A comprehensive guide to commercial truck financing
When your business relies on trucks for local or long-distance deliveries, the ability to maintain or expand your fleet is vital to growing operations. Commercial truck financing can help you purchase vehicles, allowing you to scale without putting a strain on your working capital.
In addition to buying new or used trucks, commercial truck loans can be used to lease new or used trucks, or to make repairs to trucks that your business already owns. This type of financing can cover semi trucks, tow trucks, dump trucks — or virtually any other type of commercial truck your business relies on.
If you’re ready to upgrade your fleet, commercial truck financing could be the solution to keep the wheels turning while preserving your cash flow.
How does commercial truck financing work?
Financing a commercial truck is similar in some ways to equipment financing. The truck secures the financing and serves as collateral for the loan. It’s common for commercial truck lenders to require a down payment (ranging anywhere from 0% to 25%), but it’s possible for the most qualified borrowers to get 100% financing.
Loan terms are typically equal to the useful life of the truck, which is typically 5 to 10 years. The purpose of matching the loan term to the life of the truck is to make sure you’re not still paying it off after it’s outlived its usefulness.
Banks and credit unions rarely offer commercial truck financing. There are, however, a number of alternative lenders that specialize in financing the purchase and leasing of commercial trucks for small businesses.
Commercial truck financing rates and terms
The most important thing to keep in mind about commercial semi-truck truck financing is that it’s not the same from lender to lender. You’ll want to compare the loan terms and rates to see what makes the most sense for your business.
Like equipment financing, interest rates for commercial truck loans can range from 5% to 30% with most repayment terms capped at 10 years. Again, the repayment term typically aligns with the life span of the truck and it can vary by lender. So, if a truck is expected to last 10 years you may have up to 10 years to repay the loan.
Similar to any type of small business financing, the rate you’ll pay for commercial truck financing depends largely on your business and personal credit history, as well as your business’s financial profile. That includes things like your revenues, time in business and whether you have any other debt outstanding. Generally, the better your credit and the stronger your financials, the lower your rate is likely to be.
Commercial truck lenders set their own guidelines for commercial truck financing down payments and the amount may be based on the strength of your credit, value of the truck and the amount being financed. For example, Lender A may ask for 5% down for a borrower with perfect credit, Lender B may expect 15% down from someone with average credit, while Lender C requires no down payment at all.
The advantage of a lower down payment is that you’re parting with less cash out of pocket. But, a smaller down payment means financing a larger amount. The more you finance, the larger your monthly payment may be and the more you may pay in interest over the life of the commercial truck loan. Crunch the numbers on down payments to see how that could affect your loan payoff.
Who qualifies for commercial truck financing?
Qualifying for commercial truck financing tends to be easier than getting approved for a traditional business loan. Most traditional loans require you to have at least two years in business, strong revenues and good to excellent personal and business credit scores.
Commercial semi-truck truck financing also considers credit scores, time in business and revenues, but you don’t necessarily need to fit a specific mold to qualify. Many businesses have been able to obtain commercial truck loans, even with less than perfect credit. Since the truck serves as collateral for the loan, commercial truck financing is seen as being less risky for the lender.
Before you get started on the road to funding, you’ll need to know the truck you’re interested in financing as this plays an important role in your application.
Generally, the list of things commercial truck lenders consider when you apply for financing include:
- The age, type and condition of the truck (including make, model, year, mileage and any repairs made to the truck if it was previously used)
- The truck’s value
- How the truck will be used in the business
- Where you’re buying or leasing the truck from
- Your down payment and cash assets
In terms of your business and personal credit history, commercial truck lenders want to see that you don’t have any serious marks against you, such as a judgment, bankruptcy or lien. Typically, the better your credit score, the better the rate you may be offered. Having bad credit doesn’t mean you won’t be able to get commercial truck financing, but it will likely result in paying a higher interest rate.
