Trucking is an important part of the American economy. Every city across the U.S. depends on truckers for food, clothing, medicine, and other essential things for life. The trucking industry statistics are truly exceptional. It is an industry topping $726.4 billion in revenue for 2015 and responsible for 6% of all jobs in America. If you bought it, they brought it. Truck drivers keep America rolling by driving several and lonely hours delivering the cargo we need. Without trucks to ship things, those shelves on the mall and in your home would be bare and those same-day delivering services from your online shopping wouldn’t be possible.
About 80% of all goods in the United States are transported by semi-truck, and owner-operators drive roughly 350,000 trucks. Drive on any highway and you’ll see countless semi-trucks heading in either direction of the road delivering the essential goods that we need.
Truck drivers haul various goods with machinery, electronic and motorized vehicles making up 27% of goods shipped by truck drivers in America. The most typical thing trucks haul is machinery, followed by electronics and motorized vehicles. In addition, mixed freight includes products such as food and restaurant supplies. Without the trucking industry, we would not be able to enjoy the things we have.
With the recent shortage of drivers, helping new truckers, along with seasoned veterans of the trucking industry, get started with quality financing is more important than ever. Semi-truck financing loans allow those owner-operators and small businesses access to the mission-critical system of lending.
If you are new to the trucking industry, you may think financing a truck will be the same as getting a loan for a standard vehicle. But financing a commercial truck is very different. The interest rates for personal auto loans are typically below 5%, while a business auto loan necessary for commercial trucking is between 5-30%. And while you would typically go to a bank to get a loan for a car, most banks will not offer to finance for commercial trucks. The good thing is there are alternative lenders who are experts in the industry and focus solely on semi-truck financing.
In this article, we will try to show you how and where to get semi truck financing in a very detailed, step by step, and understandable way.
How Does Semi-truck Financing Works
Getting a semi-truck loan is particularly different compared to financing a personal vehicle. To finance a semi-truck, you should assume to put down money upfront and have strong credit. Usually, lenders will want to see previous experience in the trucking industry, as well as two years in business, with the ability to show stable revenue over that period.
There are many options available for semi-truck financing, ranging from equipment leasing and financing to an unsecured line of credit. Other traditional banks offer semi-truck financing as well as many alternative lenders and equipment leasing providers. The price, condition, and whether you buy a new or used semi-truck will help decide the type of lending that is best for your situation.
Semi-truck Loan Providers
Financing for a semi-truck can be acquired through a variety of methods. Some traditional banks offer semi-truck financing, and, if you are particularly qualified and have an established relationship, this may be the right option for you. Many semi-trucks are financed by alternative lenders, which usually have more relaxed credit criteria and will lend on a wider range of equipment of varying conditions. Semi-truck financing providers can help you get your semi-truck financed.
Semi-truck Financing Providers
1. Smarter Finance USA
Smarter Finance USA offers semi-truck financing up to $100,000 with as little as 5% down payment and at least 600 credit score. Unlike many other providers, Smarter Finance will work with startup businesses, which makes them an ideal option for semi-truck drivers who are making the transition to ownership.
Smarter Finance takes an uncomplicated approach to equipment financing. They’re a great choice for new owners, but they do usually want to see drivers with previous experience in trucking as well as a commercial driver’s license (CDL).
2. Commercial Fleet Financing
Commercial Fleet Financing is a popular commercial truck leasing and loan provider that offers semi-truck financing. Commercial Fleet Financing gives competitive loans for semi-trucks with rates ranging from 6% to 16%. But financing is reserved for well-qualified business owners with at least two years in operations. Commercial Fleet requires at least a 640 credit score and wants to see borrowers with three years in the trucking industry.
Commercial Fleet Financing is a great funding choice for established semi-truck owners who wish to expand their fleet. It is known for its excellent online reputation as well as flexible financing and repayment options. For borrowers with less-than-perfect credit, Commercial Fleet offers financing through its Fresh Start program, with financing accessible for a mid-500 credit score or better.
3. Balboa Capital
Balboa Capital is another great choice for semi-truck financing. Like Smarter Finance, Balboa will work with borrowers with at least 600 or better credit score for equipment leasing. Balboa also provides term loans and has relaxed qualifications, allowing borrowers with a 560 or better credit score to get financing.
Because the majority of semi-truck financing companies need a blanket Uniform Commercial Code (UCC) filing, working with a provider like Balboa Capital with many financing options available can work to your business’ advantage, in this case, granting you access to its business line of credit program for business expansion in the future.
4. Wells Fargo
Wells Fargo is a bank with a nationwide footprint and is popular for its wide variety of business banking products and services besides its consumer banking arm. With more than 5,500 banking locations across the USA, it is one of the largest banks in the country.
Business owners who are interested in working with a nationally established and a known traditional bank will find a multitude of financing programs available through Wells Fargo, with terms ranging between 12 and 84 months, flexible payments structured around seasonal operations, and competitive interest rates.
If you need financing above the purchase price of your semi-truck, a business line of credit is a choice you may want to consider. A line of credit with BlueVine enables you to finance other costs that you may encounter when getting your semi-truck on the road, such as an engine overhaul and other mechanical issues. With a minimum credit score of at least 600, one year in the trucking business, and $100,000 in annual revenue, you can apply for a business line of credit from BlueVine of up to $100,000. BlueVine also provides factoring financing to business owners with a credit score of at least 530, which lets you collect an initial advance on your invoices while managing your own client relationships and payment collection.
