitable — or at least moving in that direction — you’ll have a much easier time finding acceptable lending terms.

For some businesses, waiting for profit trends to improve could mean at least temporarily shelving the plans to expand by financing a commercial truck. This is a business decision that must be made by company owners and management. Some companies might choose instead to forge on — perhaps with a second-tier lender — in order to finance a truck and keep revenues growing. Once the company becomes more established, additional trucks can perhaps be financed with first-tier lenders, as company revenues will have grown and a more solid credit history will have been built.

Some businesses, such as startups, might not have the option to wait for improving revenues. For many of these companies, the simple truth is that without a truck, there will be no revenues to speak of. If your company is in the position that it needs a truck to get moving, know that even startup companies have financing options.

What Are the Pros and Cons of Commercial Truck Financing?

Commercial truck financing can solve a lot of problems for businesses that have an immediate need to deliver their products. However, no financial transaction is completely one-sided. To get the benefits of a commercial truck loan or lease, your business will have to be willing to accept the drawbacks as well. For this option to make sense for your company, the pros will have to outweigh the cons.

Pros of Commercial Truck Financing

There are many positives to financing trucks, namely it gets your business up and running. Here are some major pros to financing a truck:

  • Commercial truck financing can give you a competitive edge. For startup companies, having access to a commercial truck loan can literally mean life and death for the business. Without a way to get products to customers, startup companies can’t generate revenue. However, even for more established companies, access to truck financing can be critical as well. In a competitive world, companies can’t simply sit still and expect to succeed. Even successful companies eventually have a need to expand their existing equipment, or at the very least upgrade and repair it, so access to financing is essential to keep up with or surpass competitors.
  • Borrowing money from outside lenders means you don’t have to use your own. In a perfect world, companies would have enough excess cash to buy all of the equipment they needed without impairing their cash flow. The reality for most businesses, however, is that free cash flow is critical to fund ongoing day-to-day expenses. If your business needs a fleet or three or four trucks, for example, that might require a cash outlay of $300,000 or more for a straight purchase. This is simply unrealistic for many small- or medium-sized businesses, and it’s likely impossible for a startup. Having access to the commercial truck financing market can be the only feasible option for these types of businesses to grow.
  • You can structure a finance arrangement to best meet the needs of your business. For some companies, leasing a truck is a better option than a purchase finance option. For others, the opposite could be true. Assuming you can qualify for financing, this ability to tailor your contract can be a huge benefit for your business. For example, if your business requires that your fleet makes numerous high-mileage trips, you might prefer leasing, as the leasing company has to take the truck back at the end of your term. If, on the other hand, you prefer to do your own maintenance and squeeze as much value as possible out of your fleet, you might want to hold your trucks long-term via a purchase finance agreement.

Whatever your needs, the diverse commercial truck financing options that are available can help your business thrive.

Cons of Commercial Truck Financing

As with anything, there can be downsides as well. It’s up to you to decide if the pros outweigh the cons. Here are some cons of commercial truck financing:

  • Borrowing money raises your total cost of doing business. Any time your business borrows money, you’ll have to pay interest on the amount you owe. Even if you have great credit and your business has a spotless operating history, you’ll likely be looking at an interest rate of 5.99% or more on the amount you borrow. This might not seem like a lot, but here’s how the numbers play out. Let’s say you borrow $50,000 to finance one or more trucks over five years at an interest rate of 5.99%. This translates to a monthly payment of $966. After 60 months of payments, you’ll have paid $57,960. If you could have managed to buy the truck outright, you could have saved $7,960 in interest. That said, the money you pay in interest could be worth the ability to have consistent cash flow over time while paying down your debts slowly.
  • You’ll still have to put up some money. One of the primary benefits of financing a commercial truck is that you don’t have to pay for the whole truck upfront. However, this doesn’t mean that you don’t need any cash to finance a commercial vehicle. While there are some no money down financing options, they aren’t that common. Lenders will almost always require some type of down payment up front, typically at least 10 to 20 percent. For borrowers with poor credit, this requirement can jump as high as 50 percent. If your company doesn’t have any working capital at all, even the commercial truck financing market isn’t likely to be of much service, particularly the largest lenders.
  • You might have to pin the future of your entire business on your ability to make payments. When you take out a commercial truck loan, the truck itself will be the collateral that secures the loan. If you’re unable to keep up with your payments, your lender could have the right to repossess your truck to satisfy your obligations. Although you might be able to work out some type of arrangement with certain lenders if your cash flow suddenly tightens, other lenders could be less forgiving. If you lose your truck because you can’t make your payments, your entire business could go under, a consequence you’ll want to avoid at all costs.

