Commercial Truck Financing: How It Works and Where to Find Lenders

Commercial truck financing can help business owners buy or repair semitrucks needed to make deliveries, transport materials or haul goods. Whether one truck may suffice or you want to establish your own small fleet of vehicles, you could apply for a commercial truck loan if you can’t make the purchase outright.

Commercial truck financing: How it works

Commercial truck financing involves a business owner using their truck as collateral for a loan, which reduces the risk for the lender. Similar to a car loan, the lender holds the title of your truck until you pay off your debt, and it could seize the vehicle if you fail to meet your loan obligations.

Where to find financing: Traditional banks — including community and regional banks — and alternative lending companies offer commercial truck financing. You could seek financing for one truck or a fleet of 25 or more, said Keith Kirby, senior vice president and relationship manager of First Tennessee Bank’s asset-based lending department.

Alternative lending companies would likely offer the quickest solution when looking for a commercial truck loan because the online application and approval processes are more simplified and require less documentation than a traditional bank. However, these lenders typically charge higher interest rates and require a high down payment.

Features of commercial truck loans

Commercial truck loans typically have terms of about five years, Kirby said. Interest rates for commercial truck loans can be all over the board, depending on the credit of the borrower. Small business owners with no credit problems — typically no delinquencies and a score of at least 600 — could expect to see fixed commercial truck financing rates in the range of 5% to 6%, Kirby said.

Depending on how much business financial history is available, small business owners or new businesses may have to provide a personal guaranty or personal financial statement when applying for commercial truck financing, Kirby said.

Commercial truck loans vs. leases

Most leasing options allow you to purchase the truck for the remaining value after depreciation at the end of the lease. A loan, on the other hand, gives you full ownership of the truck at the end of the term. A lease may provide lower monthly payments than a loan, but leases have interest rates embedded in the payments that may increase the overall cost.

Some advantages of leasing a commercial truck include:

• Low credit requirements (bad credit may be OK depending on the lender)
• Affordable monthly payments and down payment
• Leased vehicles don’t depreciate
• Easily trade and upgrade your vehicle
• Maintenance-related services possible

If you have mediocre credit and you want a low down payment for semitruck financing, you may want to lease your truck, said Todd Amen, founder and CEO of Lakewood, Colo.-based ATBS, a tax preparation and accounting firm for truckers.

A down payment for a commercial truck loan would be between 10% and 25%, while a down payment for a lease would be less than 10%, Amen said. A lease would also be ideal if you’re a first-timer in commercial trucking and you’re not committed to building a fleet of trucks, he said.

Shopping for commercial truck financing

Although traditional banks would likely offer some of the best interest rates and terms on the market for commercial truck loans, the application process may be cumbersome. Online lenders have a simplified application process and potentially higher approval rates, but they may also charge higher interest rates.

If you’re considering an online lender, choose one that’s been in business for a while, specifically providing commercial truck financing. Kirby suggests looking for a lender with a lot of experience so it knows the ups and downs of the industry.

Here are a few commercial truck financing lenders you could consider.

Wells Fargo Bank

Best for: Established businesses looking for bank financing

Wells Fargo offers loans and leases to finance commercial vehicles, such as trucks and trailers. It finances new and used vehicles with repayment terms between 12 and 84 months. Borrowers could receive fixed or variable interest rates. To be eligible for Wells Fargo financing, you may need at least three years in business, strong credit history and positive cash flow.

CAG Truck Capital

Best for: Low-credit applicants seeking commercial truck loans

CAG Truck Capital is an online lender that offers financing for several types of trucks, including semitrucks, dump trucks and garbage trucks. CAG approves commercial truck financing for bad-credit applicants, potentially lending to business owners with bankruptcies or tax liens. CAG reports to credit agencies, which helps borrowers strengthen credit profiles.