How to Apply for Semi-truck Financing
When you are prepared to apply for an equipment loan to finance your semi-truck, you will need to follow this process to determine what you qualify for and to make sure you will be approved for the best terms and best rates.
5 Steps to Getting Semi-truck Financing
1. Determine Eligibility
Before you apply for any form of financing, you need to be certain that you can qualify. Many semi-truck financing options have the same qualification requirements since the truck you’re buying is securing the loan. The combination of the truck’s price and your down payment typically eliminates most of the risk for your loan provider.
Here’s a list of the most important qualifications to get semi-truck financing:
– Credit score: at least 600 or higher; others will require at least 660 or higher
– Down payment: 5% or greater, 10% to 20% for new owner-operators
– Time with CDL license: Minimum of five years
– Age of truck: Less than 10 years
– Truck mileage: Fewer than 700,000
All qualifications might be different for the loan provider, but if you can meet the requirements mentioned above, then you will typically have a better chance of getting financed. The time with your CDL license is important because it shows the loan provider that the truck is going to be driven by an experienced driver immediately. The provider does not want the truck unused without it bringing income into the trucking business, but they also do not want to risk an inexperienced driver using the truck because it will be used as collateral for the loan.
2. Gather Needed Information
The next step is to collect all the information you’ll need to give to your lender. Having the documentation ready ahead of time will allow you to speed up the process, and it shows the loan provider you are ready to make a large purchase. Trucks can sell fast, especially if another buyer makes an all-cash offer. Before you choose the truck that you want, make sure you’re ready to move forward and close a financing opportunity.
Here is a list of documentation that you’ll probably need to be approved for a semi-truck loan:
– Documents showing proof of your registered business
– Current and past bank statements (up to 12 months)
– Business tax returns (up to three years)
– Current year profit and loss for your business
– Current business balance sheet
– Any business licenses or required certifications
– Your CDL
– US Department of Transportation (USDOT) number
– Motor carrier number
Once you have all of this information is on hand, then you are ready to go out and find the right truck.
3. Find the Right Truck
Finding the right truck can be so much harder when you’re financing the purchase as opposed to paying cash. It is important to find a truck that is going to meet and exceed the needs of your business by being able to haul the specific goods your business hauls. It is also crucial to find a truck that is not too old. Having a truck that has too many years or miles on it can be harmful to your chances of getting financed. Your truck needs to fit a profile with these key attributes:
– Fewer than 700,000 miles
– Less than 10 years old
– Sold by a dealer, not required but ideal
Once you find the right truck, you need to negotiate a price and get a written quote on your purchase of the vehicle. It must include the price you are paying plus these critical pieces of information:
– Make, model, and year
– Condition report
– At least three pictures of the vehicle
– Truck serial number
– If the truck is used, the quote should specify that
Once you’ve found the right truck that you’re prepared to move forward with, you need to move quickly so that you do not lose it. Be wary of cash buyers or other buyers with financing in hand who may make an offer on the truck you are trying to finance.
4. Find Good Insurance
Before your loan finalizes, you will need to show the loan provider that you have good insurance for the semi-truck. The average cost of a commercial truck accident is $59,150, which could interrupt your business’ cash flow or hurt your loan provider’s collateral if you are not insured properly. This is why proof of good insurance is at the top of your loan provider’s list before you can complete your loan.
You can typically start steps 4 and 5 at the same time because you can be preapproved without having insurance. But you won’t be funded until the loan provider receives acceptable documentation of the vehicle being insured.
The type of insurance you need for a semi-truck depends on what type of business you have. If this truck is the only asset in the business, you’ll typically need:
– Primary liability coverage
– Physical damage coverage which includes all electronic and in-cap devices
– Bobtail coverage for non-trucking use
– Cargo coverage to cover the costs of whatever you’re hauling, which should be customized to your industry for the specific goods you haul
If you are a business with an office or employees, then you will also probably need a general liability coverage policy and a workers’ compensation policy. The larger your business is, the more coverage you are likely to need.
The cost of your insurance will vary much depending on your driving record and the claims record of your business. The value of the truck, the amount of mileage on the truck, and how much you assume to drive it monthly will also play a factor in your costs. We recommend consulting with an expert insurance broker that is familiar with your industry before deciding on what coverage to get.
5. Submit All Documentation to Your Financing Company
Once you have finished with everything in the first four steps, you are ready to apply officially and get approved for semi-truck financing. Confirm that you get details and a complete list of everything your financing company requires before you submit any documentation.
Next Steps: Owner-operator Cash Flow
Once your financing is approved and the loan closes, you can start using your truck to produce income for your business. Payments will begin shortly after you close on your loan, so you will want to get the truck operating as soon as possible. You will also probably want to lower your truck operating expenses because, once you have your rig, your attention will mostly be redirected to managing your cash flow.
Getting the right fuel card, or a fleet card for larger transportation businesses, could also save you a lot of money and help spread out your cash flow obligations rather than paying for gas immediately when your truck is on the road. If you need additional financing in the future, look at trucking business loan options. You may also need to consider how freight factoring can get you advanced payment for your outstanding invoices.
You can get semi-truck financing in the form of either a lease or a loan. Reading the five steps in applying for semi-truck loans that we listed above should have helped you understand the process better so that you can be ready to get financed. Following the steps carefully and paying attention to the small details of your loan application, will set you up to find the financing you need to buy your next semi-truck.