Semi truck financing provides you with the opportunity to start or grow your business with the minimal amount of capital usually need to secure a loan. The reason for this is that the truck or trucks become the actual guarantee for the loan vastly reducing the amount you would need to provide your self. There are, however, other factors that will determine the amount you will be offered, truck loan term and interest rates.
8 Steps To Acquire Financing for a Semi Truck
1: Determine Your Eligibility
Not all lenders are created equal but many look for the same criteria. They’ll consider your credit score, time in business, down payment, truck insurance, and the truck(s) you’d like to purchase. To determine your eligibility, it’s a good idea to get preapproved with lenders who will perform a soft inquiry that won’t hurt your credit.
2: Estimate Your Down Payment
Next, figure out how much you can afford to put down upfront. Even if you plan to purchase a used semi truck, you might have to come with thousands or tens of thousands of dollars for a down payment. While some lenders offer no money down loans, you’ll likely need good credit to qualify and pay more over time.
3: Find the Truck You Want
Now comes the fun part, deciding what type of truck(s) you’d like. When you shop around for a truck, pay attention to the make, model, and year, mileage, condition report, and how it accommodates your needs. Also, note that some lenders might have age or mileage requirements. In addition, it might be easier to finance a fleet of semi trucks than a single truck.
4: Secure Truck Insurance
Before you apply for equipment financing, you’ll need to lock in semi truck insurance. Most lenders will require liability coverage, physical damage coverage, bobtail coverage for non-trucking use, and cargo and storage coverage that will protect you when you’re not hauling.
5: Search for Lenders
Fortunately, there are many lenders who offer semi truck loans to small business owners and entrepreneurs. These include but are not limited to banks, credit unions, online lenders, and direct lenders. Do your research and explore all your options. Be sure to read lender reviews.
6: Compare Loan Options
Once you hone in on several reputable lenders, look at the types of loans they offer. These might be specifically designed to purchase semi trucks or not. When you compare loans, focus on interest rates, terms, fees, down payment requirements, and eligibility criteria.
7: Gather Documentation
Lenders will ask you to submit a number of documents when you apply for a commercial truck loan. Be prepared to share proof of your business licenses and certifications, tax returns, bank statements, financial statements, like balance sheets as well as a current profit and loss statement, and driver credentials, including your CDL number, U.S. Department of Transportation number, and your Motor Carrier number. Don’t forget your proof of insurance.
8: Complete the Application
Lastly, apply for a commercial truck loan online on the lender’s website or in-person at a local branch. Provide all of the required documents and fill out each question accurately. Double check your work before you complete your application as errors and missing information can lead to delays with approvals and funding.
What Are the Requirements for Semi Truck Financing?
Each lender has their own specific requirements for borrowers interested in commercial truck financing. In general, however, they require a minimum credit score of 600, a down payment of at least 5%, and a commercial driver’s license (CDL). Many lenders will also look for trucks that are less than 10 years old and have fewer than 700,000 miles. Of course, some lenders are more lenient than others and may be willing to work with you, even if you don’t meet this general criteria.
How Big of a Down Payment Is Needed to Finance a Semi Truck?
Most lenders won’t lend the full purchase price of a semi truck. This means you’ll probably need to come up with a down payment of at least 5%. While no down payment financing options do exist, they’re usually designed for borrowers with good credit and cost more in the long run. When you shop around for a semi, make sure you can afford to pay for the down payment.
What Interest Rates Are Available on Semi Truck Financing?
In general, semi truck interest rates range from 5% to 30%. But factors like your credit score, time and business, and the type and condition of the truck you hope to finance will all play a role in the rates you receive. Your down payment amount may also impact them.
If you have a credit score of at least 600 and have been around for a few years, an interest rate between 5% and 6% is feasible. In the event you’re a new business or have a low credit score, you can expect higher rates in the 7% to 30% range.
How Long Can You Finance a Semi Truck?
Repayment terms for semi truck loans are usually anywhere from 12 to 84 months. Keep in mind that while a longer loan means lower monthly payments, it will also cost you more in interest over time. The repayment terms you land will depend on the lender, your credit, and the state of the commercial vehicle.