The reality is, despite some cons, commercial truck financing might be your only route to starting your business or expanding your fleet. If you’re truly committed to your trucking business, commercial truck financing is a necessity.

How Does Commercial Truck Financing Work?

In its most basic form, commercial truck financing is a lot like getting a personal loan. Lenders will evaluate your financial condition and determine whether or not you qualify for a loan, and at what interest rate they are willing to accept for the risk of financing you.

However, the actual process of commercial truck financing is a bit different than it is for personal loans. With a commercial loan, the financial history of your business can often be more important than your personal credit report, depending on the lender and type of financing you seek.

Lenders will traditionally ask for at least three years of your company’s financial statements so they can evaluate your profitability. The more successful your company is, the more likely you are to be approved for a commercial loan with modest interest rates.

Even companies that aren’t profitable can be approved for commercial loans, however. If your company generates significant cash flow or is moving towards profitability, a lender might still be willing to work with you.

Just as with personal loans, there is no shortage of banks, credit unions and other finance companies that are looking for additional customers. Each of these lenders has their own requirements for qualification, and some could be a better match for your needs than others.

For example, credit unions aren’t likely to offer semi-truck title loans or other large commercial vehicle loans, but they could be an avenue of financing for smaller vehicles such as box delivery trucks. Traditional banks tend to lend primarily to well-established businesses that have a demonstrated history of generating profits. The application process for these types of loans can be lengthy. Other options, such as Seek Business Capital, serve customers like startups that might not have the time or ability to qualify for bank loans. These types of companies have a more streamlined application process and can be a good option for non-traditional or non-qualifying borrowers.

What Documents Do I Need to Apply for Commercial Truck Financing?

When you apply for commercial truck financing, your lender will need to understand the complete picture of your business and your finances. As the business owner, you’re intimately familiar with all the workings of your business, but to a lender, you are a blank slate. You’ll need to provide extensive documentation to show that your business is up and running, with the lifeblood of revenue already flowing through it.

The type of lender you ultimately work with will likely be a function of the size, operating history and profitability of your business. However, no matter the lender you’re looking to work with, you’ll need to provide certain basic documents. Remember, you’re trying to show your potential lender that you have a legitimate, fully functioning business, so the more you can offer to paint that picture, the better. You should expect to provide the following documents to any potential sources of capital financing:

  • Financial statements
  • Tax records
  • Business license
  • Applicable permits
  • Commercial driver’s license
  • Legal name and Social Security number to pull your credit report
  • Personal financial information, especially anything pertaining to your credit history
  • Proof of insurance or the ability to acquire it at the time of financing
  • Information on the type of truck(s) to be financed, including their intended use

Documentation required are at the discretion of the lender. Some lenders might not require all of this documentation, while others might request much more in-depth information. Providing what a lender needs is the first step to qualifying for commercial truck financing.

What Are the Best Commercial Truck Loans?

There isn’t one single “best” commercial truck loan available to all borrowers. The best loan for you is the one that you can get with the most favorable terms. If you’re a long-standing, well-established company, you might be able to get the best combination of rates and servicing from a large, traditional bank. Startup companies, or those with limited operating histories or other negative factors, might find that alternative options like Seek Business Capital offer the best available options. Bad credit borrowers might be best served by a lender that specializes in lending to similar credit profiles. In fact, for newer companies, online and specialized lenders might be the only options.

Should You Choose a Commercial Truck Lease or Loan?

Commercial truck leasing and commercial truck loans are very similar in some ways but have important differences. No matter which you choose, you end up making payments in exchange for getting a truck you can use in your business. Which one is better for your company depends on your long-term business plan and your cash flow, among other considerations.

