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Semi-Truck Loans: How to Get Commercial Truck Financing

2020-10-28

Minyang Jiang

Every small business has different needs in regard to physical capital. New restaurants require ovens and fully equipped kitchens, fashion brands need fabric and sewing machines, etc.. One of the most common investments in physical capital made by small business owners, however, is to purchase small or large commercial trucks for transportation purposes. 

While owning your own truck can greatly reduce the inconvenience and cost of shipping goods, purchasing or leasing a truck requires a sizable capital investment that you may not be willing or able to make at this point in time. Luckily, there are a number of financing options available to help you obtain a commercial vehicle for your business.

Semi-Truck Loan Options

While there are no specific loans or grants for the purchase of semi-trucks or commercial vehicles, there are a number of small business loans and other financing options that are well suited for investing in transportation. 

One common financing solution for obtaining large vehicles is equipment financing, or the use of loans or leases to purchase or borrow hard assets for your business. Through equipment financing, small business owners are granted up-front access to equipment in exchange for interest payments or rental fees on the machinery. Typically, equipment financing is favored by owners who hope to increase their physical capital without immediately spending the full cost of the machinery.

Equipment Loans

If you hope to purchase a truck for your business, but you aren’t sure if you can afford to bear the full cost at this time, it may be smart to apply for an equipment loan. Equipment loans can be taken out by small business owners hoping to repay the cost of a semi-truck over a prolonged period; importantly, the equipment itself, in this case your new semi-truck, acts as collateral in the agreement. As you repay the loan, the lender holds the ability to repossess the truck if you default on a payment. If you complete all repayments on schedule, you receive full ownership of the truck. 

Equipment loans are an attractive option for small business owners hoping to purchase large commercial vehicles for a couple of reasons. First, taking out an extended loan allows you to access necessary vehicles without exorbitant spending. Rather than paying for the vehicle upfront, you pay for the asset over the course of its use. Additionally, equipment loans are typically easier to receive than other forms of unsecured loans. Because the truck itself acts as collateral and can be repossessed if your agreement falters, banks are typically more willing to sign equipment loan agreements than unsecured loan arrangements with small business owners.

Equipment Leases

Equipment leasing is a similarly attractive option for small businesses without the capital to finance an outright purchase of a large commercial vehicle. Rather than borrowing money from a lender in order to later purchase the truck outright, you pay a “rental fee” to the equipment’s owner in exchange for access over the short term. While leasing tends to be less expensive than loaning commercial vehicles, and provides owners with less risk than loan repayment, it’s important to recognize that, if you lease a semi-truck, you do not actually assume ownership of it. You are required to return it to your lessor at the end of your agreement. 

For these reasons, equipment leasing is the best option for business owners that need short-term access to commercial vehicles, or for those that lack the capital to cover the down-payment on a semi-truck sized loan.

Working Capital Loan

Another avenue for financing the purchase or use of a semi-truck is a working capital loan. Working capital is the money your business uses to support its day-to-day operations, like paying employees and producing their goods and services. If you’re in search of a semi-truck for deliveries or transportation, a working capital loan can be used to cover those expenses in the short term. 

Working capital loans are a flexible form of unsecured financing meant to help businesses meet their everyday funding needs, and therefore may also come with stricter application requirements than other secured financing options. Working capital loans are best suited for companies with steady revenue streams and the ability to meet the obligations of a short term loan.

Long-Term Business Expansion Loan

If you’re in search of a truck in the hopes of expanding your business operations over an extended period, a long-term business expansion loan may be right for you. These loans, intended for business owners with a proven record of success and financial stability, are repaid over an 18 or 24 month period and are meant to cover costs specifically associated with expanding a business’s reach. 

A new semi-truck could allow your business to reach new markets, run more deliveries, and grow your operations. You may qualify for a long term expansion loan to help achieve those purposes. However, while these loans have affordable rates, they also have more stringent qualifying criteria and you may be asked to provide your lender with financial records and projections that not only describe how the truck will help grow your operation, but also verify your own trustworthiness as a borrower.

