New businesses can be daunting to set up if you don’t know how to go about financial planning. If you want to invest in a good transport system for your business, you can benefit from trucking business loans. Timely deliveries, a food truck business financial plan, and other pick-up truck business plans can get you started.
Any truck finance for a new business plan will require a steady source of funding. This is necessary not only for purchasing your new vehicle but also for its routine maintenance. The funding for this purpose is not as simple as regular car loans.
Given the larger amounts required for financing commercial trucks, trucking business loans are more complex to borrow. The type of truck you need, its condition, and the number of trucks should be considered. Before you finalize your business plan, you should know about the specifics of trucking business loans and the application procedure.
We have compiled all the required information on truck financing for new business owners looking to establish themselves.
How Do Commercial Truck Loans Work?
Lenders will expect you to use the truck you purchase as collateral for the loan. This is important for lenders to reduce potential risks and losses. This is like the procedure of holding your vehicle as collateral for car loans as well.
Holding the truck as collateral entails that the title of the vehicle will not be in your possession. The lender will keep the truck in their name until you pay off the entire debt.
Although trucking business loans can seem intimidating, they are advantageous in the long run. They are a good solution if you don’t have immediate funding for your new business.
Where Can You Get A Commercial Truck Loan?
The most conventional source for trucking business loans is a traditional bank. Both community and regional banks are available for this purpose. Banks are suitable options for truck finance new business plans because they have lower interest rates than alternative lenders.
However, new businesses might be looking to establish themselves on a quicker basis. This means that you might have to pay more for speedier loan processing. In such cases, the lengthy application and approval procedure for traditional bank loans is not the right choice.
You can opt for loans from other lending companies, depending on how much money you wish to borrow. Your loans are likely to get approved much faster, but interest rates are much higher. Keep in mind that the necessary down payment for loans by online lenders is larger as well.
What Is to Be Expected from Commercial Truck Loans?
The duration of trucking business loans is usually 5 years. The interest rates can differ according to a few factors. One important determinant of interest rates if the borrower’s credit history.
Business owners can expect to pay fixed interest rates of 5% or 6%. However, they must have a credit score of at least 600, without any delinquencies on their credit record.
Additionally, if your credit score is lower, a lender may ask for other documentation. This can include your financial statements or your guarantee as to the business owner. If your business's financial history is lacking, a lender may require further reassurance.
How to Borrow Loans for Commercial Trucks?
Given that traditional loans from banks have the lowest interest rates, you can save most by opting for them. However, if you do go with online lenders, you should ensure that they are trustworthy. Read reviews online and ask for references if possible.
The numerous alternative lending companies available can make choosing the right lender difficult. Ensure that the company you choose is reputed and established in the field of trucking business loans.
You should avoid lenders that ask for upfront cash payments before the loan is completely approved. No application or payment fees should be demanded, either.
The lender you pick should draw up a loan agreement that allows early payoffs. These are important in cases of insurance loss or other eventualities. Early payoffs ensure that you won’t have to suffer prepayment penalties.
In case you choose to buy a truck on a lease, ensure your lender doesn’t charge you double the sales tax. The monthly payments and final amount should adjust the sales tax.
Lastly, once the loan agreement has been drawn up, always look at the details carefully. Ask a lawyer to go over the contract to guarantee that every clause is in order. You can choose to back off from the contract if you find any suspicious points.
What Determines Your Chances of Getting A Trucking Business Loan?
A lender can ask for certain documentation and details of your finances before approving a loan.
Credit History
Just like any other business loan, a trucking business loan requires a decent credit history. Some lenders can accept lower credit scores if your loan is cosigned.
Your credit score is an important factor in the loaning process. Any outstanding payments, like those for child support, and pending taxes, can dissuade lenders. You should also be able to pay the down payment in full.
Experience in The Industry
Lenders will want to ensure their financial security by loaning to businesses that have proven themselves. Experience in the trucking business will reflect favorably in such cases.
Sole proprietor businesses are less likely to get approved for loans than corporations or limited liability companies.
Maintenance of The Vehicle
Since the truck is to be held as collateral for the loan, the condition becomes important for lenders to consider. This includes whether the truck is new or second-hand. You will need to be careful about the number of miles on the vehicle as well. Better maintained vehicles are more likely to qualify for loans.
How to Apply for Trucking Business Loans?
If you are familiar with business financing, a trucking business loan won’t be difficult to apply for. The lender will ask for some of the following documents to judge your financial soundness:
- Personal financial statements
- 3 years’ worth of financial statements for the business
- Tax returns
- Valid commercial driver’s licenses
- The truck’s insurance papers
Endnotes
Any successful trucking business can benefit from the right information on finances. When availing of loans, always ensure that the details match up, and you feel comfortable with your choices. With a fool-proof plan based on this article's information, you can set up your business with fewer hassles.
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