How Does Commercial Truck Financing Work? [Updated 2022 Guide + Audio]

Read (or listen) about the ins-and-outs of obtaining the best financing for commercial trucks—including semi trucks, dump trucks, and much more.

commercial truck financing

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Guide Contents

What is commercial truck financing?

Commercial truck financing is a smart way for businesses and owner-operator truck drivers to obtain commercial vehicles—from semi trucks to dump trucks and beyond—without paying extravagant expenses upfront. Instead of paying cash for commercial trucks—which is beyond the budget of many businesses—specialized financing companies lend money that is paid back at predetermined periods in set installments with interest.

This guide covers the commercial truck financing process from start to finish and also provides specific information for each industry (including semi truck financing rates), so whether it’s a semi truck, dump truck, tow truck, or any other type of commercial truck, you’ll be fully prepared to get financed!

There are three main components to financing any type of commercial truck, and all of them play a role in determining your monthly truck payments:

Down Payment
A down payment is a portion of the vehicle’s total worth that’s paid up front.

Interest Rate
Interest rates are the percentage of the transaction that financing companies charge in order to finance the loan. Interest rates are lumped in with the monthly payment of your commercial truck or equipment.  

Loan Terms
The loan term is the total amount of time allotted to pay off the vehicle along with the agreed upon interest rate.

Financing Paperwork Before signing anything, know what to expect, what to ask, and what to watch out for with this guide!

Down Payment Options

To initiative your truck's financing plan, most financing companies require an initial larger sum also known as a down payment. Several financing companies will provide various down payment options that vary based on the borrower's credit, truck specifications, financing plan options, and the borrower's preferences.

What are the benefits of paying higher down payments?

When presented with the option of paying a higher or lower down payment, lower isn't always necessarily a better option. Paying a higher down payment means that less of the price of the commercial equipment will need to be financed—making monthly payments lower or a loan term shorter in duration. 

What are the benefits of paying lower down payments?

Lower down payments ease the cost of obtaining a new truck while distributing the cost across later monthly payments. These are especially helpful for companies that are a little strapped for the available cash needed to hit the road. 

What is the ideal down payment amount?
An ideal down payment amount is one that helps lower monthly payments while remaining affordable for the business. 

Let’s illustrate the importance of leveraging the ideal down payment and shopping around for the proper interest rate using semi truck financing rates as an example.

  • Let's say that a new semi truck costs about $150,000.
  • One financing company may ask for a 5% down payment—requiring $7,500 up front.
  • Another financing company may ask for a 15% down payment—requiring $22,500.
  • That’s a down payment difference of $15,000.

Your down payment decision ultimately comes down to answering a simple question: do you want to pay more now or later? Such a decision should be informed by your budget—both in existing funds and projected revenue. Reputable financing companies may be able to help you determine which down payment options best suit your current and forecasted business situations.

Semi Truck Financing

Interest Rates & Loan Terms

As we've mentioned before, your loan term is the amount of time needed to pay off a truck in monthly installments. The longer your loan term, the lower the monthly payment installments will be. While this is the case, a longer term also means additional interest payments and likely a higher overall amount paid for a financed commercial truck.

To illustrate this idea, let’s use the same semi truck financing example as before—a new semi truck with a price tag of $150,000.

  • Let’s assume you’ve made a down payment of 10% ($15,000) and have an interest rate of 5%.

If the loan term is 3 years:

  • Your monthly payment will be about $4,000
  • You'd also pay over $10,000 in interest fees—the cost of being able to finance the truck.

If the term length is 5 years:

  • Your monthly payment will be about $2,500
  • Though your monthly payments will be lowering, you will have paid nearly $18,000 in interest payments—almost double the interest paid in comparison to the 3 year loan term.

While monthly payments tend to be lower with a longer term, the overall amount paid for the truck would be higher at the end of the loan term.

For those looking to avoid costly interest payments, aggressively paying off a loan is advised as an effective overall cost cutting measure. However, for companies that prefer lower monthly operating costs, longer financing terms may be the preferred option. 

Articulated Dump Truck Commercial truck financing is for many vehicles besides semi trucks—.

What criteria do commercial truck financing companies consider?

Commercial truck financing companies always look for this information about the vehicle itself when determining rates:

The Age of the Truck

It will always be easier to finance a newer commercial truck. Newer trucks have less problems and are more likely to earn back the money needed to pay them off. They will also sell for a better price in case they are repossessed and go to auction.
As a general rule, banks won’t finance commercial trucks that are older than 7 years—though many financing companies will.

The Condition of the Truck

Financing companies want to know the condition of a vehicle for the same reasons as knowing it's age—to determine how likely they are to finance a vehicle that will manage to make money for the owner till the end of its loan term. 

