In the trucking industry, you won’t get far without a fleet of vehicles for your business. Owner-operators and small business owners often don’t have the working capital to cover their trucking expenses, but they need those vehicles for their truck drivers. The solution: Semi truck financing programs.
These loans give you access to funds to buy the vehicles you need. They can also help you conserve cash flow while you find the equipment you need to succeed.
Read on to find out more about semi truck loans and how to find the best commercial truck financing for your needs.
How Commercial Semi Truck Financing Works for You
If you decide that truck or trailer financing is the best option, here’s more on how it works.
You can finance the vehicles you are purchasing through a car dealer, but it can also pay to shop around. There are many banks and other lenders that specialize in loans specifically for heavy machinery and vehicles.
With truck or equipment financing, the vehicle or equipment you are purchasing serves as your collateral against the loan. Should you run short of money for a few months and are unable to continue paying your loan, truck lenders have the right to seize that collateral to cover what you owe. The one upside here is that you don’t have to find other assets to serve as your collateral.
Once you’ve submitted your application, lenders will look at your qualifications (more on those in a bit) to determine which financing options they can offer. They will present you with the interest rate you will pay on your loan, and if you agree to the financing terms, you’ll sign on the dotted line and start making monthly payments on your purchase.
You may also be required to make a down payment upfront as part of the application process, so plan for that possibility.
Types of Commercial Truck Financing
There are multiple routes you can explore when you’re searching for commercial truck financing. Most trucking business owners look to one of the following:
- Traditional bank loans: If you’re looking for the lowest interest rates on financing, financing from a traditional bank often gives you the best rates. Lower interest rates mean you’ll pay less to borrow money over time.
- Alternative business financing: Online loans can be great if you’re looking for quicker funding than a bank might be able to offer. Some of these loans can get funding into your bank account as quickly as the next business day.
- Direct commercial truck loans: This financing comes from lenders that specialize lending to trucking businesses. Truck financing companies have plenty of experience working with businesses in the industry and are great if you want that level of specialization.
Banks vs. Alternative Lenders for Semi Truck Financing
Both traditional banks (i.e. the banks that offer business checking accounts) and alternative online lenders offer semi truck financing. There are advantages and disadvantages to each.
With a bank, you may benefit from an existing business relationship, which may make it easier to get approved for a loan, or even get a discount on your rate. On the other hand, the approval process may take longer, and if you don’t have excellent credit, you might not get approved at all.
On the other hand, a nontraditional lender may process your online application faster, and may approve you even if you don’t qualify at your bank. If you like sitting down with your banker, however, this won’t be an option for you.
Alternative Semi Truck Financing Lenders
While mainstream lenders can be a go-to for small businesses, knowing all your options (including the unusual suspects) can increase your chances of landing the financing you need much faster. For first-time borrowers, borrowers with past bankruptcies, or borrowers with bad credit, alternative funding can be a good option because they offer a little more leniency. Here are some alternative semi truck financing lenders that can help with your business needs:
- Commercial Fleet Financing: They pride themselves on making fast credit decisions (within two hours) and funding businesses within 24-hours. Commercial Fleet Financing may not require a personal guarantee, depending on how long you’ve been in business. Their loan maximum is $500,000, with rates as low as 5.5%.
- Quest Capital Group: This financing lender offers semi truck financing without a down payment. They also offer online applications and allow early payoffs. Their loan maximum is $250,000, and they also allow bankruptcies, charge-offs, and slower payments.
- Balboa Capital: This alternative lender is known for same-day funding. Although they’re more lenient on business history qualifications, they don’t accept histories with bankruptcies. Requirements include at least one-year of business history, $100,000 annual revenue, and a 600 credit score.
- CAG Truck Capital: CAG finances all types of commercial trucks. They specialize in lending to borrowers with bad credit, past bankruptcies, or current tax liens. For borrowers with bankruptcy, tax liens, and a credit score under 600, there is a requirement of 35% minimum down. However, for established owner-operators who do not have these issues with their business and credit, only 10% down is required.
Should You Finance or Lease a Commercial Truck?
Another option to consider besides financing used or new trucks or semi-trailers with commercial truck loans is to lease vehicles or a fleet. Commercial truck leasing may provide a more affordable monthly payment and give you the ability to return the vehicles at the end of the lease rather than have trucks that have depreciated in value. Leased vehicles, like purchased ones, often come with a robust warranty.
You should also consider TRAC leases, or terminal rental clause agreement leases. These provide more flexibility in your monthly payment and residual (what you owe at the end of the lease), which can be helpful in managing cash flow.
Pros and Cons of Financing vs. Leasing
Deciding whether to lease or finance your semi-truck depends on your financial situation and needs. Consider the pros and cons of financing versus leasing:
|Pros||– Own the truck outright|
– Less expensive over time
– Several options available, including equipment loans or dealer financing
|– Can return the truck after lease|
– Shorter commitment
– Lower cost upfront
– Less maintenance
– May be able to get a newer vehicle than you could afford with financing
– Easy to upgrade to a newer truck
– Less personal risk
– Easier to get a lease with poor credit
– Interest on a capital lease can be deducted from taxes as an operating expense
|Cons||– Harder to qualify for or get than a lease|
– May need a larger down payment
– May need a better credit score to qualify
– Harder to upgrade to newer vehicles
– You’re responsible for all maintenance
|– Might end up paying more in the long-run|
– Monthly payments on an operational lease can be very high because maintenance costs are part of the lease
– Don’t own the truck outright (unless you get a capital lease)
– Leasing company can take back the truck and give to someone else (on an operating lease)
– Possibly complicated lease agreements
– Can’t claim depreciation or deduct interest with an operating lease
What Credit Score Do I Need to Finance a Semi-Truck?
