Your truck is considered an equipment, a tool essential to the success of your trucking business. If you are locked out of traditional vehicle financing for your truck, how shall you go about? One option is to look for a business loan, specifically for equipment financing. It can help you buy a truck and improve your cash flow at the same time.
Equipment Financing for Your Trucking Business
Because business loans are made specifically for companies to meet all their conceivable needs, acquiring a commercial vehicle is fairly included. Indeed, not all trucking businesses can readily qualify for a standard commercial vehicle financing due to bad credit, limited operating history, etc.
Equipment financing is flexible; it can fund office equipment, industrial machinery, as well as trucks and trailers. The types of equipment to be financed by each lender do vary so ask them first if they can finance your truck.
On the financial side, it can improve or boost your business cash flow if you are able to take out a loan that covers 100% of the purchase price of the truck. The supposed-to-be downpayment can be used for working capital and other liquidity needs.
By financing your truck, you are able to spread out the cost over time while being able to upgrade to newer models, as applicable.
How does it work
In equipment financing, how much the lender is willing to lend you would depend on the value of the truck. Your truck serves as collateral for the loan, a security that you will repay your loan obligation. If it’s valued less than your loan and you default on it, the lender won’t be able to recoup the money it has lent you.
Moreover, the length of time you are to repay the loan would depend on the useful life of the asset, in this case, your truck. This is the “lifespan” of your truck, the time it is most beneficial to your business. The IRS uses the term “recovery period” to refer to the lifespan of fixed assets and classifies trucks to have a recovery period of five years.
Speaking of repayment, there are many ways to pay back your financed truck. And lenders are creative in coming up with financing terms for their equipment finance products.
There are term loans for equipment purchase. There is the lease option which allows you to buy the truck for $1 or at the fair market value at the end of the lease term. If you won’t buy the vehicle, you can return it or renew the lease for another term.
One lender, for example, offers a buy-now-pay-later plan with financing ranging from one month to three months. Another lender offers to finance by way of a line of credit that enables you to purchase more than one truck over time.
Some lenders can allow you to make seasonal or deferred payments. Don’t hesitate to shop for loans.