Financing your equipment

| October 16, 2001

The more you tell a potential lender about yourself and your operation, the more comfortable he will be lending you money. Show that you are a businessperson first and a truck operator second. You’ll need a budget, a business plan and a cash-flow statement. If you aren’t comfortable with your ability to create these documents, get an accountant’s help.

A detailed budget assures the lender that you can meet the financial obligations of owning a truck. A cash-flow statement shows that your projected revenue will be sufficient to meet current obligations. A business plan outlines the types of freight you’ll haul, the traffic lanes you’ll run and the rate you’ll be paid. It also lists a contact at the company you plan to lease to.

Bring your lender a list of credit references, even if you don’t have a perfect credit history. It’s also a good idea to get a copy of your credit report before you attempt to secure equipment financing. Your credit history could contain wrong or derogatory information that you’ll want to explain to a potential lender.

Financing sources

Check around for the lender that best suits your needs:

  • Banks. Banks feel that rolling collateral – a truck that is in New Jersey one day and Nebraska the next – is not a good risk. If you’ve been doing business at the same bank for a long time, however, it’s worth a try if your credit is good.

  • Captive lending institutions. These finance companies are owned by manufacturers. They are often more willing than banks to lend money to new owner-operators because they are in the business of selling trucks.
  • Commercial lending institutions. These finance companies are not necessarily affiliated with truck manufacturers but do cater to the trucking industry. In some cases, you can fill out an application online.
  • Truck dealers. Your truck dealer may provide financing.

Getting the money

No matter where you obtain financing, all lenders look for certain things in their borrowers. The following things can affect your interest rate:

  • Credit history. The better your credit, the better your interest rate. Cutting two or three percentage points will save you thousands of dollars in interest over the life of a loan.
  • Stable job history. If you’ve had three jobs in the past 12 months or five in the past three years, it sends an alarm to a lender.
  • Longtime residency. People who live at the same address for a long time usually have a better credit rating than those who move every few years.

    It’s a misconception that finance companies have one interest rate that is carved in stone. You can negotiate the price of money as surely as you can the price of a truck.

    Interest rates are different in different parts of the country, and finance managers have a good deal of leeway when setting the rate for your transaction. You can live in Alabama but get financing through a lender in Ohio, for example. Shop around, not only for the best sticker price, but also for the best financing.

    For particular situations, some finance companies offer creative solutions, such as:

  • Variable rates. Sometimes you can get a variable rate rather than a fixed one. This is a good deal if the rate holds steady or drops, but if rates go up, your interest costs go up.
  • More principal up front. Some loans can accelerate principal and interest payments; therefore, they decline over time. With lower payments in the latter part of the loan, more cash is available for truck maintenance or saving for the next down payment. One common example of this type of financing is the 60/40 accelerated payment.
  • Skip-payment plan. Designed for seasonal truckers, this plan allows you to miss a payment or two during times of slow freight. You make the arrangements at the time of purchase.

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