Getting a loan on a commercial vehicle can be a complex process. Lenders tend to be more lenient with semi truck loans, because the vehicle possesses high collateral value and is typically only used for business purposes. However, getting semi truck financing isn’t going to be a walk in the park either. You will need to show the commercial lender that you can make loan payments. Here are six things you can do to improve your chances of getting commercial truck financing:
1. Have a registered business.
Most states require an LLC or corporation to register through the Secretary of State. If you are a sole proprietor, you should be able to show business income through your taxes. As a new sole proprietor, you may want to get an employer identification number (EIN) or have a doing business as (DBA) name. Your lender may also want you to have a CDL, a Motor Carrier (MC) number and USDOT number. Some lenders want to see some experience, at least two years, in the industry.
2. Work on your personal credit.
For new owner operator financing, you may need to have a personal credit score of 600 or more to qualify for financing. If you’ve been in business for a couple of years, you may have a little more leeway. As a sole proprietor, you are probably relying more on your personal credit than your business credit. The higher your score, the better chances you have to qualify for a loan and for a lower down payment.
If you have a lower credit score, you may want to find a co-signer or work on your credit score before applying for a loan. If you are behind on child support, have had a recent bankruptcy or repossession or have a tax lien, the lender may refuse financing. Take care of your finances before applying for a commercial loan.
3. Find a good truck to buy.
The lender may have specific requirements about the truck, for example, it may need to be less than 10 years old, or have less than 700k miles on it. This is to protect their investment as well as your business. Older trucks break down more frequently. The collateral value isn’t as high. However, provided the truck is in good condition, it’s easier today to purchase the truck through a private party or even an auction. Generally, you will need this information
- Make, model, year and mileage
- Serial number
- Pictures of the truck
- Condition report
- Specifications of the sale, the seller, new or used truck, etc.
- Check with the lender for everything you need to finalize the purchase
4. You will need money for a down payment and cash reserves.
Most of the time, you won’t qualify for 100 percent financing. Having a down payment of 10 to 30 percent will reduce your loan payment quite a bit and make the lender feel more confident in your ability to repay the loan. Your lender may also want to see a cash reserve of one to three months to cover repairs, insurance and expenses in case you have a slow month. It makes good business sense to have a little extra in the bank. You never know when you may have to wait for payment or have to take time off because you have the flu. Unexpected things can often upset your finances more than you realize.
5. Have insurance lined up.
Generally, you will need insurance to cover the truck before lender releases the money to pay for the truck. The type of insurance your business requires will depend on many factors, as does the cost of insurance. Make sure you have a policy lined up while you’re working with lenders.
6. Work with your lender.
Traditionally, owner operator loans were only available through financial institutions, such as banks or credit unions, but there are many more lenders in the marketplace today. Many online lenders have almost instant credit decisions, allowing you to have more options for commercial truck loans.
You may want to consider each company carefully before applying. First, lenders may have different qualification requirements. They may also specialize in different types of loans or only work with certain leases. Every lease application can affect your personal credit. Do your research first. Don’t just take the first approval you get. Read all the terms and conditions of the loan application before signing.
Enjoy Financial Freedom
Owning any type of business doesn’t mean that you will be free from responsibilities. You may not have a boss looking over your shoulder any longer, but your stakeholders will be expecting you to make payments on time. However, when you purchase your own new or used semi truck, you are on track to having financial independence. It will take hard work, but you can do it. Just make sure you take the time to understand the requirements of owning your own truck.