Whether you run a towing and recovery business or maybe a repossession company, there’s one thing your business relies on: commercial vehicles. But flatbed tow trucks and wreckers don’t come cheap. You might not have the capital on hand to purchase one truck, let alone a fleet.
Fortunately, tow truck financing is available to help towing companies get the loans they need to buy the trucks that a business like yours depends on.
Tow Truck Financing
Few businesses have the cash they need to purchase one or more tow trucks, and that’s where financing comes in handy. By taking out a loan, using the vehicles as collateral, you can get the trucks your business needs without breaking the bank.
Types of Tow Truck Financing:
There are a variety of finance options when it comes to commercial truck financing, so explore each to make sure you choose the one that best fits your needs.
Tow Truck Loans
There are a variety of small business loans that you may qualify for to purchase your vehicle or tow truck equipment. You can go with traditional lenders that offer SBA loans (particularly the 7(a) program), but if your credit doesn’t meet requirements, look for a financing company with less stringent criteria for loans.
Tow Truck Line of Credit
Another type of financing to consider when shopping for tow trucks for sale is a line of credit. Rather than being approved for a fixed loan amount that you get all at once, you are approved for up to a set amount of working capital. Borrow what you need for your tow truck purchase, and make your payment just on that. It works a bit like personal or business credit cards. Should you need more money down the road, you have the rest of the line of credit available, as well as whatever you’ve paid back.
Tow Truck Collateral Loans
Some lenders will not require you to put cash down as collateral if you are funding the cost of a tow truck because that vehicle serves as your collateral. Should you not be able to pay off the loan, the truck would be taken to cover your debt.
Tow Truck Leases
Buying a tow truck isn’t always the best option. Leasing one, instead, frees up cash flow and doesn’t weigh you down with a greatly-depreciated vehicle after a few years. We’ll talk about the pros and cons of leasing in a minute.
Why Finance a Tow Truck?
You might think that it’s better to pay cash for any large purchase your business needs to make, but the fact is: even if you can afford to spend hundreds of thousands of dollars on a fleet of tow trucks, it might not be the wisest financial decision.
Conserving working capital while making monthly payments on your tow truck loan ensures that, should your business suddenly need cash for an unforeseen expense (which is almost guaranteed to happen), you can cover it. If you had tied up that capital in your tow trucks, you would then have to scramble to cover the emergency expense.
How to Qualify for Tow Truck Financing
Every lender has different requirements when it comes to qualifying for financing. Some, like banks, will require high credit scores and several years in business, while others, like equipment and vehicle loans, will have looser parameters since your vehicle will act as collateral and lower the lender’s risk.
You may be required to have credit scores of 650 or higher, as well as have no tarnishes like bankruptcy or tax liens in your credit history. You may also need to have been in business for at least a year or two, depending on the lender.
Not sure what your credit scores are? Get your business credit scores today.
If you have bad credit, not to worry. There are alternative lenders who may approve you for financing at a higher interest rate.
Financing vs. Leasing a Tow Truck
You may be unsure of which option between financing and leasing a tow truck is better for you.
If you want to own an asset (the tow truck) and be able to claim depreciation on your taxes, you might want to purchase it. You will also be able to recuperate some of your investment by selling the truck once you’re done with it.
On the other hand, leasing tow trucks don’t require the down payment or collateral that a loan would. You may have lower truck lease payments than you would loan payments with most leasing programs, and, at the end of the lease, you aren’t left with a greatly-depreciated vehicle that is worth a fraction of the purchase price and you can lease a new tow truck.
If you don’t have good credit, however, you may have fewer options with leasing companies and may not qualify for favorable lease terms, and might be better off taking out a loan for the vehicle.
Can You Finance a Tow Truck with Bad Credit?
As I said before, there are tow truck financing programs that allow businesses with bad credit to purchase vehicles, though they may charge more interest. If you are unable to pay your loan, the lender has the right to seize the vehicle you’re financing to cover what you owe.
The best way to avoid paying too much interest is to build your credit over time. Keep an eye on your credit reports, pay your bills on time, and reduce your debt, and you should see your credit rise, opening you up to better financing options.
Choosing the Right Tow Truck Financing for You
The right financing solution for your business is the one with terms you’re comfortable with. You might not be happy paying 19% interest on a $50,000 vehicle if you have bad credit, but if you can’t wait, that may be your best option. In this case, pay off the loan as quickly as possible to avoid racking up interest fees.
Tow Truck Financing Offers:
Nav works with many lenders who specialize in transportation or equipment financing. Learn more about financing programs you can use to purchase tow trucking equipment.
Newtek offers long-term financing programs for a variety of needs, including the purchase of equipment and vehicles. You can secure up to $15 million in funding with repayment over 25 years if you qualify.
If you’re looking for less capital to repay over a shorter time period, Kapitus offers intermediate-term loans to be paid off in 2-5 years, up to $500,000.
Nav’s Final Word: Tow Truck Financing
Smart towing business owners and truck owner-operators leverage tow truck financing solutions including loans and leases as a way to preserve working capital and build their credit.
In choosing the right financing option, know how much you plan to spend on a commercial truck or fleet, and shop around for the best deal.
This article was originally written on July 16, 2020 and updated on May 10, 2022.