Commercial truck financing enables motor carriers and owner operators to purchase a truck without paying the total amount upfront.
It’s an effective and affordable way to scale up your business without tying up your working capital.
Our guide below covers everything you need to know about commercial truck financing - including rates, requirements, and recommended lenders.
Commercial truck financing is when a business owner takes out a loan to purchase a truck. In most cases, the truck acts as collateral for the loan.
To understand commercial truck financing better, let’s take a look at the difference between financing and leasing.
Capital Leases - also known as “finance leases” - function similarly to loans but the trucking company technically doesn’t own the asset until the end of the lease agreement. This has accounting and tax implications so companies should speak to an accountant or tax advisor to see if this option makes sense.
A lease-to-purchase agreement is when an owner operator leases the vehicle from their employer and makes monthly lease payments before eventually owning the vehicle. These rarely make financial sense for drivers so be cautious and read the fine print before entering into this kind of agreement.
Commercial truck financing works similarly to other types of loans. The borrower provides a down payment to the lender, who provides the rest of the money to purchase the vehicle. The borrower then makes regular payments to repay the loan plus interest.
Below we cover the main components of truck financing in more detail.
Down payments can vary widely, ranging from 0% down to 35%+ depending on the borrower’s background and the lender. However, most lenders require 10%-20% for borrowers with good credit.
Rates are impacted by a number of factors including the federal funds rate, a company’s credit score, experience, business finances, and the type/condition of the truck.
Lenders often charge fees in addition to interest to cover the cost of the application and administration.
Fees can include:
Ask your lender about the annual percentage rate (APR) of the loan to find out the actual cost of repayment. This rate will include any additional fees.
Most lenders offer payment terms of up to 7 years but some will go up to 10 years.
Banks and credit unions typically offer longer terms compared to other lenders.
Commercial truck financing has tax implications for your business.
The interest on your commercial trucking loan is tax-deductible as a business expense.
For companies using cash-based accounting, that means whatever you spend on the equipment in year 1 will be recorded as a business expense as well as the interest payments for the rest of the term.
If your company is using accrual-based accounting, IRS Form 4562 can be used to claim deductions for depreciation. While depreciation is usually spread over multiple years, Section 179 allows truckers to record all of the depreciation in year 1 using Form 4562.
An SBA loan is a specific type of business loan that is backed by the Small Business Administration.
Unlike conventional loans, the SBA guarantees up to 85% of the loan for loans up to $150,000 and 75% for loans over $150,000.
Here are the top advantages and disadvantages of SBA loans:
Annual interest rates can vary widely depending on the federal funds rate and the borrowers credit profile. While borrowers with great credit and trucking experience can sometimes find rates as low as 5%, those with poor credit may be stuck with rates as high as 30%.
Factors that impact interest rates for loans include:
If you’re applying for commercial truck financing, here’s how you can expect lenders to evaluate your application:
Lenders will look at your credit score to assess your eligibility. If you have bad credit or no credit, this will usually affect the financing terms.
If you have bad credit, getting a commercial truck loan is still possible, but you may have a bigger down payment and a higher interest rate. You will likely need to work with an alternative lender and not a bank or credit union.
Like bad credit, having no credit history also makes you a high-risk borrower. You may still be able to qualify for a commercial trucking loan but the down payment and interest rate may be higher.
When you apply for commercial truck financing, the lender will do a hard credit check.
A hard credit check generally happens when you apply for something - like a loan, credit card, or line of credit - and they appear on your credit report.
A soft credit check has no impact on your credit score - this includes personal credit checks, as well as insurance applications, and employment applications.
There is no limit to the number of soft credit checks you can have. But hard credit checks can lower your credit score.
Having multiple hard credit pulls can be a red flag for lenders as it suggests that you might have an unstable financial situation.
Keep this in mind when you’re applying for financing as hard credit pulls may affect your ability to obtain a loan in the future.
Most lenders require a down payment but it is also possible to find lenders that don’t. If you opt for a no-down payment loan, you can expect a higher interest rate. No down payment loans are sometimes referred to as “100% financing.”
Most lenders expect owner operators to have at least 2 years of commercial experience. If you have less than 2 years of experience, the down payment may be larger coupled with a higher interest rate.
Lenders will evaluate your business finances, including tax liens, repossessions, or delinquencies.
In most cases, your loan collateral will be the truck itself. You may also need additional collateral to qualify. This could be business assets like an existing vehicle or property.
Lenders will want to know the following info:
Who you buy your truck from could also impact your ability to get favorable loan terms.
In many cases, it can be easier to get a loan if you buy from a dealership because the lender has more assurance of the condition of the truck.
Commercial truck financing usually requires commercial insurance. This can include:
Banks and credit unions tend to offer longer repayment terms and lower interest rates than other lenders.
However, banks and credit unions are usually harder to qualify for than other types of lenders.
Most alternative lenders specialize in equipment financing or helping borrowers that may not qualify for traditional financing.
Borrowers with good credit will likely find these companies easier to work with than banks or credit unions and their rates can be competitive. These lenders can also be a great fit for borrowers with poor credit as they typically have lower qualification requirements. However, borrowers with bad credit should expect higher interest rates, fees, and shorter repayment terms.
While technically a form of alternative lending, in-house financing is unique because the truck dealership provides the financing. While it can be convenient and dealerships are more likely to fund borrowers with poor credit, it’s also coupled with higher interest rates and fees for those borrowers.
Borrowers with a strong credit profile may find in-house financing to be a convenient option as long as the interest rates are comparable to other options.
