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 businesses, specialized financing companies lend money that is paid back 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 monthly truck payments:
- Down Payment – A portion of the vehicle’s total worth that’s paid up front.
- Interest Rate – Finance companies charge a small percentage on top of the loan that also must be paid off over time.
- Loan Term – The total amount of time given to pay off the vehicle along with the interest.
Before signing anything, know what to expect, what to ask, and what to watch out for with this guide!
Down Payments 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.
The Benefits of Higher Down Payments
When presented with the option of paying a higher or lower down payment, lower isn't always necessary a better option. Paying a higher down payment can lower future payment installments.
The Benefits of 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 with limited upfront resources who need a little help getting started.
The Ideal Down Payment
An ideal down payment amount is one that helps lower monthly payments while remaining affordable for the business.
Let’s illustrate the importance of down payments using semi truck financing rates as an example.
- A new semi truck costs about $150,000. One financing company may asking 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 downpayment 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 term is best for your current and forecasted business situations.
Interest Rates & Loan Terms
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 of a financed piece commercial truck.
To illustrate, let’s use the same semi truck financing example as before (a new semi truck with a price tag of $150,0000). Let’s assume you’ve made a down payment of 10% ($15,000) and have an interest rate of 5%.
If the term length is 3 years:
- Monthly Payment Amount: About $4,000
- Total Interest Over the Course of the Loan: Over $10,000
If the term length is 5 years:
- Monthly Payment Amount: About $2,500
- Total Interest Over the Course of the Loan: Nearly $18,000 (almost double)
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 financing 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.
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:
Age of the Truck
It was 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 (but financing companies will).
Condition of the Truck
Financing companies want to know the condition of a vehicle for the same reasons as knowing it's age.
Total Value of Vehicle
The total value (not always the same as the price) of the truck in need of financing will help determine the down payment and other important factors.
You can satisfy this information by sending paperwork that verifies:
- The make and model
- Serial Number
- If it was bought new or used
- If it was from a dealership or a private sale
- 3 pictures clearly showing the condition of the commercial truck
In addition, financing companies are also looking for information about the borrower themselves:
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.
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.
A trucking business that has demonstrated its earning potential will have an easier time getting fully financed.
- 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 more understanding.
Like individuals, companies have certain credit ratings. Financing companies will likely request credit ratings or similar information to determine risk factors and determine rates. A history of late payments and bankruptcies may result in costlier quoted rates or bank loan denials. Financing companies, however, tend to be more lenient and may be more apt to providing financing despite such records—albeit likely with stipulations (higher rates, decreased loan amounts, etc,).
If you are an owner operator shopping for your own truck, financing companies will likely use your personal credit score to help determine rates.
Financing companies will pre-approve you without showing insurance—however, any borrowed funds will be delivered until proof of insurance is shown.
Commercial Driver’s License (CDL)
A valid commercial drivers license (CDL) may be required to receive financing for a new commercial truck.
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.
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 and get financing:
Limited Liability Corporations (LLCs) and Other Corporations
Lenders can look up Limited Liability Corporations (LLCs) and other corporations through their state’s Secretary of State website for verification. Of course, your LLC would need to register first.
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.
Tip: For brand 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).
If you are in a partnership, you can submit a Schedule K-1 to show how the profits and losses have been divided amongst owners.
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 a 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 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 by higher down payments (known as “in-house semi truck financing”—down payments are typically between 10% to 25%) and 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 get 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 so filled with risk on the part of the co-signer (they're putting their own credit rating in jeopardy) that they tend to be a blood relatives.
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. 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.
Beside credit, how can I help my new owner-operator trucking business obtaining financing for new trucks?
A general rule to help owner-operators to receive financing for trucks is the necessity to select commercial trucks 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 offset bad credit scores.
Dump Truck Financing
Dump truck financing likely runs around $15,000 (for a dump truck that’s about 20 years old or more), while dump trucks that are less than 5 years old generally runs around $100,000.
Let’s say that you are a 2-year-old business seeking $25,000 for a dump truck:
Perfect Credit (750 or higher)
- 24-Month Agreement: $1,175 per month
- 60-Month Agreement: $550 per month
Average Credit (650 to 679)
- 24-Month Agreement: $1,275 per month
- 60-Month Agreement: $600 per month
Below Average Credit (620 to 649)
- 24-Month Agreement: $1,425 per month
- 60-Month Agreement: $750 per 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, and possibly $1,100 if they have bad credit.
Tow Truck Financing
Towing companies that are at least two years old and have good credit 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 further reduced by offering collateral).
Let’s use a $40,000 tow truck as an example:
- For a business with excellent credit, good income and has been around for 3 years:
- 24-Month Finance Agreement: $1,900 per month
- 60-Month Finance Agreement: $915 per month
- For a business with bad credit that has not been around for long:
- 24-Month Finance Agreement: $2,750 per month
- 60-Month Finance Agreement: $1,760 per month
Tow trucks are easier to finance than semi trucks.
Banks vs. Financing Companies
Many banks refuse to offer semi truck financing. Commercial hauling trucks break down often and have a lot of competitors, making them risk-average to the process. 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 who specialize in commercial trucks are generally better than banks for a number of reasons.
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.
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 down payments that are much cheaper.
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?
Looking for financing for a semi truck, dump truck, tow truck, or other form of commercial truck for your business? 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.