Posted on: 6 May 2016Share
If you are an owner-operator and are looking to buy a semitruck, it can be difficult to find financing. This is especially true if you are a new owner-operator. However, if you know what finance companies are looking for, you can increase your chances of getting approved for a loan and purchasing your own truck.
A Positive Company History
Many financial institutions may be unwilling to finance a truck for an owner-operator who is currently starting their own business. This is because the first few years of a business are often the most difficult, which makes a new owner-operator more of a risk for defaulting on their loan if they decide to not continue their business.
You might consider leasing a truck for a year or two to gain experience as an independent owner-operator and then use that experience to bolster your loan application. If you already have experience as an owner-operator, even if it is not recent experience, make sure that you include that on your application.
A Second Source of Income
One of the biggest risks of financing an owner-operator is that they often rely on their one truck for the income that they will use to make their loan payments. If the truck is damaged or you are injured, you may not be able to continue making your payments on time. If you can prove that you have another way to meet your financial obligations, your chance of approval will be increased. Passive income is ideal, but having other sources of income for your trucking business, such as a partnership with other owner-operators, could be helpful.
Proof of Cash Reserves
You might assume that making a larger down payment will increase your chances of getting a loan for your truck. However, it may be a good idea to hold some of your down payment as a reserve. This way you will be able to prove that you can make payments even if there is an emergency and you are unable to work for a period of time. You should talk to your loan officer about how much cash you should have as a reserve, but at least a few months worth of payments is ideal.
A Significant Down Payment
If you can prove that you have cash in reserve to cover emergencies, increasing your down payment will help you receive financing. This is because the financial institution will have less money invested in the truck in case something goes wrong and you default on your loan. Most owner-operators can expect to pay at least 10–25% as a down payment for their truck. However, in some cases, the down payment will be higher or you may need to offer additional collateral on the truck. This occurs when you do not have a solid business history as an owner-operator, you do not have cash reserves, or you have a bad credit history.
A Newer Truck
Newer trucks are easier to finance than older trucks. This is because if the lending institution comes in possession of the truck, it will be easier for them to resell it. Additionally, a newer truck is often seen as more reliable and less likely to break down, making it more likely to consistently earn money for you. While you do not need a brand-new truck, you should try to get the highest-quality, newest truck that you can reasonably afford.
Purchasing your own truck as an owner-operator makes financial sense. However, it may take some long-term planning to be able to reach that goal. Talk to a lender if you have specific questions about your ability to secure semitruck financing.