When commercial truck financing isn’t the right option for you
There are advantages to using commercial truck loans to fill out your fleet but they’re not the only option. There may be scenarios where it might make more sense to get another type of small business financing, such as a term loan or line of credit. For example, you may want to skip commercial truck financing if:
1. The ROI is too low
Ideally, buying or leasing new trucks should help you grow your business and increase revenues. If the costs of commercial semi-truck financing outweigh the projected revenue boost or you’re only getting a slim increase, it may not be worth it.
2. The lender requires a large down payment
Having cash on hand is helpful for covering day to day expenses when needed, as well as managing unexpected costs that inevitably pop up. Putting money down to purchase or lease a truck and leaving your cash reserves completely depleted in the process could lead to financial trouble. If an unplanned expense comes along, you may need to seek out another commercial truck loan to cover it, adding to your business’s total debt.
3. You can get a better interest rate elsewhere
When you have a strong credit score, it pays to leverage it in your favor for financing. Commercial truck financing may afford a longer payoff term but a term loan, line of credit or even SBA loans could be more attractive if it’s accompanied by a lower rate. Keep in mind, however, that an SBA 7(a) loan, which can be used to purchase trucks, requires a 10% to 20% down payment.
Commercial truck leasing vs. financing: what’s the difference?
Commercial truck financing can refer to getting a loan to buy or repair trucks but it can also mean leasing as well. The main difference is that when you finance a truck’s purchase with a loan, you own it once the loan is paid off. With leasing, the leasing company maintains ownership.
How commercial truck leasing works
Leasing a truck is similar to leasing a personal vehicle; you make lease payments for a set term. At the end of the lease term, you may have the option to buy the truck outright or return it to the leasing company.
Cost-wise, leasing may result in a lower monthly payment compared to a commercial truck loan because you are essentially covering the cost of a rental instead of paying off the full purchase price. Depending on the type of lease, you may be able to buy the truck outright once the lease expires. With a capital lease, for example, you’d make your regular monthly payments, with the option to buy the truck for a predetermined amount at the end of the term.
Leasing has some advantages over purchasing trucks. For example, you might still be required to put money down on a lease, but it will likely be less than what you’d pay with a commercial truck loan. Leasing offers flexibility in trading up to a new truck periodically and your leasing company may include regular maintenance as part of your agreement. Qualifying for a lease may also prove less difficult if you have a newer business or lower credit scores.
Remember, however, that leasing a commercial truck doesn’t allow you to avoid paying interest. Commercial truck leases, like other vehicle leases, charge interest to the lessee. Read the lease agreement carefully to understand how the cost of leasing would compare to the cost of buying over the long term.
Commercial truck financing with Funding Circle
If you’re looking for an alternative to traditional forms of commercial truck financing, consider a term loan from Funding Circle.
Borrowers can take advantage of fast, affordable financing with rates starting as low as 4.99% and repayment terms of up to five years. It takes just minutes to apply for a term loan with Funding Circle and you can get a decision in as little as 24 hours after submitting the required documents.
If you’re ready to explore how a term loan can help meet your truck financing needs, get your personalized rate today!
Why should I borrow a commercial truck loan from Funding Circle as opposed to a bank or other lender?
While the underwriting process at traditional banks can be clunky and opaque, Funding Circle delivers a best-in-class experience to our business customers. You’ll work with a dedicated loan specialist who will guide you through the entire application process and remain focused on meeting your unique financing needs. And we will never leave you waiting — you’ll have a decision from us in as little as 24 hours after document submission. We also deliver competitive rates, with no prepayment penalty or any other hidden fees.
How long does it take to apply for commercial truck financing through Funding Circle?
Funding Circle’s application process is quick, easy, and transparent. You can apply for a loan and get a decision in as little as 24 hours after document submission.
Do you offer commercial truck financing for startups?
We like to support all kinds of entrepreneurs, but our focus right now is on helping established small businesses grow and thrive. To qualify for a loan on our marketplace, your company has to have been in business for at least two years.