This article is part of a larger series on Business Financing.
Purchasing a new or used semi-truck for your business is one of the most significant financial decisions you will ever make. The process can be lengthy and complicated. This guide will help reduce the stress of figuring out how to get a loan for a semi-truck. Included are general guidelines on the qualifications needed for financing, suggestions for lenders that can finance your new truck, and red flags that lenders will look for in the process. This guide aims to show you how to finance your semi-truck as quickly and easily as possible.
1. Determine Eligibility
Every lender will have slightly different requirements for borrowers on how to get semi-truck financing. Confirm the specific requirements with your chosen lender.
Here are some general eligibility guidelines to keep in mind when beginning the truck financing process:
- Minimum credit score: 600 (credit scores below 600 will be considered, but likely at a higher interest rate and down payment)
- Down payment: Expect at least 5%, although some lenders offer zero-percent-down loans for well-qualified borrowers
- Time with commercial driver’s license (CDL): Varies, but an owner who does not have a CDL will be considered a high-risk borrower
- Age of truck: Less than 10 years
- Truck mileage: Fewer than 700,000 miles
2. Gather Documents
The documents required by each lender will vary. However, having all of these documents ready to send to the lender will expedite the borrowing process:
- Documents showing your business is registered
- Current and past bank statements (up to 12 months)
- Business tax returns (up to three years)
- Current year profit and loss statement for your business
- Current business balance sheet
- Any business licenses or required certifications
- Your CDL, if you have one
- United States Department of Transportation (USDOT) number
- Motor carrier number
3. Find the Right Vehicle
Finding the right vehicle is not only critical for your needs, but it is critical to the lender. Lenders are looking to mitigate the risk involved with the potential vehicle financing. The older the vehicle, or the more miles it has, the higher the risk. To limit those risks, try to keep your search to trucks that meet the following criteria:
- Fewer than 700,000 miles
- Less than 10 years old
- Sold by a dealer (ideally, but not required)
In addition, the maximum a lender will lend is what the vehicle is worth―unless you are securing a business line of credit to purchase vehicles. Lenders usually won’t lend the full purchase price so that the borrower will need a down payment of at least 5%. When shopping for a truck—especially a used one—try to get an estimated value so you know you’re getting a price that the lender will finance.
You will also need the following information to give to the lender once you find a vehicle:
- Make, model, and year
- Condition report
- Photos of the vehicle
- Serial number
4. Find the Right Insurance
Regardless of what type of vehicle you are financing, insurance will be required. With a semi-truck, which can cost as much as $200,000 new, financing companies will want to see that you have proper and sufficient insurance coverage.
Improper or insufficient insurance could derail your business in the event of an accident. Most lenders won’t fund the loan until receiving proof of your insurance.
Consult your insurance professional about finding the right coverage for your business. In general, you will need some or all of the following:
- Primary liability coverage
- Physical damage coverage, including electronic and in-cab devices
- Bobtail coverage and/or nontrucking liability coverage
- Cargo coverage to cover what you are hauling
The cost of your insurance will vary depending on your driving record and prior claims on your business. Insurance rates are also based on the value of the vehicle and the contents being hauled.
5. Choose the Right Lender
While there are many online lending companies that can finance a semi-truck, we have selected the five best. Each has slightly different qualifications for lending, so be sure to compare them and choose the one that makes the most sense for your business.
Smarter Finance USA: Best for New Owners
Smarter Finance USA is excellent for new owners, thanks to a lower minimum required credit score and its low down payment requirement. With a credit score of at least 600 and at least 5% down, owners can finance a new vehicle for up to $100,000. While Smarter Finance USA will work with new owners, it prefers owners with previous driving experience and a current CDL.
Balboa Capital: Best for Quick Approval
Balboa Capital has an easy online application and promises quick approval decisions. It offers flexible term lengths with fixed monthly payments. However, Balboa requires borrowers to have been in business for at least one year and have at least $100,000 in annual revenue. It also requires a decent FICO score but doesn’t specify what that score is.
Wells Fargo: Best for Flexible Terms
Wells Fargo offers financing and refinancing of new and used trucks, with loan terms of 12 to 84 months. One advantage Wells Fargo has is flexible loan terms, including either fixed or floating interest rates, seasonal payment structures, term loans, operating leases, and even equipment lines of credit.
Commercial Fleet Financing: Best for Lending Options
In most cases, borrowers can get approved by Commercial Fleet Financing by filling out a one-page application. Credit approval can come in as soon as two hours, with funding in as little as 24 hours. Commercial Fleet Financing offers zero-money-down loans with flexible terms and incentives. Loans can be a standard length of 36 to 60 months or extend to up to nine years (108 months). Borrowers with credit scores below 640 are referred to its Fresh Start equipment finance division for potential financing. Commercial Fleet Financing will also review the vehicle to ensure it has a clean title and is in good working order.
Bluevine: Best for Additional Funding Needs
Bluevine can provide funding above and beyond simple vehicle financing. It offers lines of credit that can help finance your entire business. Bluevine’s lines of credit are open to business owners with credit scores as low as 625, which can help pay for maintenance on vehicles and keep business cash flow solid while financing a major purchase.
Semi-truck Financing Challenges
When beginning the process of financing a semi-truck, there are some factors that can cause problems for business owners. Any conditions that could increase the risk for the potential lender will likely result in a higher interest rate and a larger down payment. It could even result in a denial from the lender. Here is a list of potential challenges a borrower may face when financing a semi-truck:
- Being a new business: If you have only been in business for a short time, lenders will be less likely to finance a large investment like a truck loan. New business owners may want to consider leasing a lower-risk, lower-cost option to build their business credit.
- Poor credit: If you have poor credit, the lender will see you as a high-risk borrower. If you are approved for the loan, it will likely be at a higher interest rate and a higher down payment than a well-qualified borrower.
- Buying your truck from a private party: Because vehicles purchased from a dealer will go through at least a basic inspection process, lenders will view a truck purchased from a dealer as a lower risk than one purchased from a private party or an auction. It will be harder for the lender to confirm the vehicle’s condition in a private sale, increasing the risk.
- Low cash reserves: Low cash reserves mean less money to use for a down payment, increasing the risk for the lender. Solid cash reserves signal to the lender that it will receive its payments on time, even if you have a slow week or two. A borrower with limited reserves is at a higher risk for late payments or even loan default. Additionally, it is important to maintain a cash reserve for maintenance and repair of your truck.
- Buying an old truck: A lender needs to find a comparable value before it lends on a used truck. This is difficult for trucks that are more than 10 years old. If a lender does lend on an older vehicle, it will likely require a larger down payment to reduce the risk. The lender will likely charge a much higher interest rate, which could approach rates for unsecured loans.
- Not having a CDL: Lenders view non-CDL borrowers as high-risk borrowers. If you don’t have a CDL, who is driving your truck? Likely, it means that someone will be driving it that doesn’t have a vested interest in the security of the vehicle.
Financing a new or used truck is a significant investment for your business. This guide should help you prepare for all the steps needed to secure semi-truck financing. It is essential to shop around—when looking for a vehicle, a lender, and an insurance provider. You are financing a piece of equipment that costs as much as a new home in less than 24 hours. Do your homework, and you’ll get the best deal for your business when financing your next truck.