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Commercial Truck Financing

commercial truck

How To Get Commercial Truck Financing

The same way that you can’t just walk onto the lot of a local auto dealer and buy a commercial truck, you can’t just get a regular auto loan to buy it. If you’re; buying a new or used truck, leasing a new or used truck, or repairing or upgrading a truck you already own, you need commercial truck financing.

Commercial truck loans are a form of equipment financing. If you have an existing relationship with an existing financing lender, they can likely meet your commercial truck financing needs, too. With this type of financing, the truck serves as collateral for the loan, which lowers lender’s risk. Lower risk means lower interest rates and better terms.

How much will you pay for commercial truck financing? And is this type of loan right for you? Find out.

Commercial Truck Financing Rates and Terms

Interest rates and terms on your commercial financing truck loan will depend on your credit score and other qualifications, the specific vehicle you’re buying, and your lender. But, in general, here’s what to expect. 

Loan terms – The typical loan term for a commercial truck loan is ten years, but with alternative lenders you can get a shorter term. A loan’s repayment is spread over it’s term – a longer term equals a lower payment.

Loan amounts – In most cases, you’ll have to put down some money on your loan. Lenders finance 75% to 95% of the truck’s total value. Only highly-qualified borrowers can finance 100%.

Interest rates – Commercial truck financing lenders usually charge interest rates between 5% and 30%, based on factors such as your creditworthiness, business age, and type and condition of the truck. Interest rates are usually fixed, keeping your payment the same every month.

Fees – Traditional lenders often charge application fees, appraisal fees, or credit check fees, which add to the loan’s total cost. You can often avoid these fees if you work with an alternative lender. 

Qualifying For a Commercial Truck Financing Loan

Knowing what lenders look for when extending a commercial truck loan increases your chances of having your loan approved. 

Is Your Truck Lender-Friendly?

Since the truck you’re buying or leasing serves as the loan’s collateral, you should identify the truck you plan on buying before talking to lenders. If you contact them and haven’t picked one yet, they’ll ask you to come back with an actual truck chosen.

When you apply, lenders will ask for the following information about the truck:

  • The truck’s make, model, serial number and year
  • Mileage
  • Used or new
  • Condition report
  • Any past major repairs for a used truck
  • At least three pictures of it
  • If it’s being sold privately

They will want to know if it’s a vocational truck or a long-haul (semi) truck because there are different risks associated with them.. Garbage trucks, dump trucks, or any truck with a specific use that’s driven within a limited geographic area qualify as vocational trucks. Semi-trucks transport freight over 100’s of miles.

Vocational trucks typically accumulate less mileage, and thus need fewer repairs. Because semi-trucks cover long distances they have more wear-and-tear. If they’re out of commission because they need repairs, you’re not making money and could fall behind on payments.

The lender also evaluates the truck’s condition. Look for one that’s less than 10 years old and has less than 600,000 miles on it.

Are You Buying from a Reputable Dealer?

Commercial truck financing companies also prefer it if you’re buying from a reputable dealer. It’s easier to get a loan if you’re buying from a dealer because there will be a more standardized paper trail on the truck and the lender has a greater assurance in its condition.

An exception is if the truck is in good condition and you’re buying from a private party through an auction. Valuation sites such as Kelley Blue Book have made it easier to get approved for trucks purchased this way.

Do You Have a Down Payment and Other Cash Reserves?

The average down payment for commercial truck financing is 15%, but you can put down anywhere between 0% to 25%. Only the most credit-worthy borrowers will qualify for lower down payment amounts. Before you apply, make sure you have enough of a down payment to qualify.

Lenders will also want to see enough cash reserves to afford both the loan payment and other expenses, such as repairs and insurance payments. Remember, if you can’t afford to fix your truck, you’re not generating income. And if you can’t afford insurance payments, the collateral for their loan is in jeopardy. 

Lenders prefer cash reserves of $10,000, and will want to see more if you’re a newer business or have a poor credit score.

