How Important is a Commercial Truck Financing

Transportation plays the most important role in your business health if you are a small business owner. For example, you might have to transport a few specific materials across the border or make deliveries requiring a trustworthy semi-truck. There are several perks to obtaining commercial truck financing, irrespective of the reasons.

First, you need to understand that to run a trucking business or own a commercial truck, and you would have to put in a certain amount of money. Today, we will discuss the importance of getting commercial truck financing done and how it can help your business grow.

Overview of commercial truck financing

A business owner using their commercial truck as a mode of collateral to qualify for a loan involves themselves in commercial truck financing. You can get semi truck financing for more than a single semi truck in a few cases. Some business owners might have to offer their financial statements or a personal guarantee for qualifying for the semi truck financing option, especially if they are a startup business. 

Business Loans vs. Equipment Leases

If you ever need semi truck financing, loans and leases are available. A few specific companies are offering different forms of business financing options to you. You can choose a specialized equipment finance company that deals only with commercial truck financing options or even heads out with a traditional bank if preferred.

Several equipment leasing options allow you to buy the vehicle for the residual value after the end of the lease term. But, the loan would work differently since you automatically get the entire truck ownership at the end of the lease term. Additionally, you should note that the lease has embedded interest rates, increasing the entire price of the semi truck lease; however, you might even charge low monthly rates of interest whenever they are compared to any conventional role.

The entire amount you end up paying does not differ significantly between the business loans and semi truck leasing in terms of choosing the option to go with. But, if you have bad or subpar credit and are unwilling to make the sizable down payments, then leasing is the right option. There are other reasons to go with the truck lease instead of a business loan, is when you need a single truck or if you are new in this world of commercial trucking.

Reasons for financing a truck

Your business likely revolves around your vehicle for those in the transport industry. It is a serious initial outlay of cash if you start your business from scratch, as getting the financing for your vehicle is the feasible way to enter this market. There are various financing options that suit your needs as a small business, and we have listed three main reasons why you should consider financing your truck.

Reason 1: A massive range of truck financing options

You will be spoiled with choices if you choose to get the financing done for your semi truck instead of buying it. There are various options, each that comes with a bit different terms to consider for finding the business vehicle finance option that matches your small business’s condition. However, how would you make the choice which is right for you? You should always consider the budget, cash flow, and finance terms as your starting point.

• Commercial Truck Lease

A semi truck lease is where the semi truck leasing company will retain the ownership of the vehicle as you enjoy the benefits of the ownership of the commercial vehicle. Eventually, the lender will purchase the vehicle on your behalf and lease the truck back to you. You will also make the monthly lease payments till the term is up, during which you are paying off the remaining value of the truck lease or taking complete ownership of the truck while trading the truck which is in or pursuing any other truck financing option. At the end of the lease you will be responsible for for the fair market value of the truck or return the truck and get a new one, a TRAC lease where you pay ten to twenty percent of the original value of the truck, or a term residual lease where you make the final payments of the lease before the selected term and retain ownership 

• Commercial Hire Purchase

It is the finance option for your business vehicle that involves you hiring a truck from the lender for an agreed amount of term. You might take ownership of the truck at the end of the term, considering that you have paid off the loan amount in full after making the fixed monthly repayments over this period.

• Novated Lease

Knowing about this truck finance option for small businesses with employees is important. It will allow the employees to use their pre-tax incomes for leasing the vehicle. The employer is responsible for carrying out the lease payments directly from the employee’s salary, thereby reducing their taxable income.

• Business Bank Loan

A standard business loan is yet another option for funding the purchase of the truck. You will encounter several options available with general small business finance, including the credit line and the basic loan term. 

• Equipment Finance Agreement

Equipment finance companies offer business loans for start up trucking companies with as little as $0 down up to twenty percent down depending on your Fico score and installment debt history. Equipment finance companies would like to see fifty percent of the loan amount installment debt history that’s at least two years old and five open trade lines reporting on your personal credit history. Equipment finance companies will also offer deferred payments up to the first six months of payments. 

