How to get semi-truck financing

A new semi-truck can cost up to $160,000 with all the bells and whistles, and a new trailer may be an additional $50,000 and up. Financing a semi truck can be a lot easier than coming up with the cash. Even if you could pay out of pocket, using a loan frees up cash flow that can be used to help keep your business running.

Read on to learn how to get semi-truck financing and tips to help get the best loan for your business.

Check your credit

Before you apply for a semi-truck loan, you should check your credit score. If you have a registered business, you have a personal credit score and business credit score. Both scores represent your history of paying back debt, as well as the debt you currently carry. Lenders use these scores to determine how risky it is to loan you money. A higher score often translates to faster approval and better terms, including a potentially lower interest rate.

Factors that impact a credit score include:

• Current outstanding debt
• Bill-paying history
• Number of credit accounts currently open
• Types of credit accounts you use
• How long your accounts have been open
• Percentage of available credit being utilized
• Past bankruptcies, foreclosures, and collections attempts

While you may be able to get a business loan with bad credit, it’s easier if you have a credit score in the good or excellent range. Different credit bureaus score your credit in their own way, but as a general rule, a personal credit score of at least 670 on the FICO scale is considered good.

Business credit score models vary, but some like Dun & Bradstreet have scores that range from 1 to 100, with a score of 80 to 100 suggesting you are a strong candidate for a business loan.

If you’re not sure what your current credit rating looks like, make sure to check your credit score and take a look at your credit reports.

Determine the type of semi-truck financing

There are a few different types of business loans that can be used to finance a semi truck. Here are three of the most common.

Business loans

Also called debt financing, a business loan gives you a lump sum payment to cover the cost of your semi truck. If you need your financing to cover your entire start-up costs, a loan may be the right answer. Traditional banks and credit unions typically require good credit and business history to approve a loan. But online alternative lenders tend to be more accessible and willing to work with startups and business owners with bad credit.

Keep in mind that you’ll likely need to offer a down payment to secure semi-truck financing, so have some cash ready for this purpose.

Equipment loans

Equipment loans are term loans that must be used for specific business equipment, such as semi trucks. This type of business loan is often more accessible than traditional bank loans. Credit scores, minimum annual revenue and time in business can all be more relaxed.

Equipment leasing

Equipment leasing involves renting equipment rather than purchasing it. This is another solution for companies needing a semi truck, but it has pros and cons.

On the one hand, leasing has a lower monthly cost than financing a purchase. Replacing the truck with a new one is easier if you have a lease.

On the other hand, you’ll never build equity in the vehicle or pay it off, meaning you’ll be stuck with monthly payments for as long as you need the truck. That can mean a higher long-term cost for leases than purchases.

Line of credit

You may also be able to use a business line of credit to purchase your semi truck, or at least the down payment. A line of credit is revolving like a business credit card. If you don’t use all of your available credit on your truck, you can use the remainder for other costs like truck repairs down the line as needed.

Find a semi-truck lender

When it’s time to shop around for a semi-truck lender you’ll likely have a lot of options to choose from.

When choosing, think about your priorities. Do you want the cheapest loan or the fastest funding?

Online banks or credit unions can offer low-cost loans, while alternative lenders usually provide faster funding. Alternatively, direct lenders that sell vehicles and offer financing have valuable expertise that can help you find the right vehicle. Here are three of the best types of lenders for semi-truck financing.

Banks and credit unions

Some big banks like Wells Fargo and U.S. Bank offer commercial vehicle lending along with small business loans. Big banks may have strict requirements compared to alternative lenders but often come with lower interest rates. You could be a good candidate if you have solid credit, an established business and hold other accounts with the bank.

Alternative lenders

Online alternative lenders operate like regular banks, except they usually fund faster and often have more flexible terms. In addition to accepting applications from people with credit scores in the 500s, they may also offer loan products not normally found with a traditional bank. This includes crowdfunding and peer-to-peer lending.

Direct lenders

Commercial truck lenders are non-bank lenders that specialize in truck loans. They tend to be a good option for business owners who need non-traditional financing. That includes people with bad credit and past delinquencies and maybe even small business owners with bankruptcies.

Get prequalified

Getting prequalified for semi-truck financing means a lender has done a basic assessment of your business history and credit score and determined that you are likely to qualify. They may run a soft credit check that doesn’t affect your score. While getting prequalified doesn’t mean you’re officially approved, it means you’ve met a lender’s initial criteria and can shop for a semi truck with a little more confidence.

