Commercial Truck Financing: Everything You Need to Know

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Commercial Truck Financing: Rates, Best Options, And How to Apply

Trucking is the lifeblood of the American economy. According to the American Trucking Associations, this industry employs over 7 million people and moves over 70% of US freight tonnage, including medicines, hospital supplies, and perishable food and drinks. Without trucks, the economy would come to a halt, and vital goods and services would disappear.

To keep this vital industry rolling, truck drivers need trucks. And trucks are expensive, with an average price of around $80,000 or more per truck.

Fortunately, there are several options for commercial truck financing to help trucking companies purchase trucks (including trucking factoring companies) and the rates are lower than you might expect on a small business loan.

In this guide, we’ll walk through the ins-and-outs of financing a commercial truck—what it is, how it works, and where to get the best.

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How Commercial and Semi Truck Financing Works

If you’re totally new to the trucking industry, or have never had to take out a loan for a truck before, you might not know how semi truck financing works.

The first thing to understand is that financing for a commercial truck is very different from getting a loan for a personal vehicle, both in terms of cost and in terms of where to look. Personal auto loan rates have interest rates below 5% right now, but business auto loan rates for semi truck financing between 5% to 30%.

And whereas banks are your best option for getting a personal car loan, they don’t lend to most trucking businesses because there’s a high failure rate within the industry. Fortunately, there are alternative lenders focused entirely on truck financing.

At the most basic level, commercial truck financing is available for three reasons:

1. Buying a new or used truck.

2. Leasing a new or used truck.

3. Repairing or upgrading a truck that you already own.

The terms on a semi truck loan or lease will vary considerably based on the borrower’s specific circumstances. Next, we’ll take a closer look at what you need to qualify for commercial truck financing.


What You Need to Qualify for Semi Truck Financing

The process of obtaining commercial truck loans is a bit different than applying for more traditional business loans. For traditional business loans, your personal credit score, your business’s revenue, and the time you’ve you been in business typically determine your eligibility for a loan.

Semi truck financing is different because trucking is a such a specialized industry, and the truck itself serves as collateral for the loan, which minimizes the lender’s risk. Even if you’re not the “ideal borrower” on paper, you should be able to qualify.

Although most borrowers qualify, there’s more variation around terms and rates on semi truck financing. The best borrowers can qualify for 100% financing and interest rates as low as 5%. Borrowers with more “red flags”, such as spotty credit or an old truck, will need to put money down and pay rates between 7% to 30%.

Here’s are the items that will affect your eligibility for commercial truck financing.

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Right Type and Good Condition of Truck

Since the truck serves as collateral for a loan or lease, the lender will place a lot of value on the type of truck and the condition it’s in. One important note: You need to know what truck you’re interested in purchasing or leasing before applying for financing.

The first thing they’ll consider is whether the truck is a vocational truck or a long-haul truck (a semi). A vocational truck is a garbage truck, a dump truck, or other type of truck with a specific use that’s used primarily within a single geographic area. A semi-truck is a truck that transports freight cargo, often over hundreds of miles.

The “long-haul” aspect puts more wear on a truck, making the financing of a semi-truck a riskier venture. With more miles on the truck, the more likely it is that the business owner will need to repair the truck. And if your long-haul truck suddenly goes out of commission, you won’t generate as much income with your trucking business and may fall behind on commercial truck financing payments.

Along with the type of commercial truck you’re financing, they’ll also care about the condition of the truck. Older trucks make for less valuable collateral, but odds are, if you’re just starting out, you won’t be able to afford a brand new truck, even with financing. You can finance a used truck, but it should be in good condition. At a minimum, try to look for a truck that is fewer than 10 years old, and has fewer than 600,000 miles on it.

When you apply for truck financing, you’ll usually need to give the lender the following details about your truck:

  • Make, model, and serial number
  • Year
  • Mileage
  • Specify if used
  • Condition report
  • Any major repairs on the truck in the past
  • At least 3 pictures of the truck
  • Specify if sold privately

Lenders shy away from truck loans for business if the truck itself isn’t likely to last the duration of the financing terms. Or, lenders won’t want to work with a truck that’s constantly breaking down all the time. In that case, your available capital will need to go towards the truck repairs, and you won’t have cash leftover to make your loan payments.

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Reputable Truck Vendor

Another important detail a financing company will look at is who you’re buying the truck from. Typically, commercial truck lenders want to see that you’re buying the truck from a dealer, as opposed to buying a truck through a private party.

Generally speaking, it’s easier to get a semi truck loan if you’re buying from a dealership because there’s a more standardized paper trail on the truck, and the lender has great assurances of its condition. However, if the truck is in good condition, you can be approved even if you’re buying from a private party or through an auction. Valuation sites like Truck Blue Book (similar to Kelley Blue Book for cars) are making it easier to get approved for cars purchased through a private party or auction.

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Decent Personal Credit Score (for better rates)

Your personal credit score is important on any business loan application—including a commercial truck financing application. But with commercial truck loans, the strength of your personal credit score matters most for what rates and down payment requirement you qualify for, rather than whether or not you’ll be approved.