• Cash out program 

Once you own your commercial truck, free and clear semi truck lenders like Trust Capital can finance the truck back to you on terms up to five years. They will need proof of ownership and a simple one page credit application. 

Reason 2: You can reap numerous business tax benefits

It depends on the amount of money you are spending and the business vehicle finance option you are selecting where the business might get tax benefits. For instance, if you are operating a business with a yearly turnover of less than $10 million, you can utilize section 179 for an immediate tax deduction on the truck or under a fair market value lease you can write off 100% of your payments on your taxable income because the truck will be viewed as a rental to the government. 

But, the amount of commercial trucks you are claiming as a tax deduction varies significantly depending on your truck finance option. For instance, the Term Residual lease allows you to claim the interest charge and the vehicle depreciation as the tax deduction under the finance lease, where you claim the deduction for the whole lease because you have the option to return the truck at the end of the lease.

Ensure that you are asking these questions for the financier by consulting the accountant before landing on the final decisions allowing you to leverage these business tax benefits and understand whatever you get entitled to claim.

Reason 3: Flexibility in Business vehicle finance 

 “Being flexible” means that a wide range of finance options are made available to you, and most of the options allow you to select the repayment schedule that meets your requirement and budget.

The entire duration of the term associated with your business truck finance is vital since it influences the amount of money you should pay to gain ownership or for the loans that offer you the ownership upfront. As the term is also essential to consider to plan for forward payments.

There are several truck finance options with terms ranging from 12 months to 7 years; however, if additional flexibility is required, then you need to have your commercial truck financing at the top of your considerations. The option does not offer you equity in the truck; however, you can trade in your truck at the end of the lease for a new truck and have the right options to buy the truck or walk away from it entirely. Several business tax benefits get available to you with the help of the commercial truck financing options.

Secure Truck Funding

You should secure your commercial truck financing to scale the trucking industry. Your plans for business scaling might fail if you do not have additional working capital. You need not wish to start your whole trucking business that goes against your credit cards.

Keep in mind that expenses are involved since you have to make the necessary changes. Therefore, to guarantee the success of business scaling, you should consider getting additional work capital.

You can easily get the business line of credit from your local commercial finance bank. But, it is not the ideal option if the business is in its startup phase or does not have great credit.

Instead, you can consider getting a trucking business loan. Several third-party lenders are offering this, along with a couple of restrictions.

The trucking business loan is offered by the commercial truck financing company. They would have a single-page application and get you approved in 2-4 hours. The single-page application allows you to have the additional working capital the same or the other day.

You will get the approval in a day from a couple of business finance lenders once you get the approval. At the same time, you might expect to receive the funding in as little as 48 – 72 hours, with greater flexibility for the monthly payments.

It is the ideal option apart from this, mainly when the trucking company is zero months or older. You might even get a trucking business loan if you have recently started your business.

You can easily qualify for the trucking business loan, as most commercial truck financing companies only check credit scores, open tradelines and installment debt history while deciding on the application.

You might even consider the business lines of credit instead of the trucking business loan. The business line of credit is easier to acquire than any other business loan.

A good line of credit even comes with several benefits apart from the fact that it is easily acquired. For instance, the line of credit at Trust Capital comes with no prepay penalty and no front-loaded interest, and every repayment gets collected through ACH deductions.

On top of all, no collateral is required for business lines like these. You need to prove that you have been operating for a minimum of 1 day in this business and have a minimum credit score of 650. Having three years of experience is preferred. 

Parting thoughts

If you choose an online lender for commercial truck financing, you should perform the required due diligence to ensure that they are a reputable company with a track record of success. One of the ideal ways to get it done is to ask your reliable friends or colleagues to recommend a company.

Also, check the online reviews as they might help you make up your mind and not forget about going over the business loan agreement on your own before determining if it is the right option for your unique financial and personal needs.