What Does Your Credit Profile Look Like?

Your personal credit score will impact whether or not you qualify for a loan and the rates you’ll pay. If you have a lower score, you present more risk to the lender. They’ll worry that you’ll make late payments or default on the loan.

Because they could repossess your truck and sell it to cover the loan, they will lend if you have a lower credit score. But you’ll pay much higher rates on the loan than if you had better credit.

The lender will also look for any liens, repossessions, or delinquencies on your business. These could show up on either your personal or business credit report. If you have an open bankruptcy, a recent vehicle repossession, or past-due child support balances they will likely deny your loan application.

Your length of time in business is part of your credit profile as it reflects your success as a small business owner. Businesses with less than two years of operations will find it difficult to qualify for loans over $40,000. Strong credit, a 10% to 20% down payment, and high cash reserves can offset this. 

Do You Have Truck Insurance?

Lenders want to know that you’ve protected their asset on the road. They’ll ask to see proof of commercial truck insurance which includes: 

  • Liability coverage
  • Physical damage coverage
  • Bobtail coverage for non-trucking use
  • Storage and cargo coverage to ensure whatever you’re hauling

Best Commercial Truck Financing Loans

Once you’ve identified the truck you want to purchases, you’ll have a few options for financing. Here are three of the best loan products to finance your purchase.

Commercial Truck Financing Loans

Commercial truck financing loans fund the purchase of a specific commercial truck. The funds from these loans can only be applied to the truck purchase, and the lender may want to have your truck appraised. If your credit score is less than 700, they could require a personal guarantee.

Commercial truck financing lenders will only extend enough credit to cover the purchase price, though borrowers with excellent credit can borrow up to 100% of the equipment’s price. Interest rates at alternative lenders range from 5% to 30%, but they’ll work with you if you’ve been in business for a shorter time.

The commercial truck serves as the loan’s collateral, so you’ll pay a lower interest rate than an unsecured loan. It can be an easier loan to qualify for, even with a lower credit score, if you’re buying a specific truck. 

 Short-Term Business Loans

If you don’t want to wait for a truck appraisal, or need more than you qualify for with a commercial truck lender, a short term loan might be your best option. These loans also have the bonus of paying it off quickly, sometimes in just months. 

Alternative lenders offer short term business loan with terms of six to twenty-four months with interest rates of 9% to 45%. To apply for a short term loan you must have been in business for a minimum of two years and need a credit score of at least 650. 

Your business’ minimum monthly revenues must exceed $10,000 and there are no prepayment penalties. If you want to pay off the loan quickly – for personal reasons or because you don’t need loan interest deductions on your taxes in future years – a short term loan could be better for your business than a commercial truck financing loan. 

Bad Credit Business Loans

Unfortunately, the ups and downs of the long-haul industry over the past few years could have negatively impacted your business and damaged your credit score. If you were in an accident and out of work, you could have fallen behind on commercial truck payments to your last lender. If you had to borrow significantly at some point, and saw your credit score slip, traditional lenders may decline your loan application. 

Banks reject about the same number as loan applications as they approve, and it can take months for them to approve a loan application. While your credit score could qualify you for bank financing, you’re probably eager to get back on the road. And other factors can also lead to a loan application’s rejection. They prefer that you’ve been in business over five years, or have significant cash reserves. 

Alternative lenders offer bad credit business loans to borrowers with rocky credit histories or who can’t qualify for traditional financing for other reasons. You could use the proceeds from those loans to purchase your truck. 

If your business generates minimum monthly revenues of $8,000 and you have a credit score above 500, you can qualify for financing with an alternative lender for terms of two to eighteen months. Shield Funding gives borrowers loans in amounts ranging from $5,000 to $1 million, at rates of 12% to 45%. 

If you know that it’s time to take out a commercial truck financing loan or another loan to purchase the equipment your business needs to be successful, apply today! It takes just a few minutes online, and your loan could be funded within a few days.