A strong credit score shows that you’re a responsible borrower. You pay your credit accounts back on time, and in full. Commercial truck financing companies need to know that they’ll get the money they lent back, and a strong credit score (650+) can help convince them of that. Fortunately, there are ways to improve your credit score in just a few weeks.

If you have a fair amount of cash coming into the business to put towards a down payment, then you can usually qualify for commercial truck financing even with struggling credit—but you’ll have to a pay a higher rate and larger down payment.

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No Tax Liens, Repossessions, or Delinquencies on Your Business

The lender will also look for any recent liens, repossessions, or delinquencies on your business. These might show up on your personal credit report or your commercial credit report (yes, your business has a credit report).

Things like tax liens are red flags for a commercial truck lender because they show that you owe another lender or the government money. Lenders want to see that you have a positive track record of managing your finances.

  • For that reason, truck lenders will shy away from business owners:
  • Open bankruptcy (discharged bankruptcies okay)
  • Recently had a vehicle repossessed
  • Have past due child support payments

Keep your credit report clean, and you should have no trouble securing semi truck loans.

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Down Payment Ability & Business’s Cash Reserves

Most borrowers have to put some money down on a commercial truck loan. The average down payment on commercial truck financing is 15%, but it can range anywhere from 0% to 25% depending on the strength of the rest of your application. Unless you have perfect credit, experience in the industry, and a truck in stellar condition, you won’t qualify for a commercial truck loan of 100% of the truck’s value.

In addition to bringing cash to the table for a down payment, you’ll also need to show lenders that you have enough reserves to afford your loan payment and other expenses—such as unexpected repairs, insurance payments, etc. Most lenders like to see cash reserves of at least $10,000, more if you have other weak points on your application, such as a lower credit score or a younger business.

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Your Time in Business

Commercial truck financing for first-time owner-operators is challenging. Many commercial truck lenders won’t consider owner-operators that have been in business for fewer than 2 years in business, especially if you’re looking for a large amount of financing (over $40,000).

That’s not to say that new trucking businesses and new owner-operators can’t qualify for anything. In general, if you have strong credit, are buying a newer good-condition truck, and you have the cash to put down 10% to 20% in a down payment, you should be able to qualify for some kind of commercial truck financing.

Younger businesses are generally a riskier venture to lend to. The commercial truck lender has less reason to be confident that you can weather the ups and downs of running a business. The lender will probably still approve you, but you’ll just have to be prepared to pay higher interest rates.

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Truck Insurance

Commercial truck lenders will also look at the insurance you have for the vehicle. Just like you have to insure your personal vehicle, you also have to insure a truck. You can sometimes be approved for a commercial truck loan without insurance, but generally you’ll need to secure insurance before the funds get deposited into your account.

Insurance is a must-have for trucking businesses considering how costly damage repairs can be. The type of insurance you need depends on the kind of business you have.

If the truck being financed is the only asset in the business, you’ll typically need:

  • Liability coverage
  • Physical damage coverage
  • Bobtail coverage for non-trucking use
  • Storage and cargo coverage to insure whatever you’re hauling

While the above parts of coverage are required, you can also purchase supplemental coverage such as personal effects insurance. Businesses with employees will need workers compensation coverage. A truck insurance broker can help you obtain the right coverage, often the same day if you need to act quickly.

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Other Business Information

A complete commercial truck loan application will contain a lot of detailed information about your business. The more confident a lender can be about lending to you, the better your chances of qualifying. Be as open and prompt as possible with information requests.

To qualify for a commercial truck loan, you may have to provide the following documents:

  • Proof of business (e.g. Employer Identification Number or Certificate of Good Standing)
  • Personal and business tax returns (up to 3 years)
  • Current profit and loss statement for your business
  • Current business balance sheet
  • Current and past bank statements (last 12 months)
  • Your commercial drivers license (CDL)
  • Any business licenses or requisite certifications
  • USDOT number (US Department of Transportation) for interstate carriers and certain instrastate carriers.
  • Motor carrier number from Federal Motor Carrier Safety Administration (FMSCA) for interstate carriers and certain intrastate carriers.

Have as much of this documentation as you can ready to go before you apply. Preparedness will establish credibility with the lender.

Commercial Truck Financing Rates and Terms

Lenders who provide commercial truck financing generally charge annual interest rates between 5% and 30% based on the borrower’s creditworthiness, the age and financial state of the business, and the type and condition of the truck. Terms go up to 10 years, with banks generally offering longer terms than alternative lenders.

For the ideal borrower, commercial truck loans can be up to 100% of the value of the truck you’re purchasing. However, in most cases you’ll have to put down a down payment and get financing for the 75% to 95% of the truck’s value.

The interest rate that the lender quotes you may not tell you everything. Semi truck financing companies usually charge fees, such as an application fee, credit check fee, and appraisal fee (to evaluate the fair market price of the truck). These can significantly impact the cost of your loan. Ask the lender for the annual percentage rate (APR) of the loan to find the true cost, including all fees.

