Many truck drivers dreamed to enter the entrepreneurial life by being a truck owner-operator. As an owner-operator, you will have the freedom to be your own boss and grow your business. But in order to realise the dream, you must first have enough cash to buy a truck. If you are not in the position of having a lot of fresh money in your account right now, you can always try to obtain semi or commercial truck financing.
Getting commercial truck financing is relatively easy compared to other types of business loans because the truck serves as collateral. However, there are challenges for a new owner-operators in getting financing. The lack of track records and the minimum number of truck to support the business, makes lenders more hesitant to provide financing. For these reasons, it’s very important to prepare yourself with enough ammunition before approaching a lender. Follow these steps below to increase your chance to obtain truck financing with the best rates:
Provide All Legal Documents Relating to Your Business
Lenders would like to see your proper documents to verify the legality of your registered business. They would like to see your proof of business (i.e. LLCs & Corporations, or Sole Props & Partnerships), Commercial Driver’s License (CDL), truck insurance policy, etc. As an Independent owner-operators you may also need a US Department of Transportation (USDOT) number and a Motor Carrier (MC) number.
Improve Your Personal Credit Score
Personal credit score plays a very important role in getting the truck financing for your business, especially if you are a new owner-operator. It will help you in getting approval for a fleet card or fuel card as well, which are very critical cash flow tools for trucking companies. The standard score for borrowers with good track records is above 550 and above 700 for new business. Besides a good credit score, you must also beware of certain red flags, such as a recent repossession, bankruptcy, tax lien, that can prevent you from getting truck financing.
Your Truck must be in Excellent Condition
Lenders need to ensure that your truck is in excellent condition to make money. Your semi truck should meet at least the following specifications:
- Less than 10 years old
- Less than 700K in mileage and in good condition
The older and more used a truck is, the less likely a lender is to provide financing. This is because older trucks break down more frequently and have less value as collateral in the event that you default on your lease payments.
Prepare Money for Down Payment and Cash Reserves
Every business owner needs a balanced supply of capital to stay in business. As a new owner-operators, you’ll need to put some of your own money for the down payment to purchase the truck, which usually varies between 10-30 % depending on your credit score and the condition and age of the truck. Additionally, you’ll also need 1-2 months of cash reserves which will be useful for. repairs, insurance premiums, and emergencies.
Once you have everything in place, you can approach lenders that offers the best truck or vehicles financing for your business. If you follow all the steps above, we can guarantee that you’ll obtain the financing with the best rate for your business. Good luck!