How to Get Semi Truck Loan

As with all lending, the best solution for financing a semi-truck depends on your business needs and goals, as well as the lender’s qualifying criteria. Different lenders have different requirements for their financing options and different financing options have different obligations and repayment schedules. Before you secure financing for a new truck, it’s important to find the right lender and right financing solution for your specific operation.

Truck Loans and Leases from the Truck Dealership

You will also be able to apply for a loan or lease for your new truck directly through the truck dealership. As with loan or lease agreements on personal vehicles, a dealership representative will handle the paperwork for your commercial financing agreement, The simplicity of the loan or leasing process through a semi-truck dealership makes it an attractive option for many small business owners. However, these loans often entail higher interest rates than banks and alternative financing options because the dealership sources financing offers from banks and other financial institutions and often marks up the cost for their service. Over the course of your agreement, a few percentage points could result in thousands of dollars in additional payments. 

If you are looking for a quick and simple financing process for the long-term use of a commercial vehicle, you are able to apply for a lease or loan through the dealership when you first purchase the truck.

Alternative Semi-Truck Lenders

Aside from dealership financing, you are also able to apply for equipment loans through traditional sources like banks and online lenders. While an application for a loan from a bank or online service will take more effort on your end to provide the necessary documents, information, and proof of success to prospective lenders, you stand to benefit from better loan terms than you’d receive from a dealer. 

Banks and traditional lenders, unlike individual truck dealerships, reward deserving loan applicants with favorable interest rates and payment terms. If you are pre-approved for an equipment loan through a traditional lender, you’ll then be able to purchase your commercial vehicle with the financing. While this is a more time-consuming process than receiving financing through a dealership, securing an equipment loan through a bank or online lender can be a great choice for experienced business owners in search of a semi-truck.

Other Truck Financing Considerations

Beyond your ability to receive financing for a new commercial vehicle, you should consider the associated risks and costs that come with owning your own transportation. For example, new expenditures on gasoline and maintenance need to be accounted for, as do the costs of insuring your drivers and vehicles. All business owners should also be aware that the equipment itself will serve as collateral for a loan, and that the value and condition of a vehicle will therefore affect the terms of your agreement. For this reason, you should know which truck you’re purchasing and why you’re purchasing it. Your planned usage of the vehicle will determine which trucks you should be able to afford and can determine the terms of your loan in some instances.

Commercial Driver’s License

In addition to the hidden costs of purchasing a vehicle, it’s important to consider the necessities of operating a commercial vehicle before you purchase one. For example, in order to legally operate your new truck, you (or whoever will be driving the vehicle) must hold a commercial driver’s license. The process for securing a commercial license can take weeks or months, so taking care of this process before purchasing your vehicle will ensure that you can use your new truck right away and make the most of your investment. Depending on your business, you may want to take care to have multiple licensed drivers within your operation to ensure your vehicle is being utilized.

Truck Insurance

In addition to monthly repayments on your truck’s financing, it’s also necessary for you to plan ahead for payments on the truck’s insurance. While different dealers offer different arrangements, in most cases, you’ll be required to enroll in truck insurance before you can take ownership of the vehicle. Before moving forward with the purchase of a semi-truck, ensure that your business can afford payments not just for the financing of your vehicle, but for its insurance and operation as well.

Purchasing a commercial truck can give your business a much-needed boost in productivity and market reach. In order to ensure that owning a truck helps your operations more than harms them, however, you must take care to choose the right lender and right financing option for your business before moving forward with a lease or purchase. If your business needs align with the terms of your loan, and if you’ve carefully considered the associated costs of owning a truck, any number of semi-truck financing options could substantially help your business.

Author Bio:

Jeffrey Bumbales
Director, Marketing & Strategic Partnerships