Interest rates on equipment financing and semi truck financing are typically fixed, so you’ll make the same payment every month. Terms go up to 10 years, with banks offering longer terms. Alternative lenders usually offer shorter terms of 1, 3, or 5 years. The longer your term, the smaller your monthly payment will be but the more you will pay in interest over the life of the loan.

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Commercial Truck Leases vs. Loans

Semi truck financing, like most equipment financing, can mean one of two things: a commercial truck loan or a lease. The structure of a commercial truck loan is similar to that of a home loan or car loan. Once you pay off the truck loan, you own the truck outright.

There are two main types of leases: operating leases and capital leases. With an operating lease, you essentially rent the truck for the term of the lease. The truck doesn’t show up on your balance sheet. The monthly payments will be lower than a loan, but at the end of the lease, you won’t own the truck. To purchase it, you have the pay the fair market value of the truck at that time. An operating lease can be a good option for borrowers who can’t afford the higher monthly payments on a loan or who play to upgrade their truck immediately after the end of the lease.

Capital leases are more like loans, even though they are called leases. In this case, you make monthly payments on the truck, and at the end of the lease, you own the truck for a nominal sum, like $1. This is not much different from a loan, but the lender calls it a lease for tax/bookkeeping purposes.

Can You Get Commercial Truck Financing With Bad Credit?

Will you be able to secure commercial truck financing, bad credit and all?

The short answer is yes.

However, if you’re looking for semi truck financing for bad credit, you’ll really need to keep an eye out for just how expensive this semi truck loan can get. Generally speaking, you can pretty much find funding no matter what kind of credit you have, it’s just a question of how much you’re willing to pay for the funding. Bad credit could mean that your interest rates could be through the roof—and this is especially true even for no credit check loans, as well.

That said, because semi truck financing is a form of secured financing—with the trucks themselves securing it—while you’re searching for truck financing, bad credit won’t be as much of a deal breaker.

That’s because the collateral the trucks provide makes this financing for bad credit much less risky for lenders. So, even though it could get expensive semi truck financing, bad credit notwithstanding, it still an option for business owners who have challenged or limited personal credit to work with.

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The Best Commercial Truck Loans

The semi truck loan options that are open to you depend on how strong of a borrower you are, as well as the type and condition of the truck you want to finance. The strongest borrowers with the best trucks may be able to get a bank loan or a great rate with an online lender. Less qualified borrowers, including first-time owner-operators, will typically have to decide among online lenders.

Here are your three main options for commercial truck financing:

Most local banks shy away from commercial truck financing because they view it as a risky investment. However, large national banks advertise different loans for commercial trucks.

Here’s a list of banking institutions that offer some sort of commercial vehicle financing:

Truck financing is available through most of these banks as part of their equipment financing divisions. Banks finance commercial semi-trucks but can also finance vocational trucks, food trucks, delivery trucks, and other types of commercial vehicles.

Those lucky enough to get a bank loan will be able to enjoy the lowest interest rates (as low as 5%) and longest terms, up to 10 years. Banks offer both traditional loans and leases. However, to qualify, you generally need the ability to put money down and a credit score of at least 700, and the truck you’re interested in should be new or in great used condition.

Commercial Truck Financing from Online Lenders

If you don’t have stellar credit or much to offer for a down payment, then you can look to online trucking lenders to fulfill your needs. These lenders charge higher rates than banks (5% to 30%) and tend to provider shorter terms (under 7 years), but eligibility and the application process are easier as well.

Online lenders do fill truck financing gaps for subprime borrowers, but they’ll charge higher interest rates for the capital at shorter terms. But because online lenders can be expensive, you’ll want to be sure working with one is the right move for your business.

Some common online commercial truck financing companies are: Smarter Finance USA, Crest Capital, Truck Lenders USA, Balboa Capital, and First Capital Business Financing. Some, such as Direct Capital, focus on leasing only. Before you work with any online lender, however, make sure you’ve fully vetted the commercial truck financing company and compared your options thoroughly.

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Traditional Equipment Financing Company

Working with a financing company that focuses only on trucks is helpful because the lender has more knowledge about the industry. The process will likely be faster, they’ll charge lower interest rates than a general equipment lender, and require a smaller down payment. In addition, they can work with you to assess the right value for your truck, so you know exactly how much financing you’ll need to cover your costs.

That said, for some borrowers, a general equipment financing company may work well. Equipment financing companies can provide financing for a range of commercial vehicles, including semi-trucks, vocational trucks, tow trucks, food trucks, and other types of trucks.


The Bottom Line on Commercial Truck Financing

Finding the right financing option for your commercial truck might take some time, but it’s worth it to find a lender who understands your business’s current needs and goals. Before you approach a lender, it’s also worth spending sufficient time and research finding a good truck. The type of truck, its condition, and your personal creditworthiness will determine which financing options are best for you. Ultimately, the good news is that most borrowers, even first-time owner-operators and those with some red flags in their credit history, are able to secure commercial truck financing.

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