In this guide, we take you through different financing options for trucking companies, how to compare lenders, plus some great tips to get you through the process.
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Trucking companies tend to do big freight deliveries and charge customers large amounts at a time. With this type of revenue model, you might have a good portion of your business income tied up in invoices. That’s why we’ve listed two types of accounts receivable financing options as the first to look into.
Now that you know your options, it’s time to figure out how to sort through them to choose the best one for your needs. Certain loans will offer a larger amount of funding, while others will offer a specific type of funding such as an equipment loan. Invoice factoring could be used for a wider array of purchases, while equipment loans are limited to purchasing equipment.
Another factor to consider is the loan term. Terms can vary among truck financing options. Invoice factoring has a finite term, and is paid off as soon as the invoices are paid — usually within a few weeks to a few months. Equipment and general purpose loans may be paid off over longer periods of time, such as five to 20 years.
Lastly, be sure to consider fees and costs. The interest rate won’t be your only cost and might not be the best factor to show the cost difference between loan types with varying repayment terms – instead, compare APRs. The annual percentage rate, or APR, will show all upfront costs including origination fees, application fees and the interest rate. However, it won’t include other fees like early repayment and late payment fees. While you’d be hard-pressed to find a business loan that doesn’t charge additional fees, you may have an easier time finding ones with more reasonable penalties than others.
Some lenders consider the transportation industry to be a high-risk industry. Before applying for a loan, consider contacting a lender to confirm whether or not your business is eligible.
Kenji, a resident of Ontario, runs a shipping company and is looking to replace six 2014 Isuzu NPR HD diesel trucks with new ones. He finds a 2020 model with a 14′ box priced at $76,500 per truck. Kenji is able to trade in his old Isuzu trucks for $11,500 each ($69,000) and makes an additional 20% down payment of $91,800 on the new trucks. He applies for a business loan to cover the remaining amount of $298,200.00 plus 13% HST on the purchase price less the trade-in values.
Both Kenji’s business and personal credit scores are solid, plus he can secure the loan with some of his other business assets. He is therefore approved for a loan with competitive terms. Along with the cost of the loan, he also pays around $1,800 to register all 6 trucks with the province of Ontario – this includes the cost of license plate stickers and vehicle permits (he can reuse the plates from his old trucks, so he doesn’t need to buy new ones).
| Purchase price of new truck | $76,500.00 per truck ($459,000.00 for 6 trucks) |
| Loan type | Business loan (term loan) |
| Loan amount | $348,900.00 |
| Interest rate (APR) | 7.90% |
| Loan term | 5 years |
| Additional fees | 3.00% origination fee ($10,467.00) |
| Monthly payment | $7,057.75 |
| Total loan cost | $423,465.00 |
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
Each lender will have its own requirements, and some have more than others. Here are some of the most common documents you’ll need to apply for truck financing:
While there’s no way to guarantee approval, try these four tips to improve your chances of getting your application approved:
Your next cash flow solution or truck could be just around the corner. Take your time and review your finances, your business plan and your needs before settling with any one lender. Shop around, compare your business financing options and make the decision that’s best for your business.
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