The Total Appraised Value of the Vehicle

The total appraised value of a vehicle—not be confused with the price of the truck—will help financing companies and banks determine various relevant factors, such a down payments, interest rates, and the like. 

To satisfy the need for this information to receive financing quotes, you can submit the following commercial truck information to financing companies: 

  • The truck's make and model
  • The model year
  • Any serial or VIN numbers
  • If you're intending to buy it new or used
  • If you're intending to buy the truck from a dealership or a private seller
  • And three images showing the present condition of the commercial truck you'd like to finance

In addition, financing companies are also looking for information about the borrower themselves.

Your Business History

Most financing companies prefer commercial trucking businesses that are at least two years old—especially for semi truck financing, where two years in business is considered ample.

Any Multiple Accounts

Numerous significant business accounts that have been open for a long time indicate that you are a reliable borrower who can be trusted. Business accounts with little activity, however, are generally a red flag and can increase rates.

Your Revenue

A trucking business that has demonstrated its earning potential will have an easier time receiving ample and affordable financing.

  • The more you want to borrow, the more your business should be able to reliably earn.
  • Ask your lender how much revenue they want to see.
  • Banks tend to prefer a year-round business to seasonal ones, but commercial vehicle financing companies are typically more understanding.
Your Business Credit
Like individuals, companies have certain credit ratings. Financing companies will likely request credit ratings or similar information to determine risk factors and rates. A history of late payments and bankruptcies may result in higher quoted rates or bank loan denials. Financing companies, however, tend to be more understanding and may be more apt to providing financing despite such records—albeit likely with stipulations, including higher rates, decreased loan amounts, and the like. 

Your Personal Credit

If you are an owner operator shopping for your own truck, financing companies will likely use your personal credit score to help determine rates.

Your Insurance

Financing companies will pre-approve you without showing insurance—however, any borrowed funds won't be delivered until proof of insurance is shown, so start shopping for quotes beforehand!

Your Commercial Driver’s License (CDL)

A valid commercial drivers license (otherwise known as your CDL) may be required to receive financing for a new commercial truck.

Your Cash Reserves

Financing companies feel more comfortable doing business with anyone who can demonstrate that they have at least one month’s worth of cash on-hand to deal with repairs, insurance costs, and any other expenses during times of low income.

Business Financial Records What financing companies want to see from your business records.

How can I verify my trucking business with financiers?

There are multiple ways to prove the value of your business to lenders to receive much-needed financing.

Limited Liability Corporations (LLCs) and Other Corporations

Lenders can verify Limited Liability Corporations (also known as LLCs) and other corporations through their state’s Secretary of State website. Of course, your LLC would need to register first.

Sole Proprietorships

Being a sole proprietor implies that you own the business and are responsible for its debts. You may use your Schedule C tax filings to prove that you are a legitimate business.

A quick side tip: For brand-spankin'-new businesses, apply for an Employer Identification Number (EIN) along with a Doing Business As (DBA) application (which lets you officially declare a name for your business).

Your Partnerships

If you are in a partnership, you can submit a Schedule K-1 to show how profits and losses have been divided among members of such partnerships. 

Register Business Registering your business online is a quick way to verify yourself to financing companies.

How can I find commercial truck financing with bad credit or no credit?

A common problem—especially for new businesses—is obtaining financing with little or no credit history. Fortunately, credit scores determine rates more than overall eligibility. In other words, you can still find plenty of financing with a bad or limited credit history.

In-House Semi Truck Financing

There are many financing avenues within the commercial trucking industry for companies with limited or less-than-great credit. Bad credit or a lack of credit can usually be offset in a few ways.
You can offer higher down payments via an arrangement known as “in-house semi truck financing” in which down payments are typically between 10% to 25%. You may also offer collateral in the form of home equity or other vehicles.

Some financing companies may offer semi truck financing with no down payments or credit check—albeit with dramatically higher rates in most instances used to offset risk on their part.

Even independent drivers can still obtain financing with a subpar credit score. An owner-operator who needs a semi truck and can afford a 25% down payment for $40,000 or less of the total financed amount will likely qualify—regardless of their credit situation.

In summary: bad credit or no credit means higher rates.

This is usually the cost to obtain financing in order to get the heavy duty vehicles you need.

Obtaining a Co-Signer for Financing

Another popular way to receive financing with bad credit is to have someone with good credit cosign for you. While possible, these arrangements are extremely risky for co-signers. After all, co-signers can put their own credit rating in jeopardy if you fail to make your payments on time. Co-signers are almost always blood relatives willing to stick their neck out to help a family member. 

Financing Approval In-house semi truck financing is a viable way to get approved in a difficult industry.

