Commercial trucks are one of the largest investments you can make as the owner of a trucking company. Whether you are just starting out or you are expanding your fleet, commercial trucks are critical to the operations and growth of trucking companies.
Even so, paying for a commercial or semi truck can significantly affect your company’s finances. If you want to buy a large truck for your business, consider taking out a commercial truck loan.
What Is a Commercial Truck Loan?
A commercial truck is a necessary investment for your trucking company. That said, with average prices ranging from $100,000 to $200,000 per truck, many business owners don’t have the cash that is needed to buy a new truck for the sake of expanding their fleets.
With a commercial truck loan, a business owner can use the truck as collateral to secure funding. The owner receives the funds needed to buy the truck without impacting the cash flow of the company. Similar to a commercial auto loan, the lender will hold the vehicle’s title until you have paid your obligation in full.
How Does a Commercial Truck Loan Work?
You must endure the commercial truck loan approval process like you would for any other type of business loan. After completing your application, you may be asked to provide your tax returns as well as your financial statements.
Lenders will often assess your personal credit history when they decide to lend you money and set your interest rates. Most lenders require a down payment of between 5% and 25% of the truck’s value. However, the age of the truck as well as your personal credit history can influence the amount of money you’ll put down and your interest rate.
Pros & Cons of a Commercial Truck Loan
Whether you are just starting out or you are trying to expand your fleet, a commercial truck loan can provide you with the financing you need. Before taking out a commercial truck loan, you should consider the pros and cons of doing so.
Advantages
Taking out a commercial truck loan can help your trucking company in a variety of ways:
- Helps you build your fleet without draining your cash flow
- Full ownership of the truck after the loan is paid off
- No need to put down other collateral
- Better interest rates than an unsecured loan
Disadvantages
It is essential to consider the potential downsides of commercial truck lending as well. Here are a few factors to take into account when you decide to pursue semi truck financing:
- Possibility of losing your truck if you don’t make your monthly payments
- Can be expensive if you don’t have a high credit score
- Might be charged a higher interest rate or required to put more money down
5 Steps For How to Get the Best Commercial Truck Loan
A commercial truck loan is a significant financial obligation. To get the best deal possible, consider the following five steps.
Step 1: Research Lending Options
Not all funding options are equal when buying a commercial truck. Each lender has its own set of criteria that you must meet prior to being approved for financing.
Interest rates and loan terms vary based on credit history as well as your experience in the trucking industry. As such, it is a good idea to explore your options when looking to secure the best financing terms possible.
Banks
Many banks will finance the purchase of commercial trucks. You could receive a lower interest rate or better loan terms if you have an established relationship with a bank as well.
The bank may even work with you as you seek to obtain the money you need for a down payment. Just keep in mind that banks often have strict lending requirements, so a lower credit score or minimal experience in the trucking industry could potentially work against you.
Alternative Lenders
Alternative lenders can help you finance commercial trucks via their network of banks and financing companies. You’ll fill out one application, which should help you be matched with all of the lenders in their network.
Alternative lenders can be a good option if your credit score is lower than average. You can also save time with this route because alternative lenders will connect you with several different finance companies.
Direct Commercial Truck Lenders
Some lenders specialize in commercial and semi truck financing. Direct commercial truck lenders know the trucking industry, and in addition to their expertise, they may be easier to obtain funding from as well.
However, some commercial truck financing companies only offer leasing options. Make sure you ask questions about their financing options ahead of time so that you don’t get stuck in a leasing arrangement that isn’t best for you.
Step 2: Understand the Lending Requirements
Each lender sets criteria when it comes to extending commercial truck loans. Many lenders require a minimum credit rating or a specific down payment as well.
Some lenders will ask for proof of insurance and commercial truck licenses. Other lenders will consider how long you have been in the trucking industry or ask you to submit a business plan.
Some commercial financing companies will require you to finance a predetermined minimum amount, and they might only extend credit for the purpose of buying newer vehicles as well.
Step 3: Compare Interest Rates and Loan Terms
Financing terms vary by lender. Your interest rate may be influenced by a few factors, including how long you’ve been in business, your personal credit history and the amount of debt your company owes.
Some lenders may offer a lower interest rate to a trucking company with a solid financial history and steady revenue stream. Furthermore, most commercial trucks have a useful life spanning from five to 10 years.
The amount of time you will be allotted to repay a commercial trucking loan is often limited by the truck’s useful lifespan. This helps to curb the possibility of people continuing to make payments on trucks that are no longer in working order.
When you compare financing terms between lenders, you can use a truck loan calculator to estimate your monthly payment with the interest rate and loan terms each lender offers you.
Step 4: Review Financials and Required Down Payments
As part of the approval process, lenders typically review your company’s financial statements. Some lenders limit financing to companies that generate $250,000 or more in annual revenue.
Other lenders consider how long your company has been in operation as part of the trucking industry. Lenders will also take into account your personal financial statements and credit score when deciding whether or not they will extend credit to you.
Lenders have different down payment requirements. Some semi truck lenders will look at your credit score to determine how much money you need to put down, and you may be asked for a larger down payment if you have an average credit score.
The amount of money you need to put down might be considerably less if you have a strong credit rating as well. In other cases, lenders might base your down payment on the value of the truck.
Step 5: Have All of the Necessary Documentation Ready To Go
At a minimum, make sure you have the following documents available when pursuing a commercial truck loan:
- Corporate tax returns
- Three years of company financial statements
- Owner’s personal financial statement
- Commercial driver’s license
- Proof of insurance
Since the truck you want to buy will serve as collateral, you should know the vehicle’s make, model and year.
Grow Your Trucking Business With a Commercial Truck Loan
Commercial trucks are the backbone of trucking companies. However, the high cost of commercial and semi-trucks can make it very difficult for owners to buy new vehicles as needed.
But with a commercial truck loan, you can expand your fleet and grow your trucking business. Since these specialized loans use trucks as collateral, owners can get the necessary financing they need with minimal impact to their cash flow, if any.
FAQ
A low credit score doesn’t automatically disqualify you from financing a commercial truck. However, most lenders require a credit score between 600 and 675 at a minimum before they will consider extending financing options to you.
Commercial truck repayment terms are typically limited to the vehicle’s lifespan. While most loan terms are based on a five-year life, you may be able to finance your commercial 18-wheeler truck over a longer period.
You can use a conventional loan to buy a commercial truck and pay for business-related expenses. However, since many small business loans are unsecured, you could be stuck with a higher interest rate or shorter repayment terms.
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