Becoming an owner-operator can be a rewarding move, both professionally and financially. It takes money to make money — unless you’ve saved up enough capital to purchase a truck outright with cash, you’ll need to secure financing before you can get your new operation rolling.
If you are a new entrepreneur looking to get into the trucking business for the first time, the prospect of finding a lender to finance your dream might seem a little daunting.
Truck and trailer financing in Canada:
The process of financing a commercial truck isn’t quite the same as applying for a personal or conventional business loan. While they share similarities, a traditional small business loan lender will typically rely on your personal credit history, your business’s revenue stream, and the amount of time you’ve been operating to determine your eligibility for funding.
With a commercial trucking loan, however, the truck you purchase serves as your collateral, minimizing the lenders risk, which of course greatly improves your chances of qualifying. For the same reason there’s usually more variation and flexibility with the terms of commercial truck loans, which also works in your favor.
So as far as qualifying for a truck loan is concerned, much will depend on the specific truck you want to buy along with the various rules and regulations of the lending companies you approach. Nevertheless, there are a few basic guidelines to follow that should greatly improve your chances of being approved.
Credit score: A key factor in commercial truck financing
As a general rule, the weaker your credit score, the greater the down payment you’ll need to procure.
More than any other factor your credit score will dramatically impact your ability to qualify for commercial truck financing, particularly when you’re just starting out as an owner-operator. You’ll not only find it easier to secure a loan for your trucking business with a high credit score, but you’ll be able to negotiate better repayment terms as well, potentially saving you a substantial amount of money over the long term.
Down Payment for Your Commercial Truck Loan
Many advertisements will read “Commercial Truck Financing, 0 Down!” While it’s possible to receive up to 100% of the value for your commercial vehicle and get your business loan with no money down, most lenders will require a certain percentage of funds up front.
The amount of your down payment could be 10%-30%. For example, if you take out an $80,000 loan for commercial dump truck financing with 15% down, you’ll need a $12,000 down payment.
Additional considerations that affect financing rates:
While a good credit score is crucial, there are other elements lenders look for before approving commercial truck loans, so your goal should be to eliminate as much risk as possible in the eyes of potential creditors. Here are a few suggestions.
- The more truck driving experience you can demonstrate the better, even more so if you can show a consistent revenue stream stemming from it.
- Ideally, the further back a lender can look at your credit history should help your case — over seven years is optimal.
- A credit history of honoring fixed payments at regular intervals, as you would with a mortgage or vehicle loan, is typically beneficial.
- Find a well-established co-signer. If you have a friend or family member with a good credit rating whose prepared to assume responsibility for the loan should you default, lenders will be far more apt to consider your application.
The bottom line is that so long as you meet the qualifications demanded by lenders, it’s a relatively straightforward affair. And if you don’t have the requisite credit score to be approved for a commercial truck loan right now, remember there are many things you can do to improve it so financing your trucking operation will be easier a year or two down the road.
Contact us to find out more.