Buying your first rig can be a very exciting event, but it can
also be a bit daunting if you aren't sure how to maximize the options
that you have for financing. Often the issues with financing decrease as
you build your business and have more of a proven track record as a
business owner. First time owner/operators, especially if they are not
able to provide a large down payment on the truck, may find that getting
financing is the biggest obstacle that they face.
To ensure that you get the maximum financing possible it is important to start looking at your financial health well before you decide to make your first purchase. Ideally you will be using some of these strategies already and the earlier that you start the better off you will be. Keep in mind that next to a house or property, buying a new truck or even a good used truck is going to be your biggest purchase.
Check Your Credit Score
Most people buying their first truck are going to be buying it as a person or an individual and not as a business entity. This may be a DBA (Doing Business As) situation but it is still going to use your personal credit information for your ability to finance. In the event that you do have a business and have set up an LLC or other type of company you will probably have to provide your personal credit information as your business credit file will be non-existent or very minimal. A thin file, where you have little credit history as a business, can actually work against you so if you have a good personal credit history it may be the better option.
Get copies of your three credit reports, they are available for free online, and make sure that there are no inaccuracies. These can often be corrected by directly contacting the credit reporting agencies and providing information that shows that you have made payments or disputing any mistakes. As this can take weeks or months for the corrections to appear on your reports get started on this as early as possible.
Pay Down Your Debt
Another aspect of your credit score, besides how responsibly you make payments on your outstanding loans, credit cards and debts, is how much you owe compared to how much you make. If your debt to income ratio is high, in other words you owe almost as much as you make, your credit score will drop dramatically. By paying off your debts, including credit cards and loans or boosting your income you can help to raise your total credit score.
Again, this is not going to be immediately reflected in the actual number of your credit score or rating. Starting well in advance of your purchase of the tractor trailer will be essential to get that credit score moving in the right direction.
Avoid opening new credit cards for the business and using them to fund the company start-up. This is a big mistake that can really drop your credit score as lenders see that debt to income ratio and may see you as a poor lending risk.
Look At Your Options
There are several different options you may have for getting financing for a truck. You may be able to get a small business loan that can be used for equipment purchases; these tend to offer competitive interest rates and reasonable terms. Banks and financial institutes, especially if you have a history as a customer, can also be a good option. Don't automatically write off your bank, they may be willing to work with you to create a loan that has a lower interest rate than what you may find through other options.
Dealerships, if you are buying new or used, are typically the most willing of all the traditional types of lenders to finance a semi-truck purchase. They do use your credit score as a basis for the loan and, in most cases, you will pay a slightly to moderately higher interest rate when going through the dealership.
Depending on your credit score and the actual value of the truck, you may have to come up with a significant down payment. In most situations the lower your credit score the higher the down payment required. You may also find that you are hit with higher interest rates as well from the dealership.
Private lenders may also be an option; there are different groups that will lend to small businesses. It is important to carefully review the terms of the loan agreement with these companies, as with any lender, and ensure that any fees, charges or costs associated with the loan are not going to result in much higher monthly payments than you actually thought you were going to have to make.
To ensure that you get the maximum financing possible it is important to start looking at your financial health well before you decide to make your first purchase. Ideally you will be using some of these strategies already and the earlier that you start the better off you will be. Keep in mind that next to a house or property, buying a new truck or even a good used truck is going to be your biggest purchase.
Check Your Credit Score
Most people buying their first truck are going to be buying it as a person or an individual and not as a business entity. This may be a DBA (Doing Business As) situation but it is still going to use your personal credit information for your ability to finance. In the event that you do have a business and have set up an LLC or other type of company you will probably have to provide your personal credit information as your business credit file will be non-existent or very minimal. A thin file, where you have little credit history as a business, can actually work against you so if you have a good personal credit history it may be the better option.
Get copies of your three credit reports, they are available for free online, and make sure that there are no inaccuracies. These can often be corrected by directly contacting the credit reporting agencies and providing information that shows that you have made payments or disputing any mistakes. As this can take weeks or months for the corrections to appear on your reports get started on this as early as possible.
Pay Down Your Debt
Another aspect of your credit score, besides how responsibly you make payments on your outstanding loans, credit cards and debts, is how much you owe compared to how much you make. If your debt to income ratio is high, in other words you owe almost as much as you make, your credit score will drop dramatically. By paying off your debts, including credit cards and loans or boosting your income you can help to raise your total credit score.
Again, this is not going to be immediately reflected in the actual number of your credit score or rating. Starting well in advance of your purchase of the tractor trailer will be essential to get that credit score moving in the right direction.
Avoid opening new credit cards for the business and using them to fund the company start-up. This is a big mistake that can really drop your credit score as lenders see that debt to income ratio and may see you as a poor lending risk.
Look At Your Options
There are several different options you may have for getting financing for a truck. You may be able to get a small business loan that can be used for equipment purchases; these tend to offer competitive interest rates and reasonable terms. Banks and financial institutes, especially if you have a history as a customer, can also be a good option. Don't automatically write off your bank, they may be willing to work with you to create a loan that has a lower interest rate than what you may find through other options.
Dealerships, if you are buying new or used, are typically the most willing of all the traditional types of lenders to finance a semi-truck purchase. They do use your credit score as a basis for the loan and, in most cases, you will pay a slightly to moderately higher interest rate when going through the dealership.
Depending on your credit score and the actual value of the truck, you may have to come up with a significant down payment. In most situations the lower your credit score the higher the down payment required. You may also find that you are hit with higher interest rates as well from the dealership.
Private lenders may also be an option; there are different groups that will lend to small businesses. It is important to carefully review the terms of the loan agreement with these companies, as with any lender, and ensure that any fees, charges or costs associated with the loan are not going to result in much higher monthly payments than you actually thought you were going to have to make.