  • Commercial Truck Lease: A commercial truck lease is a limited-term financing option. You’ll essentially be renting your truck from the lender, and when your term is up, you’ll return the vehicle. On the plus side, you’ll be constantly using new or newer trucks, as you’ll have to pick a new option every time your lease matures. Of course, this can also be the down side of the whole arrangement — you’ll have to lease a new truck when your original term expires, otherwise you won’t have a truck for your business any more.
  • Commercial Truck Loan: A commercial truck loan makes you a commercial truck owner. When you’re done paying off your loan, the lender will hand over the title and the truck is officially yours. The main benefit of a loan is that you stop making payments after your term is over. The main drawback is that you might now own a truck that you no longer want. Let’s say you’ve got a 5-year lease, and your drivers average 50,000 miles per year. You now own a 5-year-old truck that has 250,000 miles on it, and it’s your main business truck. You might be done making finance payments, but you can expect your maintenance costs to continue climbing.

There’s no one correct answer when it comes to leasing versus purchasing a truck for your business. You’ll have to run a cash flow analysis that includes depreciation and factors in your future business needs to help you determine which might be the appropriate option for your company. Opting for a commercial truck lease or loan might also just come down to personal preference.

You can also ask an accountant for help in making your decision between leasing and financing. In addition to helping you analyze your financial situation, an accountant might better understand the tax ramifications of your choice. Leasing and financing might offer different tax benefits, possibly to the point that the scales are clearly tilted towards either leasing or financing for your company.

Does My Personal Credit Score Affect Truck Financing?

A good personal credit score isn’t an absolute necessity to qualify for commercial truck financing. However, it could help lower the rate you have to pay or the size of your down payment. Anything you can do to demonstrate to your lender that you have the ability to repay a loan is a plus, so having a good record of paying off your own personal liabilities can do nothing but help.

Of course, if your business is an LLC or a corporation, you aren’t personally liable for the finances of the company. But a good credit score can nevertheless demonstrate that you take your liabilities seriously and that you aren’t likely to simply walk away from what you owe.

If you’re a startup, you might not have much to show your prospective lender in terms of operating history or business credit, so having a spotless personal credit report might be particularly important.

How Does My Credit Affects Commercial Truck Financing?

Credit, both personal and business, is the cornerstone of any type of financing, and commercial truck financing is no different. If you can’t demonstrate the ability to pay back your loan, you’re not likely to find a warm reception from commercial lenders.

Every lender wants to get paid back what they lend out, which is why established businesses with massive cash flow have greater access to financing of all types. The good news is that the lending community understands that not every business is going to be Apple or Walmart, with billions of dollars in revenue every year.

In fact, the vast majority of businesses are small businesses, and small businesses have every bit as much of a need for financing as long-established businesses — perhaps even more so. As these businesses need servicing, numerous lenders exist that actually focus on companies that might not have top-tier credit.

Of course, this doesn’t mean it is easy. Businesses with bad credit or short operating histories have to make other concessions in exchange for the added risk that they present to lenders. This can come in the form of added collateral, a larger down payment, less favorable lending terms or all of the above.

Does Being an Owner-Operator Affect My Financing Options?

As a sole proprietor owner-operator, a lending company might see you as a higher risk than a trucking corporation. If you’re essentially a one-person show, by definition you are taking on a higher risk than a corporation or limited liability company. In addition to being responsible for all of the company’s finances, you are the one actually operating the truck. Overall, there can be greater financial pressure. If, on the other hand, you’re running a trucking company that hires out its own drivers, you can keep your fleet constantly running and generating revenue, with no vacation time or other day-to-day business obligations interfering with your cash flow.

Do I Need a Down Payment to Finance a Truck?

The short answer is no, but you should.

The larger the loan, the more risk the lender takes. If you can put up a larger down payment, you’re reducing the risk to the lender and will therefore be more likely to be approved for a commercial truck loan. You could get more favorable rates and terms if you have a down payment, and it’ll ultimately save you money since you won’t have to pay interest on the entirety of the truck’s value.

Usually, you’ll have to put at least something down, even if you’re an established business. If you haven’t been in business for very long, or if your business doesn’t generate powerful free cash flow and earnings, you can expect the required down payment percentage to rise. Some lenders ask for 30 percent to 50 percent as a down payment from certain borrowers.

There are some no money down financing options, but they’re generally reserved for those with good to excellent credit. If you can afford to put down a down payment, it’s in your best interest to do so.

Should I Buy a Truck From a Truck Vendor or Private Seller?

If you’re buying a truck from a reputable truck dealer, you’re more likely to get your loan approved because you’re reducing risk for the lender.

When working with a licensed dealer, your truck will have a paper trail attached to it, including information on the truck’s history of owners and its maintenance schedule. With a private seller, this information might not be available.