CIT

Best for: Mid-sized to large companies that prefer commercial truck leases

CIT offers commercial truck leases for mid- or large-sized trucking companies needing to finance new or used vehicles. CIT creates leases for business owners based on time in business, monthly budget and overall needs. At the end of the lease, borrowers could choose a buyout option that allows them to purchase the truck. Although CIT is a national bank, business owners can apply for financing online.

Red flags to avoid

When searching for commercial truck financing companies, watch out for these red flags:

• Cash upfront: A lender shouldn’t ask you for any payment before approval, including application fees.
• No early payoff: You should have the option to pay off your debt early without prepayment penalties in case you need to trade in your truck or you suffer a total insurance loss.
• Double sales tax: If you’re leasing and ready to purchase your truck at the end of your lease, watch out for sales tax charged on your monthly payments and the purchase price of the truck.

It’s important to select a credible lender with industry knowledge. Read reviews to make sure you’re choosing a reputable financing company. Once you’ve picked a lender, you still have time to review your loan agreement before making a commitment.

“It’s a contract, so it doesn’t hurt to have a lawyer review the documents that you’re signing,” Amen said. “You wouldn’t want to get yourself in a horrible deal by signing something that’s awful.”

Commercial truck financing requirements

When applying for a commercial truck loan, expect lenders to examine the following details about your business and personal financial history.

• Credit score: Much like any small business loan, a good credit score would give you a better chance of qualifying for a commercial truck loan. A credit score of 600 or higher would be ideal, but you may be able to add a cosigner to your loan if your credit is poor.
• Time in business: Having more time in business will help you qualify because lenders may be hesitant to approve new business owners. If your business entity is a corporation or a limited liability company, you would also appear less risky to lenders than if you were a sole proprietor.
• Collateral: Lenders are going to consider the condition and quality of your vehicle because it is used as the collateral on the loan. You should aim to finance either a new truck or a used truck, Amen said, that has 350,000 to 500,000 miles.

Who will have a hard time qualifying?

Credit is a major factor, and you may not qualify for commercial truck financing with poor credit. Red flags like tax liens or outstanding child support payments would impact your chances of approval, Amen said. You’ll also have a hard time qualifying if you don’t have enough capital to cover the down payment.

Lack of experience could also stop a lender from approving your request for financing, Amen said. You may need to show that you have some experience or familiarity with the trucking industry.

How to apply

The application process for commercial truck financing is similar to getting other business financing. The lender will analyze your business’s financial health to make sure it could support monthly payments on a lease or a loan.

Required documents typically include:

• Three years’ worth of financial statements
• Tax returns
• Business owners’ personal financial statements
• Commercial driver’s license
• Proof of insurance on the truck

The price of a used semitruck generally starts around $15,000, while a new semitruck generally starts around $80,000, though both options can top $100,000 — especially new — depending on what you need. You could also expect to pay a documentation fee upon signing your lease or loan, which could be around $500, Amen said. There may be a small loan fee as well.

FAQs: Commercial truck financing

How do I get a loan for a commercial truck?

You can apply with traditional banks or online commercial truck financing companies. Banks could offer favorable rates and terms, but the application process may be slow. Online lenders typically have a faster loan approval process, but interest rates could be high.

Can I refinance a commercial truck loan?

Yes, you can refinance a commercial truck loan to reduce your monthly payment or interest rate. Refinancing would require you to apply for a new loan, either with your original lender or a new one. You’d pay off your existing debt with the new loan.

Can I get no-money-down commercial truck financing?

You may qualify for commercial truck financing without making a down payment if you have good credit history without any delinquencies or other negative marks. Ask your lender if it offers a zero-deposit financing option.

Can I buy a semitruck without a CDL?

Yes, financing programs do exist for business owners who don’t have a CDL, or commercial driver’s license. However, financing companies may consider a business owner without a CDL a high-risk borrower. Before applying for a commercial truck loan, check the lender’s requirements to see if a CDL is necessary to be approved for financing.