Are you getting into the commercial trucking industry? Then you'll want to learn your options for commercial truck financing.
Commercial trucks are incredibly expensive. When you're just getting started, there's probably no way you have the cash to buy the trucks you need outright. Luckily, there are plenty of financing options that will help you get your business underway without breaking the bank.
In this guide to commercial truck financing, we'll walk you through the whole process.
Keep reading before you get started!
Why Do You Need Commercial Truck Financing?
If you're a truck driver or work in the trucking industry, you might decide to walk away from your regular paycheck for the exciting promise of being a business owner. Becoming an owner-operator can be incredibly rewarding, with a high-income potential. But as a business owner, you'll also have new risks and responsibilities to manage.
Getting financing for your truck or trucks is just one of those responsibilities, but it's a big one. Without the vehicle, you can't get your business started at all.
There are a few steps you need to take to help ensure that you'll qualify for commercial truck financing at the lowest rate possible. The good news is that this kind of financing is easy to get compared to a lot of other kinds of business loans. The truck works as a form of collateral, so institutions are more likely to take the risk of financing you, knowing they can easily get their money back by selling the truck.
However, if you're only buying one truck, lenders can be a bit more reluctant to give you the funding. That's because your entire business becomes reliant on that single vehicle. And, if you're just starting out, you won't have a track record to prove your business can make money.
That's why it's so important to follow all the necessary steps so you'll qualify for commercial truck financing, no matter what your business situation is. With these tips, you'll be well on your way to financing your commercial venture in no time.
1. Show Proof of Business
First, you'll need to prove that you own a registered business that the lender can finance.
There are a few different ways to show this proof, depending on the kind of business you have.
Corporations and LLCs
This is the easiest type of business to show proof for. The lender can simply look up the official records of your business on the internet - you'll be listed on the Secretary of State site for your state. The good news is that it's also very easy for you to set up this type of business.
Sole Proprietorships and Partnerships - Existing
If you haven't yet organized your business as a legal entity, you're a sole proprietorship or a partnership by default. If you've shown business income on your taxes for at least a year, you can use your Schedule C form as your proof of business.
If it's a partnership, you'll use the Schedule K-1 form instead.
Sole Proprietorships and Partnerships - New
If you don't have a year's worth of taxes to show, you can use your Employer Identification Number to show proof of business instead. You can sometimes also use your Doing Business As name.
To get your Employer Identification Number, just visit the IRS's website - it's free. The confirmation letter they send will serve as your proof of business.
What Else Will You Need?
In the trucking industry, you won't just need proof of business - you'll also need your Commercial Driver's License (CDL). You might also need to get a U.S. Department of Transportation number.
Even if your lender doesn't ask you to document these things, you should still have them - otherwise, you risk getting in trouble and losing your business.
2. Grow Your Credit Score
Next, you need to get your personal credit score in order so you'll qualify for commercial truck financing. This can have a huge impact on whether or not you qualify, especially if you're just getting started.
You'll need your credit score to be approved for your fuel card and fleet card, too, which are important tools for your business cash flow.
The higher your credit score, the lower your down payment will tend to be. If your credit score is low, getting a co-signer for your application can help.
3. Find Your Truck
With that in order, it's time to find the right truck to lease.
You probably won't be able to afford to finance a new truck, so you'll need to look for a good used option. Find a truck that's under 10 years old, and has under 700,000 miles. The better the condition, the better your financing options will be.
Most lenders won't want to finance old, worn-out trucks at all. That's because they're more likely to break down, and don't offer as much collateral value.
4. Save Up Your Down Payment
If you're just getting into the business, you'll need a down payment for the truck. You should also have some cash reserve saved up for business expenses along the way.
Depending on your credit score, you can expect to pay a down payment of about 10 to 30 percent. Save up enough cash to cover a month or two of repairs, living expenses, insurance premiums, and the like. Lenders like to see that you'll be able to keep things going if business starts out slow.
5. Get Insured
Proper insurance is essential for commercial truck financing. Even if you get pre-approved without insurance, you'll need to show proof of insurance after the financing goes through.
Looking for Commercial Truck Financing?
Once you've completed all these steps, the only thing left is to find the right commercial truck financing company for your needs.
When you become an owner-operator, you can be your own boss and grow your business to your heart's content. Good financing sets you up for success by getting you off to the right start. If you follow these steps, you'll have everything in working order before you approach a lender.
Want to know how to make your trucking business stand out from the crowd? ComFreight can help - find out more about us here.