Complete Guide to Commercial Truck & Vehicle Financing
Every truck company owner and fleet owner needs to know how to get commercial truck financing. Trucking is a necessary operation within the United States. Roughly 80% of all goods in the US are transported by semi-truck, and that does not consider other commercial truck use such as cement mixers and dump trucks. Understandably, there will always be a demand for moving cargo, so starting a trucking business can be very successful even as particular industries such as brick and mortar retail declines.
In most leases and or loans, the item with which the financed capital is used to purchase is used as collateral for the financing program. This applies to housing, complex machinery, and of course, commercial truck financing. Below are the various factors that go into getting a semi-truck lease or commercial truck loan from a bank or other finance company to help you get the truck you want.
How to apply for Truck Financing
So you have decided to obtain a financing for a commercial truck or vehicle. Here are the steps that typically occur in a commercial truck financing transaction.
4 Steps to Get Commercial Truck Financing
#1 Determine Eligibility
It’s easy to want to obtain financing for anything, but do you have the credentials for a financier to consider you a worthy investment? Essentially, eligibility is based on a web of varying factors
- Credit score – Credit score is based on a variety of factors which we will cover later in this article, but the higher the credit score, the lower the other eligibility factors can be.
- Down Payment – Starting the financing process, the lenders will want some of the money upfront. The higher the percentage you have to start, the lower the other eligibility factors can be.
- Interest Rate – The amount of extra money you pay over time. The higher this rate is, the lower the other eligibility factors can be.
- Loan or Lease Duration – Having your payments be smaller installments for longer increases the chance of something going wrong and is riskier for the bank. The shorter the finance duration, the lower other eligibility factors can be.
- Collateral – What you offer to the lender if you default on the financing. Usually the collateral will simply be the truck you are buying, but further collateral can lower the other eligibility factors.
Financing eligibility is a game of give and take. Ideally, you would want to be able to get a 25 year, interest-free loan with no down payment despite a lackluster credit score, but good luck finding a lender who will ever agree to those terms.
#2 Collect your data
Once you have a reasonable idea of what loan terms you can get, it is time to gather the paperwork to make your case. Here are some things lenders will look at to determine your loan:
- Completed trucking paperwork (CDL, proof of Authority, hazardous material licenses (if any), business registration, etc.).
- Net income for the most recent completed year (and further back, more years is better).
- Current business balance sheet of assets and liabilities.
- Business tax returns of three prior years.
#3 Find the truck & Insurance
Beyond yourself, the lender invests in the truck you purchase with your loaned dollars. You will want to get a truck that is relatively new, or at least not old.
Avoid the devil’s numbers (666,666 miles or more) and trucks that are over 10 years of age; a financier will not agree to lease or loan a vehicle that costs more to repair than it does to purchase. Get a written quote from the seller, with as much detail about the vehicle as possible. You will need this quote to show the lenders.
Beyond the truck itself, you will need acceptable insurance to lower your other financial obligations. At the very least, you will need primary liability insurance for damage caused beyond the truck, but physical damage, bobtail, and cargo coverage are also important pieces of insurance to convince lenders. Check out the section below about commercial truck insurance for more information.
#4 Submit Everything
Now is your time to shine. Send in all the paperwork compiled in steps 1-3 to the financing partner of your choice, such as TopMark Funding. There is a chance the financier will want additional information you may have missed; make sure you understand everything you will need before handing any personal information over.
What Can Prevent Your From Getting Truck Financing
Limited Time in Business
Your business will be your primary form of income for paying the truck financing. If your business has not been active long enough to prove it can provide a consistent profit to pay down debts and build equity, that raises a red flag. Supplemental forms of income, if you have any, can help make this less of a hurdle.
Having Bad Credit
Your credit scores are based on your history of borrowing based on the models of three different companies: Equifax, Experian, and TransUnion. For simplicity’s sake, FICO compiles all three reports into one score, ranging from 300 to 850.
If you have a FICO score lower than 500, chances are you are not going to get a commercial truck lease or loan, and, if you do, the terms will be skewed towards the favor of the lender, with outrageous interest rates and penalties for late payments. The higher your credit score, the better the terms you can get. Here are some quick tips to raise your credit score.
- Carry lots of debt – This might seem counterintuitive, but carrying other debts shows that you are a responsible adult that can handle financial obligations. Packing on a lot of debt can be counterintuitive, however, if you ignore the rest of the bullet points.
- Pay your installments on time – The single best measurement of your creditworthiness is your history of being a man (or woman) of your word. If you have had payment issues in the past, keep in mind the most recent history carries the most weight to your credit score, and work towards a brighter tomorrow.
- Lower your credit utilization – If your credit card has a limit of $50,000, carrying $50,000 worth of debt on that card is a bad sign that you need the money rather than use the debt for convenience. A better number to carry? 30% of your credit limit.
- Minimize hard inquiries – A hard inquiry shows you have the intention to spread yourself more thinly in making more financial obligations. Doing a hard inquiry is an easy way to take anywhere from one to ten points off of your score, which can make a lender require a larger down payment or a higher interest rate.