Find the type of semi truck you want to finance

You may be able to expedite your loan or other financing if you can tell the lender exactly which vehicle you want to purchase. Similar to buying a car, having more information about the vehicle rounds out your loan application. Some lenders may require detailed information about the semi truck, including the make, model, year, condition report, and previous repairs. It also helps to have photos.

Narrow down the type of truck for you by running down a checklist.

1. Compare new and used. Do you want a new truck or a used model? This is the first decision you’ll need to make. New semi trucks are more expensive but may have a longer warranty and require fewer repairs. Used trucks can have lower monthly payments but often come with a shorter warranty window.

2. Narrow down amenities. Long-haul drivers will usually need a sleeper cab, while short-distance drivers can get by with a day cab. Consider your preferred fuel economy, length, and more.

3. Select a transmission. Semi trucks are available with both automatic and manual transmissions. Automatics may be more efficient for long-haul routes, but it’s generally a matter of personal preference.

4. Always run a history check. For used trucks, check out the vehicle’s history report for details such as title and accident history and maintenance records.

5. Be realistic with your budget. Don’t overspend. Leave a budget for future semi-truck repairs and upgrades by not financing more than you can afford upfront.

Get the right insurance

Your lender won’t release funding for your loan until they know you have the right insurance for your truck. You’ll definitely need coverage for your truck and its cargo. Truck owners should also have liability insurance to protect their company in the case of a lawsuit and worker’s compensation insurance if they have employees. Here’s a look at the common types of semi-truck insurance you’ll come across.

• Primary liability coverage. This covers damage to property or people that is caused by your truck while it is on the road.
• Physical damage insurance. This insurance can cover some physical damage to your truck in the event of an accident or theft.
• Bobtail insurance. This liability coverage covers damages to other vehicles and injuries other people sustain from accidents that occur when you drive your semi truck without a trailer.
• Non-trucking liability coverage. This protects you from liability claims that could occur when you use your semi truck for non-business use.
• Cargo liability insurance. This insurance coverage helps you replace cargo that is damaged or lost during an incident such as an accident, storm or theft.

Apply for semi-truck financing

When you’re ready to apply for a new loan, you’ll need to gather a variety of documents. Prepare to be asked questions about you, your business and the truck you’re financing.

Documents to have on hand when you apply for financing include:

• Business registration
• Current business balance sheets
• Current business income statements
• Up to three years of personal and business tax returns
• Up to one year of bank statements
• Commercial driver’s license (CDL)
• Proof of truck insurance

Pros and cons of semi-truck financing

There are pros and cons to financing your new semi truck instead of leasing one or paying for one with your own funds.

Pros

• Financing is an affordable option for small business owners who can’t afford the upfront costs of buying a semi truck.
• You build equity in an asset instead of spending money on a rental lease.
• Financing a semi truck can increase your tax deductions.
• A semi-truck loan can help you build credit if you make on-time payments and your lender reports to one or more credit bureaus.

Cons

• The upfront costs for financing can be more expensive than the upfront costs for leasing.
• Risk of repossession if you can’t make payments, which would forfeit your equity.
• Coming up with a down payment on the truck can be expensive.

Bottom line

The best semi-truck financing gives small business owners access to funds that can be used to start or grow a trucking business. But before you apply for a business loan, make sure it’s the right decision for you and follow the above steps to get financing that you can afford.

Frequently asked questions

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  How long can you finance a semi truck?

  Traditional banks and credit unions tend to favor terms of 12 to 60 months. But it’s possible to find loans that are seven years or longer, especially with online lenders and direct commercial truck lenders. The downside to such long loan terms is that they are likely to have higher interest rates and you may end up owing more than the semi truck is worth.
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  Can I get semi-truck financing without a down payment?

  Financing a semi truck without a down payment requires excellent credit and sizeable annual revenue. Most lenders prefer and may require a down payment of at least 10 percent — higher if your credit is low.
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  Is it better to finance or lease a semi truck?

  Financing a truck means you have an asset for your company. Meanwhile, leasing can lower your monthly costs. Buying your truck if possible is often the better long-term investment if you can afford it. But leasing is a good option if you struggle to secure financing or don’t want to be locked in a long-term loan.