THE ULTIMATE GUIDE TO SEMI-TRUCK FINANCING
Are you planning to buy a semi-truck? Don’t do so until you have read our guidelines and recommendations.
Acquiring a semi-truck comes with a lot of considerations, particularly with financing. From getting the best loan terms to understanding which financing option works for you, nothing beats having a guide to walk you through.
Usually, our first piece of advice is never to buy a semi-truck outright even if you have the cash. Opting for semi-truck financing ensures that you maintain your cash flow for other business needs while you pay a comfortable sum monthly.
In this article, we cover everything you need to know about semi-truck financing so that you are well-informed.
FACTORS INFLUENCING SEMI-TRUCK FINANCING
Before getting into the details of how to get funding and what to do, let’s consider the basic factors that will qualify you for semi-truck financing.
CREDIT SCORE
Most lenders want to see a decent credit score before issuing a loan. For faster approval rates and favorable loan terms, you will need a FICO score of 640+ depending on your lender. Understanding how this impacts your financing process is important to help you stay prepared. Common factors that can affect your credit score include:
- debt levels
- credit utilization
- payment history
It is possible to get semi-truck financing with bad credit, but having an ideal FICO score guarantees you an optimum loan condition that does not add any strain to your finances.
BUSINESS HISTORY AND FINANCIAL HEALTH
Another factor that determines whether or not you will get a loan is your business history and cash flow. Businesses with over three years of experience stand a higher chance of getting a loan compared to new businesses. Also, note that loan providers will also consider your business’s revenue flow to ascertain if your business can service a loan.
DOWN PAYMENT
You need a down payment to get financing. This can range from 5% of the truck fee to 20%. The rate of the down payment is often determined by whether you meet the aforementioned conditions.
With excellent credit scores and strong financials, lenders tend to be lenient with how much they require as a down payment. Otherwise, a large down payment will make up for not meeting the conditions above.
TYPES OF SEMI-TRUCK FINANCING OPTIONS
Now that you know the conditions for getting semi-truck financing, let’s consider the options available to you. As a business owner, you want to ensure that you choose the best, as there is no one-size-fits-all financing.
The step to picking the right option often depends on assessing your unique business and financial needs which we will dive into in a bit. For now, let’s explore all financing options available.
TRADITIONAL BUSINESS LOANS
These are regular business loans you take for any business needs. The good thing is that you can also use a business loan to acquire a semi-truck. The process is straightforward and you can get one from banks or credit unions. After assessing your credit score and business history, they can give you a sum that will cover the cost of a semi-truck. They would also require down payment and collateral, which like other auto loans, is the vehicle.
EQUIPMENT LOANS
While traditional business loans are used to finance any aspect of your business, meet equipment financing, your loan option designed for business equipment. Equipment financing can be a great choice considering that it operates a loan structure tailored strictly for equipment acquisition.
Equipment loans are generally considered the most cost-effective. Plus, you can enjoy more flexible requirements on credit score, revenue, and time in business.
EQUIPMENT LEASING
Semi-truck leasing is a financing structure that requires you to remit an amount monthly for the period you use the truck. One of the advantages is that you pay a lower amount monthly compared to other options and you can replace the truck with a better model as you see fit.
Semi-truck leasing does not require a down payment, and the only amount you will pay is the initial payment, which covers your first-month payment.
On the other, the lease agreement does not provide a system where you own the truck at the end of the lease term. That means you keep paying for the truck as long as you’re using it.
BUSINESS LINE CREDIT
A business line of credit is a credit system that allows you to access funds on an as-needed basis. It works best for short-term loans and can be used to pay for your down payments and other expenses like repairs.
ALTERNATIVE FINANCING OPTIONS
If you do not qualify for traditional bank loans, due to lower credit scores or limited business history, alternative financing options can to save the day. Online alternative lenders provide flexible funding solutions such as quicker approvals and and more adaptable terms, compared to bank. They can also be attractive to newer businesses or those with credit challenges.
STEPS TO SELECT THE RIGHT SEMI-TRUCK FOR FINANCING
It is clear that you must assess different financing options. So before you find a loan provider, consider these situations as they will give you an idea of the best option that works for you.
NEW VS. USED TRUCKS
The first step to getting the right semi-truck financing knowing the truck you want to finance. The decision to either get a new or used truck is solely up to you, but note that loan conditions for both vary.
On the one hand, new trucks may be expensive, but they will require fewer repairs. Because they are more expensive, you should expect to make higher monthly payments. On the other hand, used trucks are less expensive and thus have lower monthly payments.
VEHICLE HISTORY CHECKS
New trucks do not need vehicle history checks, but used ones do. Check vital reports like accident and repair records, maintenance logs, and mileage verification among others.
Aside from needing them during the loan process, these checks would help you avoid any hidden issues that could lead to costly repairs and unexpected downtimes.
BUDGET CONSIDERATIONS
Budget considerations are why financing a semi-truck is a better option compared to outright purchase. When planning for financing, you should also consider a financing plan that allows for other future expenses like repairs.
HOW TO APPLY FOR SEMI-TRUCK FINANCING
After selecting your preferred financing options, it is time to get to business, that is, apply for semi-truck financing. Processes are almost similar across board so this section will give an overview of what to expect as you start to apply.
PREPARE FOR DOCUMENTATION
The documents you need to submit can vary from lender to lender and on the financing option you are opting for. However, you can prepare the following documents as they will come in and handy and make you prepared.
- Business balance sheet
- Business and personal tax returns for two years
- Bank statements
- Copy of CDL
- Vehicle documents like condition report, motor carrier number, documents specifying serial number, model, photos, and more.
APPLY FOR FUNDING
Once you have your documents ready and you have selected your financing option, go ahead and submit your application. The application process will include stages like the prequalification where the lender reviews essentials like credit score, revenue and business history. Here, you get an idea of the loan amount and terms you may qualify for.
GET FUNDED
After prequalification and document submission, finalize the application by reviewing the loan terms including the interest rate, loan amount, repayment schedule, and any associated fees.
If satisfied, proceed to sign the loan agreement to finalize your financing. Ensure that you fully understand the terms to avoid unexpected costs later.
MAKING THE BEST SEMI-TRUCK FINANCING DECISION WITH INSPIRED FUNDING
Getting the best semi-truck financing is a combination of strategies including research, preparing required documents, and understanding what your business needs. Once you have got these out of the way, then you can begin applying and ultimately, get funded.
At Inspired Funding, we specialize in helping businesses, both old and new to acquire the necessary equipment including semi-truck. We offer a financial plan tailored to every business’s unique situation. Credit score and business history do not have to stand in the way of getting the semi-truck you need. We’ll help you find the best semi-truck financing so that you can focus on other aspects of your business.
