Applying for a loan for a commercial truck can seem like a daunting task, but it’s an important step in growing your business. Utilizing a loan to purchase a commercial truck is a great way to break down a large investment into more manageable payments.
Knowing what to look for when applying for a commercial truck loan can help make the process much smoother from start to finish. We’ve put together this guide on the top factors to consider when applying for a loan.
1. Different Types of Commercial Truck Loans
The most common types of commercial loan trucks include Small Business Administration (SBA) loans, equipment financing loans, or term loans. For commercial truck financing, your loan will likely be structured as a lump-sum deposit with regular installments on a set repayment schedule.
Despite the relative uniformity of commercial truck loans, there are a number of key differences you’ll want to consider. For starters, you’ll want to pinpoint the interest rate, length of the loan, fees, and any other details that could affect the cost or structure of your loan. You’ll also want to be certain that you’re comfortable with the repayment terms, as they can make or break your financing in the long run.
Finally, make sure you understand the terms of the loan, especially if there are any penalties for early repayment. If you’re unsure of the best way to research and compare different loan offers, consider using a B2B financing platform like National Business Capital – you’ll be automatically matched to multiple competitive loan offers for seamless comparisons.
2. The Type Of Vehicle That Suits Your Needs Best
Before applying for a commercial truck loan, you’ll need to have a set vehicle in mind. You can determine your ideal match by considering the size and type of commercial truck that best suits your needs.
It’s also important to take into account fuel efficiency, storage-space requirements, payload capacity, and other features that could affect your trucking operations. For example, the fuel efficiency of your vehicle will play a key role in determining your costs – since the more miles are driven, the more money you’ll need to spend on fuel.
One of the main benefits of a commercial truck loan is that you’ll own your vehicle outright at the end of your loan term. This means you’ll be able to use your truck without making additional payments and sell it for a new vehicle once you’re ready for an upgrade. You should carefully consider the depreciation rate of the truck you’re looking to purchase as well as its estimated maintenance costs – since these will influence the total value you receive from your commercial truck.
3. Interest Rates and Loan Costs
It’s important to get an idea of how much your loan will cost so that you’re able to plan accordingly. By far, the biggest determinant of the total cost of your loan is the interest rate you receive.
Interest rates on commercial truck loans can vary significantly depending on the lender you work with, the terms of your loan, and the financial background of your business. It is important to shop around to find the best rate available, as this can make a big difference in the overall cost.
Likewise, you’ll need to consider the length of your repayment term since this will influence your monthly payment amount and the total amount of interest you’ll pay. In general, a longer loan term translates to lower monthly payments – but can also mean higher overall interest costs over the life of the loan.
A common mistake many businesses make when taking out a loan is only considering the interest rate. It’s just as important to take into account closing costs, origination fees, and other fees associated with your loan. Knowing exactly what is being charged can help you ensure that your loan is affordable and that you’re receiving a competitive rate.
On a final note, it’s worthwhile to look into whether your loan’s terms stipulate a prepayment penalty or similar restrictions. Paying off your loan early can save you a significant amount in interest costs, so you may want to verify that you have this opportunity.
4. Additional Commerical Truck Expenses
As mentioned, there are numerous costs associated with owning and operating your commercial truck. Oftentimes, they may not always be presented upfront when you sign on for a loan. However, they will have a major influence on your business’s cash flow so it’s important to consider them carefully.
Beyond the costs of the truck itself and your loan, you’ll also need to budget for ongoing fuel costs, maintenance, repairs, insurance, as well as registration and licensing fees.
Fuel can be especially expensive depending on the size of the truck and how often it is used. If your business will use the truck to haul goods, you may have to pay additional fuel costs depending on the weight of the load. Maintenance and repair costs should also be taken into account, as these expenses can grow to be significant over time.
When owning and operating a commercial fleet, it’s required that each truck be adequately insured to protect against potential liabilities. Insurance costs will vary depending on the type of truck and the type of coverage required. Similarly, your business should also research registration and licensing fees, which can vary depending on your specific state and local regulations.
If you find that the upfront costs of getting your new (or used) truck on the road are too strenuous for your cash flow, you should explore loan options that offer funding in surplus of the price of your vehicle. You can leverage the excess capital to cover these expenses and manage the cost over time, allowing you to focus on maximizing the profitability of your new asset.
5. Your Business’s Financial Situation
Before taking out a commercial truck loan, it’s helpful to understand what you can and can’t afford. Ultimately, you can determine the type of truck your business can afford to purchase by looking into the cost of the truck, the loan expenses, as well as estimated vehicle maintenance.
You’ll want to compare these costs against your business’s finances to understand what is within your budget. A good place to start is by assessing your current revenue, expenses, and debt obligations. This will help you determine if you have the capacity to take on additional debt and make regular loan payments.
Keep in mind that larger vehicles with more advanced features will be more expensive and will translate to larger payments/more interest spent over the lifetime of your loan. Ideally, you’ll want to strike a balance between costs and what your business needs in a truck.
6. Down Payment or Collateral Requirements
Most lenders will maintain a down payment and/or collateral requirements in exchange for a commercial truck loan. These conditions provide lenders with an extra layer of security against the risk of default. Likewise, offering up collateral and/or a sizeable down payment may help your business secure more favorable terms on the loan while simultaneously increasing your approval odds.
In general, down payment amounts for a commercial loan truck start at around 20% of the vehicle’s value. However, it’s not uncommon for some lenders to ask for a higher percentage in order to mitigate their risk.