If you opt for in-house financing, make sure you are borrowing from a reputable company.
First-time buyers who may not qualify for traditional or SBA loans should start by looking into state-assisted programs like the California Air Resources Board (CARB) Truck Loan Assistance Program. These state-assisted loan programs can be a viable route for small businesses looking to purchase a semi-truck for the first time.
When state-assisted programs aren’t available, alternative lenders can also be a great option. Many alternative lenders offer first-time buyer programs and some even offer 0% or $1,000 down payment programs. The rates for these loans will depend on your credit score, personal finances, past driving experience, and business plan.
The financing process will vary depending on the lender and loan type but here’s what to generally expect:
Before you apply for your loan, check your credit score and your business/personal finances to make sure you don’t have any outstanding tax liens or missed payments.
Be prepared to provide details about your business:
Details about yourself or a guarantor:
And details about the vehicle:
The lender will assess eligibility based on the information supplied and the process can take anywhere from 24 hours to several months.
As the name suggests, Commercial Fleet Financing, is a specialty lender that exclusively focuses on transportation equipment financing. They are able to give borrowers credit approval within 2 hours and can deliver loan funds within 24 hours, making them one of the easiest lenders to work with for new and established companies.
CFF is willing to fund purchases from private sellers or dealers and has a number of programs for individuals with poor or no credit. While the company does offer no down payment options for borrowers with good credit, those without a good credit score will need to put 20% down. For established businesses, CFF does not require a personal guarantee for established businesses.
In addition to semi-trucks, CFF also finances trailers, tow trucks, box trucks, construction equipment, and light/medium duty trucks.
CAG Truck Capital is a direct lender that specializes in semi-truck financing exclusively. In addition to truck purchases, the company also finances engine overhauls.
CAG can approve borrowers in as little as 24 hours. The company is willing to work with borrowers with great credit as well as borrowers with poor credit and even those that have declared bankruptcy or those with a tax lien. CAG will also finance startup trucking companies and is willing to finance high-mileage vehicles.
US Bank offers flexible financing solutions with an easy application-only process for vehicles up to $150,000 and no down payment required. Unique among lenders, US Bank does not file a blanket lien against the borrower’s business, only on the financed assets.
Borrowers are able to structure payments according to their cashflow are able to pay on a monthly, quarterly, or annual basis and payment terms can range 24-60+ months.
While US Bank offers SBA loans, the terms will differ from their traditional financing program listed above.
Wells Fargo can be a great option for established businesses but they have stricter requirements than most of the direct lenders on our list. They don’t work with new companies, requiring businesses to have been in business for at least 12 months and to have at least $100,000 in annual revenue and a credit score of 600+.
The company will finance semi-trucks as well as specialty vehicles like tow trucks and offers terms of up to 84 months. Borrowers with strong credit scores can also finance 100% of the vehicle with no down payment options available.
While Wells Fargo offers SBA loans, the terms will differ from their traditional financing program listed above.
Trucker Lenders USA is a specialty direct lender that focuses on a wide range of truck financing including semi-trucks, box trucks, car haulers, dump trucks, water trucks, and more.
The company can provide same-day approvals in as little as 2 hours but has stricter borrower requirements than other direct lenders. For equipment financing, the company requires a minimum credit score of 675, the business to have been in business for at least 2 years, and commercial truck references. Truck Lenders USA also requires trucks and trailers to be 7 years old or newer.
Freedom Truck Finance is a direct specialty lender that focuses on class 6, 7, and 8 vehicles exclusively.
While the company can be a good option for established individuals or companies, they are not a great option for borrowers with poor credit. The company requires a minimum down payment of 20%, sufficient collateral, and in many cases prefers to work with companies that have a so-signer.
Volvo offers in-house financing on new vehicles and certified used vehicles. Terms last up to 72 months and 100% financing options are available. The company offers financing flexible terms as well as leasing and rental solutions.
While primarily a transportation company, Ryder also has a used truck marketplace where companies can find the used vehicle of their choice and finance it with Ryder.
The company offers a number of promotions including no money down and minimal payments for the first 3 months. Ryder also offers discounts to veterans, American Trucking Association members, and Women in Trucking Association members.
If you have good credit and long-term experience in the industry, a loan from a bank or credit union is usually the best option as they typically offer lower interest rates and longer repayment terms than other lenders.
Alternative lenders and in-house financing can be great options for borrowers with bad credit or no credit.
Traditional lenders like banks and credit unions typically require a credit score of 600 or more. Those with a lower credit score (or no credit at all) will typically need to work with an alternative lender or in-house financing team.
Commercial truck loans typically last 12- 84 months but some lenders offer terms of up to 10 years or more.
Yes, it’s possible to refinance a commercial truck loan.
While monthly payments can vary widely depending on the value of the truck, the down payment, and the interest rate, example payments can still be helpful. Assuming a borrower financed a $100k vehicle at a 6% interest rate while putting 20% down, their monthly payment would be approximately $1,168.
A new semi-truck typically costs $100,000-$200,000 depending on the make, model, and dealership.
The average price for a used semi-truck was $86,732 as of August 2022.
Technically, you don’t need a commercial driving license (CDL) to purchase a semi-truck but in order to drive the vehicle you’ll need a CDL.
If you are applying for a commercial truck loan without a CDL, you may be classed as a high-risk borrower. The lender may require that you demonstrate how the purchase will be a worthwhile investment for your company. For example, if you are in a trucking partnership, your partner could have a CDL.