Jul 31, 2021
What is truck financing?
If you manufacture or sell trucks, then you understand how costly they are. It would be near impossible to attain meaningful revenue if you decided to sell on a cash basis only. Like other truck sellers, the unseen market forces compel you into selling on credit.
While trucking companies, private party sellers, and owner-operators would be more than happy to take the trucks off your hands on credit terms, that creates a problem as accounts receivables negatively affect your ability to maintain a steady supply of trucks.
Soon, you will have to deal with a cash crunch because of the limited cash flow and the running costs that need settling. In such cases, it makes sense to seek truck financing. This guide explores truck financing and its financing options, and why you should choose alternative lenders.
Truck financing refers to a type of equipment financing to aid purchasing, leasing, repairing, or maintaining of heavy-duty trucks, such as box trucks, long haul trucks, or dump trucks. Since it is a specialist business loan, semi truck loans often come with lower rates than other loan options, such as credit cards, lines of credit, and term loans. Considering the trucking industry hauled over $790 billion in freight revenues in 2019, it makes financial sense to use financing to acquire trucks and get a piece of that pie.
Conventional truck financing
These refer to the familiar sources of financing and often fall into two categories – national banks and semi and commercial vehicle financing companies.
a. National banks
Regional banks will often shy away from such deals, leaving the field to national banks who often have truck loans as one of their financing programs. These banks usually hand out extended loan terms at the lowest annual percentage rates. That comes at a price, though, as they have stringent credit scores, revenues, and business history requirements. If you have low revenues, patchy credit history, or are a newly started business, you stand little chance of securing truck financing from the big banks.
b. Semi and commercial financing companies
These are finance companies specializing in providing equipment loans, including commercial and semi truck financing. They have a wealth of knowledge in the trucking industry, so whichever truck you throw their way, they know how to wring out the best value for it. Just like the banks, these financing companies will not tango with you if you have a poor financial track record.
Best alternatives to truck financing
Alternative lenders get a bad rap for their perceived higher interest rates. The truth is if you have exceptional credit scores and credit history, alternative lenders will grant you rates and terms at par as those offered by conventional lenders. Having said that, most alternative lenders will provide fleet financing at higher rates and with much shorter repayment terms.
On average, online lenders have the fastest credit application and loan approval process of all financiers. In addition, alternative lenders will fund business owners who do not pass the eligibility tests of conventional lenders. They will even overlook bankruptcies and current tax liens. But then again, not all alternative lenders are created equal, as different lenders, such as Resolve, will have their own requirements that are beneficial to all concerned parties.
Digital net terms vs. truck financing
Most truck financing companies uphold strict requirements on personal credit scores and business financial history. That works great if you have a good credit score. If not, those requirements could stop you from attaining your dreams, and that’s where digital net terms come in handy.
Opting for Resolve’s digital net terms means being paid instantly while we will wait for your customers to pay us later. Since Resolve is a complete B2B credit management and net terms solution, which translates to a straightforward way of managing the nightmare of customer payments, credit reports, net terms risk, and cash flow woes.
Resolve can conduct credit checks in minutes, compared to the weeks it takes other lenders. After that, we will approve payments on the same day after advising you on granting a customer 30, 60, or 90 days net terms. The result is once you sell the truck, Resolve will pay approved invoices within 1 day, speeding up cash flow and transforming your business’ financial health.
We at Resolve understand that your trucking business is not a bank, so it shouldn’t behave as one. Get paid within a day of selling a truck and carry on with your regular business. Leave the chasing of invoice payments to us.
Commercial truck financing requirements
Whether you are trying to secure financing for repairs, leasing, refinancing, or a new truck, all lenders will need you to provide the following information:
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Personal creditworthiness: to gauge your loan paying capabilities. Some will even examine your credit score, lending history, criminal background, and bankruptcies.
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Business financial history: scrutinize your business’ ability to repay by requiring you to produce business tax returns, profit and loss statements, bank statements, and balance sheets.