Only authorize hard inquiries when you are fully committed to the financing program. For more information, check out our article on the difference between a soft and a hard credit pull.
Not Enough Tradeline History
You might not have heard of the term “tradeline history” before, but it essentially means your credit history in various forms of financing. Having only credit cards in your credit history is not as effective as showing paid mortgage, student loans, utility, or jewelry installments.
In any case, a fresh CDL graduate will often have a harder time getting financing than someone getting their fifth semi-truck financing agreement. On the plus side, this means once you get your foot in the door into the world of credit, getting approved for commercial truck financing should become easier.
Not Enough for a Down Payment
A down payment lowers the amount the bank will lend you to purchase the truck. While no down payment is a perk that some with the best credit can obtain, it is usually a pipe dream. Set some money aside and build a down payment.
Buying an Old Used Truck
Imagine the financier giving you money for a truck that falls apart in two months. The bank then has to either recoup the financed money from you or be out of the money entirely. A lender will want to avoid this scenario at almost any cost, and as such will try to avoid financing a clunker.
Buying From a Private Party
Getting a written quote from a private party is less formal and effective at convincing a financier of giving you money. A trusted dealer is much more likely to provide you and the finance company with accurate, detailed information about the truck, making the collateral sound.
Leasing vs Buying
Leasing a semi-truck can be a smart alternative to buying a semi-truck outright. With leasing, you pay for use of the truck as you go, as opposed to buying where you own the entire use of the truck outright.
Leasing is a good alternative for those with less than stellar credit. If a leasing company does not receive a payment, the most they are out of is the depreciation of the vehicle. Financers for full purchases can be out the entire balance of the capital. Less risk for them means they are more likely to agree to a contract.
Leasing does have its downsides, though. The truck is not yours, and as such the contract will often have strict rules on what you can and can’t do with the vehicle, such as being unable to detail the exterior with your company’s logo.
Leasing has its own set of contracts, which means more reading and paperwork. Make sure you understand all of the stipulations before you sign anything! For more details on leasing versus buying a semi-truck, check out the TopMark Funding article on the topic.
Commercial Truck Insurance
Every business has some form of uncertainty and risk to manage. Insurance transfers the risk to a different entity than the one doing the risky business. Here is a basic rundown on the types of insurance a trucking business needs or may need for a financier to trust them with a commercial truck lease or loan.
The single biggest and most important form of insurance for truckers, primary insurance protects the damage the truck causes to others, such as other trucks, cars, property, and life.
You or your employee is off the clock and want(s) to check out the world’s largest ball of twine, but on the way over to the tourist trap, you or your employee gets into an accident with the truck. Chances are your primary liability will not cover off the clock damages, and that’s where non-trucking liability insurance comes in.
General Liability Insurance
The business of trucking is more than just hauling goods and materials from point A to point B. If your base of operations has a visitor that is injured on your property, you may be liable.
Bobtail insurance differs from non-trucking liability in that non-trucking liability is off the clock but during a delivery. Bobtail insurance covers truck use, on or off the clock, that does not involve a delivery. An easy to understand example is a trucker who has just finished a delivery and needs to drive across town to pick up his next load but gets into an accident in the interim.
Physical Damage Insurance
Previously mentioned forms of insurance get you off the hook for damages to other people’s property, but physical damage insurance protects your truck itself.
Insures the value of the cargo in case it is damaged in transit, assuming you are normally liable for the cargo while transporting it. Make sure you understand what types of cargo are covered under the insurance you purchase!
If an employee, trucker or other personnel, injures themselves while on the job and doing authorized activities, you may be liable for damages and recovery fees. Often, worker’s compensation insurance will also cover the costs of an investigation to make sure that the employee was following the standard, established practices, and was not performing negligently, or worse, intentionally injuring him or herself.
Check out our article about: Commercial Truck Insurance
Brands of Trucks
There are dozens of brands of trucks on the road today; we will go over the best semi-truck brands.
Since 1942 Freightliner has been manufacturing semi-trucks and heavy-duty trucks. Freightliner Trucks is an American truck manufacturer and a division of Daimler Trucks North America. The division is known mainly for the heavy-duty class 8 diesel trucks it offers, as well as class 5–7 trucks.
Freightliner is the best selling semi-truck in America today: They sell about 190K trucks per year and dominate with 40% of the commercial truck market share. Learn more about Freightliner.
Kenworth is an American manufacturer of medium and heavy-duty Class 8 trucks with offices based in Kirkland, Washington, a suburb of Seattle. Kenworth is one of three major truck divisions and brands under parent company PACCAR.
Founded in 1912 by the brothers George T. and Louis Gerlinger JR as a car and truck dealership known as Gerlinger Motor Car Works. In 1914, they decided to build their own truck with a more powerful inline six-cylinder engine, the first put into a commercial truck. Learn more about Kenworth trucks.
Peterbilt Motors Company, founded in 1939, is an American manufacturer of medium- and heavy-duty trucks. A subsidiary of Paccar, which also owns fellow heavy-duty truck manufacturer Kenworth. For 80 years, Peterbilt has supplied the North American commercial vehicle market with the industry’s most rugged, reliable and efficient products.
