Roughly 80% of all goods in the U.S. are transported by semi truck drivers, with about 350K of those drivers being owner-operators. Building a transportation company of any size requires you to buy rigs, which are expensive. Semi truck financing is a popular method to fund these purchases amongst owner-operators and small transportation companies. In this article we’re going to discuss, step by step, how to get semi truck financing and what might prevent you from getting approved.
Smarter Finance USA can qualify borrowers for up to $100K in semi truck financing if they have a 600+ credit score and a down payment of at least 5%. They offer both leases and loans for semis, and their familiarity with the industry can help borrower’s obtain financing fast.
How to Apply for Semi Truck Financing
When you’re ready to apply for an equipment loan to finance your semi truck, there are typically 5 steps that you must go through:
We’re going to cover all 5 steps in detail and then share with you the main things to watch out for which could prevent you from getting approved.
5 Steps to Get Semi Truck Financing
Step 1: Determine Eligibility
Before you apply for any form of financing, you need to make sure you can qualify. Many semi truck financing options have similar qualification requirements because the truck you’re buying is securing the loan. The combination of the truck’s value and your down payment typically eliminate most of the risk for your loan provider.
Here’s a list of the most important qualifications to get Semi Truck Financing:
- Credit Score: 600+ (Some will require 660+) (Check your credit for free)
- Down Payment: 5%+ (10-20% for new owner-operators)
- Time With CDL License: 5+ Years
- Age of Truck: Less than 10 years
- Truck Mileage: Less than 700K
All qualifications will vary by loan provider, but if you can meet the requirements above then you’ll typically have a good chance at getting financed. The time with your CDL license is important because it shows the loan provider that the truck is going to be used by an experienced driver immediately. The provider doesn’t want the truck to go unused without it bringing income into the business, but they also don’t want to risk an inexperienced driver using the truck because it will be used as collateral for the loan.
If you meet these qualifications and are ready to move forward with your semi truck loan, you should consider using Smarter Finance USA as your loan provider. They are very familiar with the trucking industry and can get you funded for up to $100K.
Step 2: Gather Needed Information
The next step is to gather all of the information you’ll need to provide to your lender. Having the documentation ahead of time will enable you to speed up the process, and it tells the loan provider you’re ready to make a large purchase. Plus, trucks can go fast if another buyer swoops in with an all-cash offer. So before you find the truck you want, you should make sure you’re ready to move forward and close a financing opportunity.
Here is a list of documentation that you’ll likely need in order to be approved for a semi truck loan:
- Documents Showing Proof of Your Registered Business
- Current and past bank statements (up to 12 months)
- Business tax returns (up to 3 years)
- Current year P&L for your business
- Current business balance sheet
- Any business licenses or required certifications
- Your CDL (commercial drivers license)
- USDOT Number (US Department of Transportation)
- Motor Carrier Number
Once you have all of this information on hand then you’re ready to go out and find the right truck.
Step 3: Find the Right Truck
Finding the right truck can be much harder when you’re financing the purchase as opposed to paying cash. It’s important to find a truck that is going to meet the needs of your business by being able to haul the specific goods your business hauls. It’s also important to find a truck that isn’t too old. Having a truck that has too many years or miles on it can be devastating to your chances of getting financed. Your truck needs to fit a profile with these key attributes:
- Less than 700K in miles
- Less than 10 years old
- Sold by a dealer (not required, but ideal)
Once you find the right truck you need to negotiate a price and get a written quote on your purchase of the vehicle. It should include the price you’re paying plus these key pieces of information:
- Make, model, year
- Condition Report
- At least 3 pictures of the vehicle
- Truck serial number
- If the truck is used, the quote should specify that it is
Once you’ve found the right truck that you’re ready to move forward with then you need to move quickly so that you don’t lose it. There may be cash buyers or other buyers further along in the financing process who could come along quickly to buy the truck out from underneath you.
Step 4: Find Good Insurance
Before your loan finalizes you’ll need to show the loan provider that you have proper insurance for the semi truck. The average cost of a commercial truck accident is $59,150, which could damage your business’s cash flow, or hurt your loan provider’s collateral if you aren’t properly insured. This is why proof of good insurance is at the top of your loan provider’s list before you can close on your loan.
You can typically start steps 4 and 5 at the same time, because you can get pre-approved without having insurance. However, you won’t be funded until the loan provider receives acceptable documentation of the vehicle being insured.
What type of insurance do you need for a semi truck? That depends on what type of business you have. If this truck will be the only asset in the business, you’ll typically need:
- Primary liability coverage
- Physical damage coverage (which includes all electronic and in-cap devices)
- Bobtail coverage for non-trucking use
- Cargo coverage to cover the costs what you’re hauling (should be tailored to your industry for the specific goods you haul)
If you’re a business with an office and/or employees, then you will also likely need a general liability coverage policy and a worker’s compensation policy. The larger your business is the more coverage you’re likely to need.
The cost of your insurance will vary greatly based off of your driving record and the claims record of your business. The value of the truck, the amount of mileage on the truck, and how much you expect to drive it monthly will also play a factor in your costs. We recommend consulting with an insurance expert that is familiar with your industry before deciding on what coverage to get.
Step 5: Submit All Documentation to Your Financing Company
Once you’ve finished with everything in the first four steps, you’re ready to officially apply and get approved for semi truck financing. You should make sure that you get details and a complete list of everything your financing company requires before you submit any documentation. A strong financing partner like Smarter Finance USA will help you with this so that you don’t delay the process by having to go back and forth with them on small pieces of information that could have been provided up front.