You might be able to buy the truck for a cheaper price from a private seller, but you could lose out on the back end if your loan comes in with a higher interest rate.

Do I Need Truck Insurance to Finance a Truck?

Since your truck acts as collateral for your loan, your lender will no doubt require insurance on your truck. Otherwise, the loss of your truck could prove catastrophic to both you and your lender. Without a truck, you might not be able to do business any more, thus eliminating your ability to repay your loan. Since damage to commercial trucks is fairly common, insurance is a must.

Truck insurance can be expensive. In fact, insurance can be one of the biggest fixed costs that you’ll face, so you’ll have to factor that in to the overall cost of financing your truck. On top of liability insurance — of which you might need coverage of at least $750,000, or $5,000,000 if you’re a hazmat hauler — here’s just a small sampling of the insurance types you might need:

  • Bobtail insurance, which protects you when driving a truck without a trailer
  • Physical damage insurance
  • Non-trucking liability
  • General liability
  • Workers’ compensation
  • Umbrella insurance
  • Trailer interchange insurance
  • Cargo insurance

Depending on the type of truck you are financing and the particulars of your business, your lender might specify minimum insurance amounts as well.

What Costs Will I Pay After I Finance a Truck?

When determining your budget for a commercial vehicle loan, don’t overlook the ancillary costs that come with owning and operating a truck. On top of your lease or loan payments, you’ll have to factor in these additional expenses, among others:

  • Repair
  • Maintenance
  • Fuel
  • Tires
  • Tolls
  • Insurance premiums
  • Licenses
  • Permits
  • Driver wages
  • Driver benefits

According to the American Transportation Research Institute, these marginal costs added up to $1.691 per mile in 2017, the most recent year for which summary data is available. This translates to additional operating costs of $66.65 per hour, on average.

If you use your entire capital budget to acquire or pay for a truck, you might not have much flexibility in your business when these additional costs trickle down to your bottom line. It’s important to consider your entire financial picture when deciding how much truck you are willing to finance.

Another element to consider is your future trucking needs. If you intend to stay in business for the long-haul — and that should be the goal of any business — the time when you need newer or additional trucks might not be that far in the future. Even if you intend to stay with a one-truck fleet, the average truck-tractor is replaced after just 7.6 years, or 695,000 miles, also according to the ATRI.

The good news is that if you’ve found a reputable lender, you shouldn’t be making these calculations alone. As a lender has a vested interest in the success of your business, so some will even help you break down your anticipated future costs and how they could affect your ability to pay off your loan. At the end of the day, neither a borrower nor a lender should be interested in a loan that can’t be repaid.

Which Is Better: An Operating Lease or Capital Lease?

Both operating and capital leases have their pros and cons. The needs of your company will dictate which is the better option for your company.

Operating leases are best for companies with limited cash flow, as monthly payments are lower. Businesses that need or prefer newer vehicles in their fleet are also good candidates for operating leases, as you’ll constantly be getting new vehicles every time your original lease matures.

Capital leases can end up being cheaper in the long run for companies that maintain their vehicles well. As you’ll own your commercial truck outright at the end of your lease term, you’ll want to keep your vehicle in tip-top shape so that it will remain in service long after your lease matures.

With a capital lease, you won’t be signing up for an endless stream of monthly payments as you would with an operating lease. Although your fleet of vehicles won’t always be brand new, you will have an asset on your balance sheet. Of course, you’ll also have all of the responsibilities of ownership, such as maintenance.

How Does the Type of Truck Affect Financing?

Certain types of trucks are less risky for lenders to finance than others. Vehicles used for long-haul trucking, for example, are riskier than trucks which are used for local deliveries. The reason is simple math. Trucks which remain in a relatively limited area don’t rack up the miles as much as those which are going back and forth across the country, and a truck with less mileage is more valuable.

Additionally, high-mileage trucks that are in constant motion are more likely to need repairs. Repairs not only drain a business of cash flow but also reduce revenue, as a disabled truck can no longer generate cash flow for a company.

How Does the Age of the Truck Affect Financing?

The newer the truck you are looking to finance, the more likely you’ll be able to get a loan. Older trucks tend to break down more often, posing the risk of lost revenue for a business. Lost revenue means the higher risk of missed payments, something lenders try to avoid when issuing loans. This makes used truck financing harder to come by, and typically more expensive.