The better your credit scores, the better the finance rates you’ll be eligible for.
To qualify for the very best terms for a truck purchase, you should have good personal credit scores of 660 or higher. Lenders may also look at your business credit scores to determine eligibility. If you run a startup or new business, you may not yet have a business credit history. You can work on building your business credit scores so you qualify for better rates in the future.
It’s a good idea to always keep an eye on both your business and personal credit history so you know where your scores are, and you can work on improving them before applying for financing.
That’s not to say if you have bad credit you can’t qualify for commercial vehicle financing. We’ll discuss your options for this scenario in the next section.
Can You Finance a Semi-Truck With Bad Credit?
Even with bad credit or tax liens on your credit report, there are online lenders who may be willing to extend credit to you. Just know that, with these types of loans, you will likely pay higher interest rates than you would with traditional truck or equipment loans.
Consider title loans as an option. Your vehicles are put up as collateral and you sign the title over to the finance company so that, if you can’t pay the loan, the lender takes the truck. These do have high fees, but if financing dump trucks or semi trucks is a priority, this may be a way to get them.
What Are the Requirements for Semi Truck Financing?
While lender requirements vary, there are a few general qualifications you will need to get money for your semi truck purchase:
- Information on the truck(s) you plan to purchase
- Working with a reputable vendor
- Good credit scores
- Time in business
- No negative marks on your credit report
- Down payment
- Truck insurance
Applying for Commercial Truck Financing: Tips and Tricks
Once you’ve gathered all the information we discussed above, such as the info about the vehicle you want to purchase, you’ll be ready to start your credit application. Borrowers are typically asked to provide information about their trucking business, such as annual revenue and time in business. You may also be asked to provide business tax returns and personal information, including your driver’s license.
Here are more tips on financing your truck.
Work with a reputable vendor
Most lenders will only extend credit to you if you buy your trucks from a dealer rather than a private party. And working with a professional dealer may open up other finance opportunities to you.
Have good credit scores
We’ve already discussed the importance of good credit scores in helping you get the best rates. Both your personal and business credit scores matter, so access your business credit report before applying for a loan. Nav provides you with business credit scores, too.
Know your time in business
A commercial fleet financing company may want evidence that you have been in business for a minimum of two years, possibly longer. If you’re starting your big rig business, you may not find as many finance opportunities through traditional channels.
Fix negative marks on your credit report
Another reason to review your credit report before applying is to make sure there are no tax liens, repossessions, or delinquencies on your business credit report. These are derogatory marks that might make it difficult to get a good interest rate. If there are errors on your report, you can report the mistake to the credit bureau, and you can also request for one-time delinquencies to be removed, which may not work but it’s worth a shot.
Save up a down payment
In addition to needing to provide a down payment on your loan, lenders might want proof that you have working capital reserves to cover your loan payment, insurance, and repair costs.
Get truck insurance
Because the vehicles you buy are also your collateral, your lender may want proof that you have insured them before you drive them off the lot. That way, should anything happen to the vehicle, their collateral isn’t damaged and therefore devalued.
If you apply through a bank, the financing process may take several days or weeks to get an answer on your application. If you apply online, you may get a decision within minutes or hours.
Commercial Truck Loan Rates to Expect
While the only way to know what rate you would get on a truck loan is to apply for one, you can generally expect, if you have good credit and a solid credit report, an interest rate of 5-6%.
If you have poor credit, you may need to make a larger down payment and then might see a rate anywhere from 8% to 30% or higher.
For a vehicle lease, you don’t pay an interest rate but rather a flat fee, and that can vary from $300 a month for a smaller truck to $1,000 a month for a semi truck. This may be lower than what you’d pay for a financed truck, and it helps you keep cash flow steady.
Banks That Offer Semi-Truck Financing
Below are a few lenders that we recommend you start your research with when seeking a semi truck loan.
Wells Fargo Transportation Financing
Wells Fargo offers both loan and lending options for commercial vehicles, with competitive fixed or floating interest rates and loan terms from 12 to 84 months. You can finance both new and used equipment.
Bank of America Equipment Financing Loans
Bank of America offers equipment loans (which includes heavy trucks and trailers), leases, and lines of credit from $25,000, with rates as low as 3%.
PNC Bank Transportation Finance
PNC provides several financing options, including leases and loans, for a variety of types of trucks and equipment.
Final Word: Commercial Truck Financing
Commercial truck small business loans help owner-operators and trucking companies conserve money while building credit. Whether you’re a trucker who needs a fleet of trucks, a single vehicle, or a tractor trailer, explore your finance options to get the best rate. You may also consider other options, like a business line of credit or business credit cards, which can help you cover other expenses. Nav helps you find the right financing options for your trucking business by providing personalized recommendations. Use Nav to see your best options today.
Still got questions about taking out a loan for a commercial truck? Get your answers here.
This article was originally written on August 19, 2020 and updated on April 18, 2023.