Equipment Leases vs Equipment Loans
Semi truck financing can refer to either an equipment lease or an equipment loan. The differences between the two are significant and you can read more about them here. The biggest difference is that any form of an equipment loan is where you will own the equipment at the end of your financing term.
An equipment lease is an arrangement where you pay to borrow the equipment until the end of the term when you then give it to the financing company. If you’re wanting to move forward with financing, you should use an equipment lease calculator to determine what your monthly payments might be so that you can know how much you can afford.
Smarter Finance USA is a provider that can help you get approved for up to $100K in equipment financing, and they can structure it as either a loan or a lease. If you have a 600+ credit score, and 5% to put down, then you should visit them today to see what you can qualify for.
Next Steps: Owner Operator Cash Flow
Once your financing is approved, and the loan closes, you can start using your truck to bring income into your business. Payments will begin shortly after you close your loan, so you’ll want to get the truck operating as quickly as possible. You will also likely want to lower your truck operating expenses, because once you have your rig your attention will typically be redirected to managing your cash flow.
Getting the right fuel card, or a fleet card for larger transportation businesses, could save you money and help spread out your cash flow obligations instead of paying for gas immediately when your truck is on the road. If you need additional financing in the future, you should look at how freight factoring can get you advance payment for your outstanding invoices.
5 Things That May Prevent You From Getting Semi Truck Financing
Now that you understand the steps it takes to get financing, you should make sure you pay attention to the small details of your application that may deter you from getting approved. Whenever you’re getting financing, it’s important to be thorough in the small details of your application. One wrong step or attribute could stop you from getting financed. This could be even more frustrating to you if you’ve spent a significant amount of time trying to get approved when you could have corrected the issue before you applied.
Here’s a list of 5 things that could prevent you from getting semi truck financing:
1. Being a New Business
Most loan providers will want to see 2+ years of operating history before they lend you a large amount of money. Being a newer business may not stop you from getting a loan, but it could cost you more money. Smarter Finance USA can get you funded as a startup as long as you have industry experience.
How to Overcome This: Negate the loan provider’s risk by having a large down payment. If the value of your truck and the amount you’re willing to put down for it equals the loan amount, then your chances of getting approved are much higher.
2. Having Poor Credit
It’s difficult to get semi truck loans with bad credit. The exact requirements differ by loan provider, but generally you’ll need a credit score of at least 600 to qualify. (Check your credit for free here)
How to Overcome This: Once you check your credit score, you can then work at improving it, or bring on a cosigner with a strong credit profile. You may be able to find a loan provider willing to work with you if you can provide a large down payment, or have a cosigner with a healthy credit profile.
3. Buying Your Truck From a Private Party
Buying your truck from an unknown private party is a risk for a loan provider. There are over 15.5 million trucks operating in the U.S. alone, and they’re all in various conditions. The equipment financing company may not be comfortable with the truck’s condition or whether or not the documentation is all correct.
How to Overcome This: You can buy your truck from a known business or seller. A person or business who is known in the industry and has a history of selling semi trucks. If this isn’t possible, then we suggest getting as much information as possible about the private party you’re buying from before applying for financing.
4. Low Cash Reserves
It is difficult to get most types of financing if your business has a history of struggling with cash flow.
How to Overcome This: If you currently have low cash reserves we suggest finding ways to tighten your budget to show more cash in the bank. If this has been a struggle, then putting together detailed proformas showing how the new truck will improve your cash flow operations would be very beneficial for your loan provider to see.
5. Buying an Old Truck
If your truck is older than 10 years then you’ll find it very difficult to get financing. Being an old truck also relates to mileage as well. A truck with 700K miles on it, or more, is not likely to get financed. Older trucks breakdown more frequently, and they give the loan provider less value for collateral to protect the money they loan you.
How to Overcome This: Find and buy a truck that is younger. Older trucks might be nice additions to your fleet if you’re purchasing one in good condition for cash, but when you need to finance them they need to have less years and miles on them.
Where to Get Semi Truck Financing
When you’re ready to apply for financing to buy or lease your semi truck, you should look for a partner that is familiar with your industry. There are hundreds of potential providers, but ones that focus on doing equipment financing specifically to trucking and transportation businesses can give you a lot of benefits, such as:
- The Process Can Be Faster: They’ll know what documents are important to analyze your business profile.
- Better Chance at Getting Approved: Semi trucks are very specific equipment that can be difficult to determine a value for if you’re unfamiliar with them. A provider experienced in offering financing in your industry will know how to analyze your information and the value of your truck to best benefit you.
- Lower Down Payment: Providers that don’t lend in the transportation space very often may require a larger down payment to secure your financing. This is done to cover any potential risk they may not be aware of.
- Lease Purchase Opportunity: Using a lease purchase can have certain accounting benefits to your balance sheet. Traditional lenders may not offer this option, but loan providers who frequently lend to the transportation industry will generally be more comfortable with the process.
Our recommended provider for semi truck financing is Smarter Finance USA. They are very familiar with the trucking and transportation industry, doing many loans throughout the industry each year. If you have a 600+ credit score and a down payment of at least 5%, then they could qualify you for up to $100K to purchase your new or used semi truck.
You can get semi truck financing in the form of either a lease or a loan. Reading our five steps to applying for semi truck loans should have helped you better understand the process so that you can prepare to get financed. Following the steps closely, and paying attention to the small details of your loan application will set you up to find the financing you need to purchase your next semi truck.
If you’re ready to apply, Smarter Finance USA is the best semi truck loan provider we’ve reviewed. They can get you funded quicker than much of the competition because of their familiarity with the trucking industry. If you have at least 5% of the purchase price as a down payment, and a 600+ credit score, then Smart Finance USA can get you funded for up to $100K.