Getting financing for a semi-truck involves items that you may not come across for other types of small business loans. This guide on how to get semi-truck financing will walk you through each step, along with tips you can use to streamline the process. These include recommendations on what paperwork you can prepare beforehand to get funded more quickly, typical qualification requirements, and how to choose a lender.
Step 1: Determine the Vehicle You Need
The vehicle you choose will impact a lender’s qualification requirements. It can also affect your company’s cash flow, so you’ll want to have a good idea of how the acquisition of a semi-truck will change your expense and revenue projections.
Here are some vehicle characteristics you’ll want to consider:
- New or used: New and used vehicles each have pros and cons. New vehicles may be more expensive but can be more reliable, have a longer lifespan, and carry a better warranty. Used vehicles tend to be less expensive but typically carry shorter warranties and may require more repairs.
- Vehicle cost: Lenders typically issue funding based on the value of the vehicle. This can affect the required down payment amount as well as your monthly loan payments.
- Mileage/odometer reading: If you are purchasing a used semi-truck with high mileage, it may be ineligible for financing. The mileage requirement varies from lender to lender.
- Age of vehicle: In addition to a vehicle’s odometer reading, lenders may not finance a used vehicle if the model year is too old.
- Condition of vehicle: Vehicles with a history of being regularly maintained can be less likely to require expensive repairs after you acquire them. You should consider how this may affect your business operations, as vehicles that are out of service for repairs can negatively impact your company’s cash flow.
- Type of seller: Some lenders may require your vehicle to be obtained from a dealer, while others allow private-party sales.
If you’ve found a vehicle that is suited to your business needs, you can take down the vehicle information such as the make, model, and serial number. These are items that your lender will need later on in the process.
Step 2: Get a Quote for Insurance
Getting the right amount and type of semi-truck insurance are things that should not be taken lightly. Not only will they be a requirement to get financing, but having insufficient insurance could also have serious financial consequences for you and your business.
Here are some common types of coverage and what they are designed to protect against:
- Primary liability coverage: This is designed to cover damage done by your vehicle to people or property.
- Physical damage coverage: Offers protection against physical damage to your vehicle. This commonly covers damage as a result of theft or an accident.
- Bobtail coverage: Bobtail coverage protects against damages to other people or property when you have no trailer attached to your vehicle. This typically applies when you are still under dispatch and are in between dropping off and picking up another trailer.
- Nontrucking liability coverage: Although similar to bobtail coverage, non-trucking liability coverage offers protection when you are not under dispatch, utilizing the vehicle for personal uses.
- Cargo coverage: This can cover damage to your cargo which can occur as a result of a natural disaster, accident, or theft.
Step 3: Review Your Qualifications
Common qualification requirements for you and the vehicle you want to get will include things like your credit score, business finances, and vehicle characteristics. Understanding where you stand is important because it can help you identify which lenders you should choose.
For instance, some lenders do not lend to startups, whereas others may have more flexibility to finance borrowers with bad credit or low revenue. Similarly, some lenders will only lend on newer vehicles, while others are willing to lend on older or higher-mileage trucks.
Different lenders will have varying eligibility requirements, but here are some common items to be aware of:
- Credit score: A score of 640 or higher will give you a good chance of landing an approval. However, our list of the best trucking business loans has providers with even lower requirements.
- Business revenue: Many lenders have no minimum revenue requirement and instead focus on your total amount of debt to determine whether you can repay the loan. However, businesses with $10,000 or more in monthly revenue can often qualify for the most competitive rates available.
- Time in business: Many trucking providers have no minimum time in business requirement, but having six months or more can improve your chances of getting approved if you have a lower credit score or have low monthly revenue.
- Time with a commercial driver’s license (CDL): In addition to time in business, lenders may consider the length of time you’ve had a CDL in evaluating your loan eligibility.
- Down payment: Typical down payment requirements are between 5% and 10%. Some lenders do not require any down payment, while others can require much more. The larger down payment you have, the more likely it is you can get approved at a lower rate.
- Age of truck and mileage: Semi-trucks are typically used as collateral to reduce the lender’s risk in the event you default. This allows the lender to take possession of the vehicle to recoup some of its losses. Older vehicles with higher mileage tend to be worth less and tend to be more difficult to finance.
Step 4: Choose a Loan Type and Lender
Different types of loans can be used to purchase a semi-truck. Some can be used for a variety of business expenses where funding is not restricted to the acquisition of a semi-truck. However, rates may not be as competitive. Additionally, there are different types of lenders you can use, each with its own set of pros and cons.
You can read our guide on how to get a small business loan for additional tips and insights on loan options and how they can be structured.
Types of Loans
Types of Lenders
How To Choose a Lender
You’ll have many options when it comes to choosing a lender, but the best one for you will depend on your unique business circumstances. To help you choose a lender, you can consider the following criteria and decide which ones are most important to you:
- Customer reviews and ratings
- Interest rates and fees
- Types of loans offered
- Type of lender (broker, bank, credit union, or online lender)
- Hours of operation and customer service availability
- Lender experience with your industry
- Funding speed
- Loan terms and monthly payment required
- Qualification requirements
If you’re looking for a highly rated provider, we recommend Smarter Finance USA, which tops our list of the best equipment financing companies. It offers equipment financing for a number of industries, has a network of over 37 lenders, and has flexible qualification requirements.
Step 5: Apply and Submit Required Documents
Once you’ve decided on a loan type and lender, you can submit a loan application. In most cases, this can be done online. Once completed, you’ll be asked for documentation to verify your eligibility.
Specific documentation requirements can vary from lender to lender. However, by being proactive and gathering some documents ahead of time, you can expedite the loan process and get funded more quickly.
Here are some common items that most lenders will ask for:
- Personal tax returns (2 years)
- Business tax returns (2 years)
- Profit and loss statement (year-to-date)
- Business balance sheet
- Business bank statements (3 to 12 months)
- Copy of your CDL
- United States Department of Transportation (DOT) number
- Motor carrier number
- Insurance quote for vehicle you are purchasing
- Vehicle inspection, condition report, or other documentation pertaining to vehicle characteristics (make, model, serial number, odometer reading, or photos)
What To Expect After Applying
Once your lender has reviewed your documentation and determined your eligibility, you’ll be notified of its decision. Depending on the lender, there could be five possible outcomes:
- Approved: This is the best-case scenario and means that your loan is approved at the terms you have requested. You’ll be given additional disclosures which you can sign to formally accept the loan.
- Conditionally approved: This usually means the lender needs some additional information. This is often indicative of minor items needing verification and is a good sign that it can issue an approval at the terms you have requested.
- Counter-offer: Counter-offers may occur if the lender can issue you some form of financing but not at the terms that you initially requested. In some cases, you can provide additional documentation to have the lender reconsider alternative loan terms.
- Additional information needed: When critical information is missing, a lender will be unable to determine whether an approval or denial can be issued. Instead, it will request clarification from you to determine next steps or additional information that may then be needed.
- Denied: If you are ineligible for a loan, a lender will issue a loan denial. It will discuss this with you so that you are aware of the reasons and what you may be able to do to become eligible.
Semi-truck financing can be a bit different than other types of small business loans. Insurance coverage, CDL experience, and vehicle characteristics are just some of the differences. However, preparing early for the loan process can save you time and improve your chances of getting approved.