How to Get a Loan for a Semi-Truck

Owning a semi-truck can be a game-changer for small businesses but they’re not cheap. Their price tags rival luxury cars and paying upfront can strain your business budget. 

Fortunately, financing can help small business owners spread the cost over time, making budgeting more manageable. In this article, we’ll explore the process of financing semi-trucks, focusing on loans and leases. 

When you need a semi-truck for your business, you have two primary options: borrowing money with a loan or leasing the vehicle. With a loan, you borrow the full amount needed to purchase the truck from a lender (like a bank). Over time, you repay the loan with interest. On the other hand, leasing involves renting the truck for a specific period (usually several years). You make regular lease payments but don’t own the truck outright. At the end of the lease, you may have the option to buy the truck or return it. Lenders also consider credit scores to assess creditworthiness, and the truck itself can serve as collateral. 

Key terms to know:  

• Principal: the initial borrowed amount 

• Interest: the fee for borrowing; a percentage of the principal amount 

• Down Payment: an upfront payment to reduce the loan amount 

• Amortization: the process of gradually paying off the loan through regular installments 

Semi-Truck Financing vs. Leasing 

The choice between semi-truck financing and leasing depends on your specific business needs and current financial situation. The following breaks down the difference between the two options:  

Ownership 

• Loans: With a loan, you hold the title of ownership over the semi-truck during and after the loan term.  

• Leasing: With a lease, you don’t own the assets outright. The lessor (owner) still has ownership, and you just have usage rights. 

Monthly Payments 

• Loans: You repay the borrowed amount (principal) plus interest over time. 

• Leasing: Instead of loan payments, you pay periodic lease rentals. 

Tax Benefits:  

• Loans: Interest payments are tax-deductible. 

• Leasing: Lease payments usually aren’t tax-deductible. 

Flexibility  

• Loans: Loans offer more flexibility, allowing you to customize, sell, or upgrade the semi-truck. 

• Leasing: Leasing has stricter terms.  

Mileage/Wear and Tear: 

• Loans: No restrictions on mileage or wear and tear. 

• Leasing: Lease agreements often include wear and tear fees and annual mileage limits, typically falling within the range of 10,000 to 15,000 miles.  

When considering financing options for new semi-trucks, both leasing and loans have their merits. Leasing can be ideal for those just starting out, as it minimizes the initial expenses with a smaller or no down payment compared to purchasing. Leases offer shorter terms, better suiting companies that may need to upgrade or change trucks frequently. 

With a loan, you own the truck once it’s paid off and interest payments on loans may be tax-deductible. Loans suit businesses committed to keeping the same trucks for an extended period. 

Whether you’re a first-time buyer or expanding your existing business, understanding these factors is crucial: 

• A higher credit score (670 or above) improves your chances of qualifying for better loan terms, such as lower interest rates and fees. If your credit score is lower, you may still get approved, but expect higher costs. 

• Registering your business demonstrates legitimacy and commitment to the industry.  

• Expect a 10% to 30% down payment based on the semi-truck’s value. Larger down payments lead to better loan terms. 

• Lenders typically require proof of insurance coverage for the semi-truck to protect both you and the lender in case of accidents, damage, or theft. 

1. Assess Your Finances 

Before buying a truck, evaluate your business needs. Consider the cargo type, distance, and terrain. These factors help determine the necessary features. Look beyond the upfront cost and consider fuel efficiency, maintenance, insurance, and resale value. A cheaper truck may cost more in the long run due to higher maintenance expenses. Fuel costs significantly impact expenses. Choose a fuel-efficient truck by considering engine type, weight, and aerodynamics. Reliable trucks with solid warranties minimize maintenance expenses. Invest in safety features like collision mitigation systems. Remember to check your credit reports for errors and plan affordable monthly payments based on your revenue and operating costs. 

2. Determine the Type of Semi-Truck Financing 

• Loan: Borrowing money from a financial institution to buy an asset (like a truck). Loans lead to ownership of the asset, and you are expected to pay back the borrowed amount with interest over time. You can finance either a new or used truck.  

• Lease: An agreement to use an asset (like a truck) for a specific period. With leasing, there’s no ownership; you have the right to use it without owning it.  

3. Find a Semi-Truck Lender 

When it comes to searching for a semi-truck lender, you have several options: 

Banks/Credit Unions 

Pros: These traditional lenders offer competitive interest rates and personalized service.  

Cons: The application process can be lengthy, and strict requirements may disqualify some borrowers. 

Online Lenders 

Pros: Online lenders provide convenience and speed; apply from anywhere.  

Cons: Interest rates may be higher and terms may be shorter.  

Dealer-Based Financing 

Pros: Dealerships that sell semi-trucks, having firsthand knowledge of the industry can offer tailored financing solutions. 

Cons: Rates may be less competitive compared to other options. 

Remember to compare terms, rates, and eligibility before choosing the best option for your semi-truck financing needs 

4. Understand Lender’s Qualification Criteria 

Researching and comparing lenders’ criteria beforehand saves time and avoids unnecessary credit inquiries. According to Equifax, applying to multiple lenders within a short period typically counts as a single inquiry on your credit report. The period may vary depending on the credit scoring model used, but it’s typically from 14 to 45 days 

 When it comes to lenders, their requirements can significantly differ: 

• Banks and credit unions typically require higher scores (around 670+), while online lenders may be more flexible. 

• Most lenders ask for a minimum of one year in business. New businesses might find it challenging to qualify. 

• Larger businesses with consistent income are preferred. Smaller businesses may need alternative lenders. 

• Some lenders require the semi-truck itself as collateral, while others offer unsecured loans with higher rates. 

5. Find the Type of Semi-Truck You Want to Finance 

When selecting a commercial truck for your business, there’s several factors that come into play. First, payload capacity is essential. Calculate the average weight of your goods to determine the required capacity. Next, consider the distance and type of terrain your trucks will cover. If you operate in hilly or off-road areas, make sure to choose a suitable truck. Different industries demand specific trucks like flatbeds for construction or refrigerated trucks for perishables. It’s important to prioritize fuel efficiency to save costs in the long run. Safety features like advanced braking and stability control should be a priority as a responsible employer. Lastly, research maintenance costs. By matching the right truck to your business needs, you ensure you’re getting the best worth for your money.  

6. Get the Right Insurance 

When financing semi-trucks for your small business, insurance is non-negotiable for lenders. Here’s why: your truck serves as collateral for the loan, and lenders want to protect their investment. Insurance coverage ensures that both you and the lender are covered in case of accidents, damage, or theft. For the best deal, shop around for multiple insurance quotes. Compare coverage and rates to find the most suitable policy for your needs. Keep your investment safe.  

7. Gather Financial Documents 

When financing a semi-truck, be sure the gather the following documents: 

• Tax Returns: Provide personal and business tax returns for the past few years. 

• Profit and Loss Statements: Show your business’s financial performance over time. 

• Bank Statements: Display cash flow and account balances. 

• Vehicle Details: Include information about the semi-truck. 

• Commercial Driver’s License (CDL): If you plan to drive the truck yourself. 

8. Apply for Semi-Truck Financing 

When seeking financing for your semi-truck, consider applying to multiple lenders. Don’t just focus on interest rates. Consider fees, repayment terms, and any hidden costs.  

By carefully comparing offers from different lenders, understanding loan terms, considering down payments, and being aware of the credit impact, you can navigate the process more effectively. Ultimately, well-informed decisions can save you money, improve your financial position, and ensure a smoother journey toward owning that shiny new truck.