Many lenders will also require some form of collateral in order to secure financing. Fortunately, collateral on commercial truck loans tends to be pretty straightforward. In most cases, the vehicle itself will count as collateral toward your loan.
This means that if you’re unable to continue making payments on your loan, your lender will seize the vehicle to recover any losses. It’s also important to note that in case of a default, you’ll forfeit any equity you’ve already invested into the vehicle – including your down payment.
7. Your Creditworthiness
One factor that will have a key influence on both your approval odds and the interest rates you qualify for is your creditworthiness. If your business doesn’t have an established credit score, the creditworthiness of each owner will have more weight.
A good credit score, which is generally above 700, may help you access better terms on your loan, including lower interest rates or longer repayment periods. This can translate to lower payments that are easier on your cash flow as well as greater savings over time.
Additionally, maintaining a strong credit score will also increase your chances of getting approved for a loan. Some lenders, such as banks, may be quick to reject your application if your credit score isn’t up to shape. Other lenders, such as online lenders, can be more lenient about credit score requirements.
Nevertheless, If you don’t meet the minimum set by your lender, you may want to take the time to improve your creditworthiness before applying for another loan. You can do this by making timely payments on existing loans, reducing your debt levels, and refraining from opening up new accounts for the time being.
Another solution is to compare credit score requirements and different lenders. You may find that with your score, you could receive a higher funding amount or better terms from one lender over another. Apply with National Business Capital to get an overview of what your business could qualify for.
How to Finance a Commercial Vehicle
Learn how to finance a commercial vehicle from National Business Capital's CEO, Joseph Camberato.
Types of Semi-Truck Financing
Let’s explore a few semi-truck financing options, so you can make an educated decision in your business.
| Type of Financing | Description |
| Business Term Loans | Business term loans offer a one-time, lump-sum payment that’s repaid over the course of an agreed-upon schedule, ranging from short to long term. Borrowers repay their funding amount plus an APR.
Eligibility requirements vary from lender to lender. Banks and credit unions require more robust qualifications, whereas non-bank lenders are much more flexible. Still, non-bank lenders trade higher rates for easier eligibility and a faster funding process. Term loans are best suited for long-term capital needs and projects where you know the exact cost. Unlike other financing products, the rigid structure of a term loan requires the borrower to go through the loan application process again if they need additional capital while in their repayment.
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| Business Lines of Credit | A business line of credit is one of the most flexible financing options available to entrepreneurs. Borrowers draw capital from their total credit limit as needed and only pay interest on the amount drawn, not the total credit limit.
The favorable interest structure allows businesses to keep their line of credit on the sidelines as an emergency fund without worrying about wasting cash. It also gives businesses the ability to quickly increase their purchasing power for growth opportunities and challenges that arise. Still, lines of credit come with higher interest rates than other forms of financing. While it’s not as much of a challenge because of the interest structure, it will affect how you use your line of credit once it’s established. Lines of credit can be secured or unsecured, depending on the lender you’re working with and the financial background of your business. If you need a higher credit limit, you may need to offer collateral, as high-limit unsecured lines of credit are only given to the most established businesses.
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| Equipment Financing | Equipment financing is a specialized type of financing that’s specific to business equipment purchases. Instead of fronting the entire cost at once, businesses can break down the cost of expensive assets over a more manageable schedule.
Equipment loans often don’t require additional collateral because the equipment itself serves as the collateral backing. If the borrower defaults on the financing, the lender will seize the collateralized asset and leave the business with the equipment they came in with. Some lenders specialize in equipment financing, while others offer it alongside other options. Those who specialize in equipment financing often work exclusively with select industries, which can restrict access to those outside their scope. National Business Capital’s diverse lender platform has a variety of equipment lenders, all of whom are eager to help you achieve your goals. Apply now to unlock the options you qualify for!
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| Revenue-Based Financing | Provided in a one-time, lump sum payment, revenue-based financing works similarly to business term loans but with a few unique differences.
Term loans come with an APR, while revenue-based financing comes with a factor rate. This number, ranging from 1.1 to 1.7 on average, is multiplied by your funding amount to determine the cost of capital. The cost doesn’t change throughout your repayment. Revenue-based financing carries fast funding times and relaxed eligibility requirements. The primary metric of eligibility is your revenue, not your credit score, which allows a wider range of businesses access to capital. As for repayment, revenue-based financing carries short terms, rarely extending past 18 months. Borrowers commonly make repayments on a daily or weekly schedule, with the price of each payment depending on the business’s sales that day/week. It’s better suited for short-term projects and immediate capital needs because of the structure.
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Apply for a Commercial Truck Loan
Taking the time to carefully consider each of the outlined factors before applying for a commercial truck will help ensure you make the best decision for your business. Whenever possible, you’ll also want to compare interest rates, loan terms, and different lenders to get the most competitive loan. One of the best ways to seamlessly review different offers is through National Business Capital.
National Business Capital is a B2B financing marketplace that matches businesses with financing opportunities from over 75 lenders. National has a long history of helping trucking companies obtain the loans they need to purchase commercial trucks and grow their enterprises. Our experts work one-on-one with business owners to ensure that you have all the information you need to make the best decision. Apply for a commercial truck loan today.
If you’d like a more visual experience, watch our CEO’s video on how to grow a transportation business below!
How To Grow a Transportation Business
Joseph Camberato
Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.
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