How to Get Financing for a Semi-Truck as a First Time Buyer
Interest Rates & Down Payments for Commercial Truck LoansDalton Morris, a Finance Coordinator with Pedigree Truck and Trailer Sales, says one of the biggest mistakes first-time semi-truck buyers make is thinking the loan process will be just like getting a mortgage or personal auto loan. First of all, remember that you’re not purchasing an 18-wheeler for your own personal transportation. You’re buying it to keep your business up and running. As a result, lenders typically have more stringent requirements when qualifying you for a commercial vehicle loan.
- A higher down payment is expected. Be prepared to put down at least 20% upfront.
- Interest rates are typically higher — between 6% and 10% is common.
Credit Score Requirements for Commercial Truck LoansFor semi-truck loans, lenders typically like to see a score of at least 600, while some require 660 or higher. Exact qualifications will vary by lender.
Semi Truck Financing Requires More than a Good Credit ScoreAs with other loans, a good credit score can help you win approval and get a more favorable interest rate. But your credit score alone isn’t enough. Your goal is to eliminate as much risk as possible in the eyes of the lender.
- If you can demonstrate driving experience and an established revenue stream to go along with a good credit score, you boost your case even more.
- If your credit score is low the lender may require a cosigner on your loan.
- It also helps to have different kinds of credit, such as installment credit in which you make fixed payments at regular intervals. Examples would include a mortgage or car loan.
- Having a credit history of at least seven to 10 years is also ideal. This can be a challenge for drivers who are from outside of the United States.
Register Your Business as an LLC or CorporationLLCs and corporations are huge in terms of getting approval on a commercial loan, according to Pedigree’s Morris. Commercial lenders generally view LLCs and corporations as less risky than individuals. It’s best to obtain corporate or LLC status at least 2-3 years before applying for your loan. Be sure to check the laws of your state for specifics on registration, sales tax and insurance regulations pertaining to your business.
Experience Counts – for You and Your SellerWe’ve already noted that well-established credit history and two to three years of LLC status help qualify for a semi–truck loan. There are other ways in which experience matters in financing your truck purchase.
- Watch for getting “buyer happy.” Young businesses have less experience and often less capital built up and are often tempted to buy too much at once.
- Get some actual driving experience under your belt. Morris advises that it’s best to have at least three years of total driving experience and at least two as an owner/operator. Lenders like experienced drivers because it shows that your truck is going to be used in profit-generating activities immediately, instead of just sitting on the lot costing you money.
- Buy from an experienced seller. Buying your truck from an unknown dealer or private owner is perceived as riskier, and therefore can hurt your chances of getting approval. A known seller with an established reputation, such as Pedigree, instills greater confidence and can help you get financing and possibly more favorable terms.
Semi-Truck Leasing vs. PurchasingFor those with little to no experience, it can be harder to get financing for a semi-truck. It’s even more difficult to launch a trucking business without a truck. So how do you solve this dilemma? The fact is, most new owner-operators don’t have the cash to buy a truck, and many simply lack the credentials to get approved for a loan. This is where commercial truck leasing can be an attractive option. For example, Success Leasing lets you lease a semi-truck under the authority of Prime, Inc. That way, you can start hauling loads and earning money by agreeing to pay a weekly lease. If you go the leasing route, look for a truck in good condition that is less than 10 years old, with less than 700,000 miles. If you can spend the first few years gaining valuable experience, managing your costs wisely and building up your cash reserves and your reputation, you’ll be in a much better position to make that first semi-truck purchase.
Have the Proper Documents ReadyHaving your documentation ready establishes credibility with your lender. It signals that you’re ready for a large purchase. Here are some of the items you’ll want to have prepared when you apply for your loan.
- Current business documents. As noted earlier, have proof of LLC or corporate registration handy, along with all required business licenses and certifications. You’ll also want to have up to 12 months of bank statements as well as current profit and loss statement and balance sheet.
- Driver credentials. The lender will want to see your CDL, your US Department of Transportation number and your Motor Carrier Number.
- Tax returns. Have at least one year’s worth of tax returns. This will provide important data to your lender including, revenue, expenses, and operating statements. It verifies your owner-operator status.
- Proof of insurance. Lenders require proof of insurance before you can get financing. You can get preapproval for a loan without insurance, but you won’t get the actual funding until you secure an appropriate insurance policy. What kind of insurance do you need? For one thing, you need protection for the truck itself and the cargo you’re carrying. You’ll also need worker’s compensation to protect your employees and general liability to protect your business in case of a lawsuit.
Choose a Quality Semi-TruckThe truck itself serves as collateral on the loan. That means your lender will look at the condition and quality of the truck when deciding whether to approve you for financing.
- It’s easier to get financing for a fleet of trucks than for a single truck. If you have 10 trucks and one breaks down, that’s a 10% reduction in your business until you get it repaired or replaced. If you have just one truck and it breaks down, that’s 100% of your business.
- As with leasing, look for a truck that’s less than 10 years old and with less than 700,000 miles. Older trucks break down more frequently, which means they earn less and cost more to own.