Where Can You Find Semi Truck Financing?
Commercial truck financing is offered at a number of places, including:
- Banks: Usually offer attractive interest rates and favorable repayment terms on semi truck loans. But you’ll likely need good credit, sufficient annual revenue, and at least a few years in business under your belt to qualify for them.
- Credit Unions. Also offer low rates on equipment financing. To take advantage of them, however, you’ll need to meet certain requirements and become a member.
- Online Lenders. Alternative lenders can be a good option if you’re looking for fast approvals and funding. Depending on the lender, you can receive the funds for your semi truck the same day you apply, within 24 hours, or in a few business days. You might like to visit our article about the best equipment financing companies and find out what these recommended online lenders have to offer.
- Direct Lenders. Direct lenders specialize in commercial truck financing. If you’re having trouble getting a semi truck loan elsewhere, direct lenders are worth exploring as they’re typically flexible with their eligibility requirements.
Can You Finance a Semi Truck with Bad Credit?
You may still be able to finance a semi truck with bad credit, especially from an online lender or direct lender. Since the vehicle itself serves as collateral, many truck lenders are willing to approve borrowers with poor or fair credit or a history of delinquencies. Just remember that if you fail to make your payments, the lender can repossess your commercial vehicle. Also, you might have to settle for a higher interest rate, which may increase your overall cost of borrowing.
Is Financing Available to Purchase Used Semi Trucks?
If you’re interested in used equipment financing so you can save some money, rest assured that you may still be able to finance that used semi truck .
Financing Semi Truck vs Leasing
When you finance semi trucks, you’ll own them outright once you make all your required payments and pay them off. Leasing, on the other hand, is when you make payments to borrow or rent semi trucks over a specific period of time. Once your lease expires, you won’t own the semi trucks, unless you decide to purchase them from the lender.
Pros and Cons of Financing vs Leasing
-Once you pay off your loan, you’ll own the semi truck outright.
-It’s less expensive in the long run.
-There are a number of places to go for financing including banks, credit unions, online lenders, and direct lenders.
-After your lease is up, you can return the semi truck.
-It involves a smaller upfront investment.
-You can get newer, better commercial vehicles than you’d be able to if you went the financing route.
-You may need a larger down payment and better credit score.
-You’re responsible for maintenance and repairs.
-You might pay more for a lease in the long run.
-Monthly payments can be high as maintenance is included in leases.
-You won’t own the truck outright at the end of your lease.
Is It Better to Lease or Finance a Semi Truck?
Whether it makes more sense to lease or finance a commercial truck depends on your unique business goals and priorities. If you plan to use a semi for many years, financing it is the more cost-effective option.
But if you’re a startup and don’t have the cash or financials to qualify for a truck loan, leasing is worth exploring as this option comes with lower upfront cost. Commercial truck leasing might also be a solid choice if you're a consumer facing business and want to impress your customers with the latest and greatest models.
Challenges to Semi Truck Financing
When you try to lock in semi truck financing, you may come across some hurdles, such as:
SBA Loans: The Next Best Alternative to Equipment Financing
Loans by the U.S. Small Business Administration (SBA) can help you finance semi trucks for your business. The SBA 7(a) loan program, for example, offers up to $5 million in funding with repayment terms of 25 years. Its interest rates are also attractive and may save you thousands of dollars on your investment.
The downside, however, is you’ll need a minimum credit score of 680, sufficient annual revenue, and proof of at least two years of business. In addition, you can’t have any foreclosures, bankruptcies, or defaults on other government loans. Lastly, you may have to wait weeks or months to receive the funds.
Business Mentoring Organizations That Could Help
These business mentoring organizations can support your trucking business.
SCORE. SCORE is part of the SBA and offers confidential mentoring, workshops, webinars, and many other resources for entrepreneurs and small business owners.
Launch Chat. Launch Chat is a free online community you can use to connect to and share knowledge with other business owners.
While truck purchase is a large investment, it can help you take your business to the next level. Before you move forward with commercial truck financing, however, make sure you shop around and explore all your options. By doing so, you can find the right solution for your unique budget, needs, and preferences. Best of luck!