How do owner-operator financing rates differ from business financing rates?

"An owner-operator is a business. So, wouldn't the process of obtaining financing for a new commercial truck be the same for each?" Eh, not quite. 

An owner-operator in commercial trucking generally has a more difficult time receiving financing than a business might. But why?

Owner-operators typically only have one truck as opposed to a fleet. This means that small problems can have huge consequences. If they have any problems with the truck, then they are much less likely to be able to make business-related payments. Some financing companies will not work with people who have less than three vehicles for this reason. Other financiers may, though with higher premiums. 

Besides credit, how can I help my new owner-operator trucking business obtain financing for new trucks?

A general rule to help owner-operators receive financing for trucks is to select commercial trucks that are in great working condition with fewer than 700,000 miles.

Here are three basic scenarios where owner operators can get a decent financing agreement:

  • With a credit score of 660 or higher and a down payment between 10% and 20%, an owner-operator should be able to get commercial truck financing for a vehicle that’s up to 10 years old.
  • With average credit and at least $7,500 in cash reserves, an owner operator will likely qualify for financing for a commercial truck with under 700,000 miles with a down payment of 10% to 15%.
  • When all else fails, enough home equity or other collateral can help offset bad credit scores.

Dump Truck Financing

Dump truck financing for a dump truck that’s about 20 years old or older likely runs around $15,000.
For dump trucks that are less than 5 years old, financing generally runs around $100,000.

Let’s say that you are a 2-year-old business seeking $25,000 for a dump truck:

A "perfect credit score" will be 750 or higher.

This score can likely land you a 24-month agreement at around $1,175 per month or a 60-month agreement at $550 per month.

An "average credit score" will be around 650-679.

This score can likely land you a 24-month agreement at $1,275 per month or a 60-month agreement at $600 per month. 

A "below average credit score" will be 620-649.

This score can likely land you a 24-month agreement at $1,425 per month or a 60-month agreement at $750 month.

Businesses under two years old with an average credit score may have to pay between $650-$700 a month for every $25,000 financed—or around $1,100 a month for the same amount if they have bad credit. This is all necessary to offset the risk for loan institutions. 

Tow Truck Financing

Towing companies that are at least two years old and have a good credit rating can enjoy a down payment of 10% or less. Newer businesses and businesses with bad credit can expect to pay as much as 50% of the cost as a down payment—a sum that can be further reduced by offering collateral.

Let’s use a $40,000 tow truck as an example:

For a tow-truck business with excellent credit, good income, and has been around for 3 years, such a company can expect a 24-month loan term at around $1,900 per month or a 60-month loan term for $915 per month. 

For a business with bad credit and limited operating history, a tow-truck business can expect a 24-month loan term at $2,750 a month or a 60-month loan term for $1,760 per month.

Rollback Tow Truck Tow trucks are easier to finance than semi trucks.

What are the differences between banks and truck financing companies?

Many banks refuse to offer semi truck financing. Commercial hauling trucks break down often and have a lot of competitors—making financing such endeavors seemingly risky. Commercial truck financing companies, however, are more experienced with the industry and very willing to extend financing.

Aside from being the only way to finance semi trucks, working with financing companies that specialize in commercial trucks is generally more appealing for borrowers than using banks for a number of reasons.

Financing Companies Offer a Faster Approval Process

Companies who only deal with commercial trucks know what business documents to look for and will be able to quickly appraise commercial trucks faster than banks.

Financing Companies Tend to Offer Lower Down Payments

General lending institutions don’t understand the commercial trucking business and often require outrageous down payments to offset the perceived risk. Special commercial truck financing companies can offer reasonable down payments for companies or owner operators.

Financing Companies Tend to Require Lower Collateral

Banks can request up to 50% of your home equity or other collateral—whereas financing companies are usually much more reasonable.

Looking for Commercial Truck Financing?

You've come to the right place.

If you are in need of immediate truck financing, we encourage you to fill out an application with our concierge financing by Taycor Financial. Taycor Financial has been a part of business growth and development for nearly 30 years. Taycor's customers are just like you—Main Street, not Wall Street. Their goal is to provide first-class service and a full range of financial products ranging from equipment leasing and financing to hybrid lines of credit and working capital. Whether you are a startup business or a well-established landmark in your community, Taycor has multiple financing programs that will fit your business needs.

Apply for financing online or by calling (888) 585-3628.

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About Ken Lane
Ken’s affinity for the heavy equipment industry was fostered as a curious youngster—becoming happily lost on his grandfather’s tractor sales and service lot (his favorite color is still Allis-Chalmers Orange). Since then, he’s perfected the art of turning black coffee into helpful buyer resources and marketing materials for My Little Salesman.
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