It’s true that not all older trucks are in poor condition or have high mileage. However, even older trucks that are well-maintained can be problematic for lenders. If for some reason you can no longer make payments on your truck, your finance company will repossess it. While this might seemingly make your lender “whole,” in reality, your lender is stuck with an old truck that it has to sell to recoup its loan loss. By their very nature, older trucks are harder to sell, even if they are in good condition, which makes it more likely that the lender will lose money on the transaction.

For this reason, it’s nearly impossible to get a lease on an older truck, as opposed to straight financing. Unlike the above scenario, which is perhaps unlikely, with a lease arrangement, a lender must take the truck back at the end of the contract. At that point, the lender is in the same predicament — it must sell an old truck to make money on the transaction, which can be hard to do.

How Does the Condition of the Truck Affect Financing?

The condition of the truck being financed is an extremely important factor in determining the risk involved with any particular loan. Since the truck itself serves as the collateral for the loan, a truck with little or no value won’t be worth the risk of extending the loan.

Imagine this scenario: A borrower gets a loan for a truck with over 1 million miles. After a few months, the borrower can no longer make payments. The lender repossesses the truck, which now has 1,100,000 miles and is on the verge of breaking down. The lender ends up losing money, as it wouldn’t be able to sell the broken-down truck for enough money to cover the outstanding loan balance. It’s just not worth it for the lender, therefore they typically will not finance trucks in such conditions.

How Does Having Business Cash Reserves Affect Truck Financing?

Having a long-term, profitable business and making a large down payment might be enough to qualify you for a loan, but lenders still need to know that you can afford to make the payments on that loan. Your odds of qualifying for a loan with a low interest rate can improve dramatically if you show a high level of cash reserves.

Cash reserves are important because every company is subject to the business cycle. There will inevitably be leaner times when your business isn’t pulling in the cash flow that it might earn when times are good. No matter what your current business situation, your lender will expect you to continue making your regular loan payments. With significant cash reserves, you’ll be more likely to make those payments regardless of the current business environment, thereby making you less of a risk for the lender.

Cash reserves are also necessary to cover the ancillary expenses involved with financing a commercial truck. Without extra cash on hand — or a high revenue stream or cash flow — your business might be stretched to cover daily operating expenses on top of the strain of a new commercial vehicle loan. Lenders take all of this into account, so having additional cash reserves can make it much more likely that you’ll get approved for your loan.

Can I Get Commercial Truck Financing From an Online Lender?

Online lenders have a lot to offer when it comes to commercial truck financing — primarily convenience. A quick search online can turn up a number of nontraditional lenders that operate primarily or solely online, which can make the entire financing process more streamlined.

Another benefit of online lenders is that they tend to have less restrictive credit requirements for borrowers. Whereas an established bank might require years of profitability, a sparkling personal credit score and a significant down payment to finance certain businesses, online lenders might offer more flexibility and leniency.

That said, online lenders might have higher interest rates and no in-person customer service. Decide what matters to you most and weigh your options.

The Bottom Line

The world of commercial truck financing has lots of moving parts. However, at its core, it’s not too different from financing a personal car. Companies with the best cash flow, no credit delinquencies and a long operating history are the most likely candidates for loans with good terms. Startup companies, or those looking to finance a single truck, might run into more difficulties obtaining financing. However, specialized lenders do exist that can tailor financing to the needs of even new businesses. Whatever your financial position, try to present the most positive financial and credit history you can before you begin the application process. Research lenders that might be a better fit for your business and you’ll have the best luck at securing your commercial truck financing.

As with many relationships in life, the match you make with your commercial truck lender has to be right for everything to go smoothly. What might seem like the most popular or the most generous lender might not be the right one for you and your company. In addition to getting approved for the financing you want, it’s also important to look for appropriate servicing and support when choosing a lender.

A lender that understands your specific needs might be able to better come up with solutions to your financing needs and might even anticipate potential problems in your industry that you might not see coming. These types of lenders can prove invaluable to growing companies, even if the interest rates they charge could be slightly higher those offered by other institutions.

The bottom line is that you should consider the entirety of a working relationship with a finance company before making a decision that could impact the success or failure of your company. It’s not all about interest rates, terms or the name on the lending company’s stationery. The lender that can best help you company succeed overall is the right one for your business.