Based in Denton, Texas, Peterbilt manufactures on the highway, vocational and medium-duty trucks that provide value to their owners and pride to their drivers.
Peterbilt is an iconic trucking brand. Their red oval design script style lettering logo can be found on trucker clothing, truck hats, and more. Peterbilt makes up about 13 percent market share. Learn more about the Peterbilt lineup of trucks.
Navistar International Corporation (formerly International Harvester Company) is an American holding company that owns the manufacturer of International brand commercial trucks, IC Bus school and commercial buses, Workhorse brand chassis for motorhomes and step vans, and is a private-label designer and manufacturer of diesel engines for the pickup truck, van, and SUV markets. The company is also a provider of truck and diesel engine parts and service. Learn more about International trucks.
You might know Volvo as a company that manufactures luxury cars, but did you know they also make semi-trucks? Volvo Trucks is one of the leading heavy truck and engine manufacturers in the world.
Today, Volvo Trucks manufactures a broad line of on-highway and vocational Class 8 vehicles. Each new or used purchase is supported by a strong dealer network and by industry-leading parts and service programs to smooth your ride on the road to success. Learn more about Volvo trucks.
The Mack truck brand is owned by the same company behind Volvo. Founded in 1900 as the Mack Brothers Company, it manufactured its first truck in 1907 and adopted its present name in 1922.
Every Mack truck built for the North American market is assembled at its Mack Lehigh Valley Operations facility in Macungie, Pa; engines and transmissions for the North American market are built at its powertrain facility in Hagerstown, Md. See our article for the different types of Mack trucks.
Western Star Trucks Sales, Inc., commonly designated Western Star, is an American truck manufacturer headquartered in Portland, Oregon, and a subsidiary of Daimler Trucks North America, in turn, a wholly-owned subsidiary of the German Daimler AG.
Western Star produces a range of Class 8 commercial vehicles for both highway and off-road use. Western Star specializes in trucks tailored to customer specifications. Every Western Star offers several sleeper box sizes, with chassis lengths of up to 486 inches depending on the model. Learn more about Western Star Trucks.
Types of Trucks
Up until this point, we have primarily focused on semi-trucks, but the world of trucking is much more complicated than that. Here is a list of various trucks you can have in your business.
Semi Truck. The old tried and true, semi-trucks change type based on the material they are hauling:
- Dry Van. Chances are this is what you think of immediately when it comes to hearing the words “semi-truck.” These trucks are carrying a large metal box full of boxed goods, such as toys, electronics, and furniture.
- Reefer. Semi-trucks become reefers when they carry a special type of trailer built to insulate the cargo and keep it cool. Primarily used to ship groceries, but can be used for anything that needs to be kept cold such as dry ice.
- Flatbed. The semi-truck is not carrying a container attached to the trailer, but rather the cargo is directly affixed to the trailer, usually by being tied down. Most commonly used for transporting building materials such as wood and large piping.
Beyond the type of cargo, semi-trucks can also be a Sleeper Cab or a Day Cab, depending on whether or not the truck has a small back room for the trucker to sleep in during longer trips.
Car Hauler. Carries multiple cars with one driver carrying them all to the dealership. If you’ve ever seen one of these, they are truly a sight to behold.
Tow Truck. Carries a single car, usually either broken down or parked improperly. May have a hook to attach the car, or may have a flatbed to carry it.
Dump Truck. Carries building supplies that are harder or impossible to tie down, such as freshly mined minerals or dirt. Gets its name from often (but not always) being able to lift the front of its cargo hold and let gravity dump the contents.
Grapple Truck. Has a claw that the driver operates to load items into the truck. The most common use for a grapple truck is garbage collection, but not all grapple trucks are garbage trucks.
Cement Mixer. A truck that carries cement. The carrying container constantly rotates to keep the cement from solidifying.
Bucket Truck. Has an extendable bay (“the bucket”) that a person stands inside to gain new heights. Often used to reach and repair cable lines and traffic lights.
Work Truck. A catch-all term for trucks that do not fit into the above types, such as pickup trucks.
Where to Get Commercial Truck Financing
Whatever your scenario, TopMark Funding most likely has the means to get you the financing you need to expand your fleet. Whether your FICO is in the 500s or the 800s, whether you plan to purchase or lease, whether your truck is a Sleeper Cab or a Bucket Truck, TopMark Funding has a financing options for you. Contact us to get started. (866) 627-6644
At TopMark Funding we’ve been specializing in semi-truck loans, commercial truck leasing and heavy equipment financing for more than twenty years.
Your satisfaction is our top priority. We want to earn your business and become your long-term financial partner. Helping you grow your business and your fleet grow. We have the know-how to give you all the guidance you need to start making strategic and informed decisions for your trucking business.
When you work with us, you’ll get great rates, low down payments, and flexible monthly payments. We want to give you our expertise and watch your business grow. Let us make your job easier and increase your profit. Click the Get Started Today or give us a call at (866) 627-6644.