Whether you run a transportation company, are an owner-operator truck driver, or simply run a business that uses commercial vehicles, you know how costly transportation equipment can be. Buying a new truck can eat up your cash flow and leave you without working capital for emergencies and unforeseen expenses.
That’s where transportation financing comes in handy. Small business owners and transportation companies find that, by exploring their funding sources, they are able to find business financing options that help them with their transportation investment while freeing up cash flow.
You actually have several options when it comes to transportation financing, which we’ll discuss in this article. The key is knowing what your needs are, how much money you require, and how long you want to finance the loan.
Transportation Equipment Financing
Transportation financing (also known as equipment financing) provides capital specifically to purchase vehicles for your business. The vehicles themselves act as your collateral for the loan. This may be a business auto loan or an equipment loan, or other types of financing such as a line of credit.
Curated options, smarter decisions
Get personalized solutions that fit where your business is today, and where you want it to be tomorrow.
Types of Transportation Financing:
There are a few financing options when it comes to financing commercial vehicles. Here are some of the financing programs you may consider:
Transportation loans
First, consider loan programs such as commercial auto loans to purchase a motor vehicle for your company. Once you pay off the loan (the payoff period will likely be one to six years), you own the vehicle free and clear and can sell it.
You may be able to use a variety of small business loans to pay for your vehicle purchase, but make sure to read the fine print to be sure that what you want to buy qualifies. The Small Business Administration (SBA) has loans that can be used to finance vehicles and equipment, but while these are very popular loans, they are difficult to qualify for.
The type of loan you get will depend on the financial institution you choose (such as a traditional bank, online lender, or credit union), your eligibility (including credit history and personal credit), and the loan amount you need to cover the cost of the equipment or vehicle fleet. You may be able to get financing through a vehicle dealership as well.
Loan terms and interest rates will also vary depending on your credit, down payment, and other factors. You can generally get better, longer repayment terms, lower interest rates, and lower monthly payments with good credit. But borrowers with bad credit may be able to offset bad credit with personal guarantees, higher down payments, or finding alternative lenders. Always check the lender’s disclosures to understand the terms.
Transportation lines of credit
Some business owners need to purchase a fleet of vehicles, need specialty vehicles, or have a continual need for funding for vehicles. In these cases, look for finance companies that offer lines of credit. Rather than getting a lump sum all at once that you immediately begin paying back, you have an available credit limit and can borrow against it at any time. You only pay back what you’ve borrowed.
Transportation collateral loans
While many other types of loans require that you put up collateral like real estate, cash, or other assets, this type of asset-based lending is easy because the vehicle you are buying serves as the collateral. Should you not be able to make payments, the lender would take the vehicle to cover your debt.
Transportation leases
Another option to consider is leasing a vehicle. The advantage with a transportation lease is that you spend less up front and don’t have a loan. Then, when the lease is up, you aren’t left with a greatly-depreciated asset that you can sell only for a fraction of what you paid. Leasing companies may negotiate lease options with you, especially if you need a fleet of leased vehicles.
Why Finance Transportation Equipment?
So, why finance vehicles or equipment in the first place? You may wonder if it’s better to pay cash so you don’t accumulate debt.
Well, yes and no. Certainly, you don’t want your business to be saddled with so much debt you can’t grow, but smart funding tools, such as transportation loans or equipment leasing, can help you build your credit and free up working capital. Rather than lay down $100,000 on a new commercial vehicle and then have a hole in your bank account, you pay a little each month and reserve that cash for your business needs.
Different providers have different requirements for financing, and you’ll want to make sure you understand the application process before you apply. An online application can be easier and faster than in-person applications, but they may also mean higher interest rates and less favorable repayment terms.
While requirements for transportation financing vary among lenders, in general, you may need a credit score of 650 or higher and proof of revenue. Higher credit scores will get you better interest rates and more favorable terms, but they’re not always the most important requirement.
If your credit scores aren’t that high, you may still be able to find a lender who will offer you loan options or credit, albeit at a higher APR. You may be asked to provide your tax statement from last year as well as your profit and loss statements. It’s a good idea to check your business credit scores so you know what you come to the table with.
Compare Transportation Financing Offers From Top Lenders
Here are a few financing options that may be good for business vehicle funding, depending on your credit scores, time in business, and other factors.
Short-Term Loan by Kapitus
Kapitus offers short term loans up to $5,000,000 in as little as 24 hours. The process is quick and easy with limited documentation and offers the best prepayment discounts in the industry.
Pros
- Repayment options ranging 6-18 months with fixed rates options
- Competitive discounts for those who payoff early
- Extremely competitive product for higher revenue businesses - retains a higher average funding amount
- Your offers can improve as repayment history continues
Cons
- Longer industry restriction list
- Comes with a wide range of rates and terms.
Funding Amount
Cost
Repayment Terms
Funding Speed
Short-Term Loan by Rapid Finance
Fast access to funding amounts up to $600,000
Pros
- Loan approval within 24 hours
- Repayment terms up to 18 months
- Growth capital up to $600,000.
Cons
- Rates vary based on industry and risk scoring model.
Funding Amount
Cost
Repayment Terms
Funding Speed
Finding a small business loan or other transportation equipment financing is easiest with Nav. Using your business data, like credit scores, time in business, and annual revenue, we curate a list of financing you’re most likely to qualify for so you can compare them side-by-side — and you can apply right from our site.
Get the credit your business deserves
Join 250,000+ small business owners who built business credit history with Nav Prime — without the big bank barriers.
Nav’s Final Word: Transportation Financing
When it comes to transportation and equipment finance, you need to make a smart decision that allows you to get the funding you need while retaining working capital for other purposes.
Only you know whether purchasing vehicles with a transportation loan or line of credit or leasing a vehicle makes more sense. Use Nav to do your research so that you find the lender with the best rate and terms for your business.
FAQs on Transportation Industry Financing
What banks offer commercial vehicle finance?
Many financial institutions, including banks and credit unions, offer commercial vehicle financing. A few options include:
- Bank of America
- Axis Bank
- Wells Fargo
- Smart Biz
If you have an existing relationship with a bank or financial institution, it’s a good idea to check with them first to see if they can offer you what you need.
What credit score is needed to buy a commercial truck?
In order to finance a heavy-duty truck or get a truck loan, you usually need to have a credit score of at least 600, although this can vary. A higher score will help you lower your minimum payment, interest rate, and down payment, and will usually get you better repayment terms.
Which company is best for car loans?
The best commercial vehicle financing for you will depend on your needs and qualifications, so it’s important to outline those before you try to apply for a loan or other financing.
Build your foundation with Nav Prime
Options for new businesses are often limited. The first years focus on building your profile and progressing.
Kat Cox
Kat Cox works to provide answers to the questions small business owners have about how to set up, run, or fund their businesses. When she’s not writing blogs, articles, short fiction, or (kind of bad) French poetry, Kat can be found lacing up her tennis shoes for a run or walk with her pup or scouting for the best karaoke spot in Austin, Texas.