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Vehicle details: year, make, and model, vehicle identification number (VIN), photos, and if it’s a used truck, a condition report and repair history where applicable.
Lenders only want assurances on getting their money back, so all you have to do is prove you are a low-risk borrower. Even a first-time buyer can qualify for truck financing if they show a solid business plan, a strong revenue history, and industry expertise. Alternative lenders are more lenient in their requirements, making them an excellent option for startups and businesses with poor credit scores.
How commercial and semi-truck financing works and how to qualify
When you’ve fulfilled all the requirements, you can apply to the traditional lenders. They will take a bit of time to assess your credentials; therefore, they are not an ideal option if you are facing a financial emergency.
Most alternative lenders will take less time as they already have a database with all the financial information to evaluate your customers. That means a faster and less painful application process, and you will probably receive approval within two business days.
To gain funding from most alternative lenders, all you have to do is provide information on your business, personal finances, and customer’s general information. Keep in mind that newer trucks that have done less mileage pose less risk and tend to last longer, so lenders view them favorably.
Lastly, you will need to show you have sufficient insurance as truck repairs can be costly, affecting your ability to repay the loan. Depending on the lender, you may need to furnish the following:
- Cargo coverage
- Liability coverage
- Non-trucking liability
- Physical damage cover
- Trailer interchange coverage
Finance or lease a commercial truck?
For most small trucking businesses, choosing financing or leasing will depend on where they are financially. However, truck financing is slightly different as most big rigs may cover thousands of miles before they require major repairs.
With that in mind, it means the truck can efficiently operate past the conventional 5-7 year leasing terms provided by most lenders. Hence, it makes financial sense to opt for truck financing. After assessing your business needs, you should opt for a truck lender under the following conditions:
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When you need the cash: commercial truck loans can chew through your working capital. In such a case, leasing may ease the pressure on cash flow as it comes with lower upfront and monthly payments. In addition, depending on the State you are registered in, you may even spread the sales tax over the lease term.
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New businesses: hefty down payments come with the trucking loans territory, something you may not afford if you’re starting out. Besides, as the Bureau of Labor Statistics (BLS) notes, small businesses have a 50% failure rate within the first five years. It does not make sense to sink all your finances into an unproven business.
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Longevity: while some trucks have extensive life spans, such as long haulers, not all trucks will last that long. For example, delivery vans face frequent wear and tear, significantly shortening their shelf lives.
Can you get financing for a semi truck with bad credit?
Contrary to popular belief, you can get semi truck financing if you have bad credit. Although most conventional lenders will not be willing to take the leap of faith with you, alternative lenders are more than willing to take the risk.
That’s because they understand that fundamentally, the truck itself is the collateral, not you. These creditors are willing to overlook poor credit histories and even bankruptcies. In exchange, the lender will hold the title to the truck and will repossess it if you fail to make the monthly repayments.
The catch is the funding is likely to be slightly more expensive, but it need not be as you could always stretch payments over a longer period or ask for seasonal payments that match your cash flow patterns.
How to choose the best commercial truck loan
Firstly, you want a lender who will not place undue preference on your credit score, and this is where most traditional lenders fail. For instance, Resolve’s accounts receivables solution places emphasis on your customers’ ability to pay. They will examine and determine the strength of your customer’s paying abilities, and advance up to 90% of the invoice value upon invoice approval.
Next, you should consider the payment terms and interest rates. Choose a lender that offers basement-level rates and longer repayment periods. You want a lender who knows the trucking industry. A knowledgeable lender is likely to know all the financial pain points, helping you secure competitive rates and terms that ensure you reap maximum benefits from the deal.
To sum up, market trends will force you to sell trucks on credit, putting a serious dent on your cash flow. This stops you from restocking and settling your financial obligations. With Resolve’s net terms management solution, cash crunches will be a thing of the past. Resolve will pay you up to 90% on that invoice within 1 day. Contact Resolve today for the peace of mind its accounts receivables solution offers.
