Types Of Semi-Truck Financing | Bankrate

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Semi trucks are a key piece of equipment to help you deliver goods to warehouses and businesses, but they can cost anywhere from $70,000 to $200,000 to purchase, a significant amount of capital. Semi-truck financing can help you get the semi truck on the road without sacrificing cash flow in your business.

Yet there are a variety of business loan options that you can use to get semi truck financing. Learn about the different types of semi-truck loan options and consider the advantages and disadvantages of each, so that you can make the best decision for your business.

Equipment loans

An equipment loan is a special type of term loan designed specifically for buying equipment and machinery, such as a semi-truck. Equipment loans use the equipment you buy as collateral to secure the loan. The loan amount is usually equal to the cost of the equipment, giving you the capital to make the purchase.

Since equipment loans are secured, lenders are often willing to offer lower interest rates. Well-qualified borrowers may also see rates as low as 6 percent, while businesses with poor credit might pay 30 percent or more.

Equipment lines of credit

An equipment line of credit is a type of loan that is designed to help companies buy equipment. Unlike term loans, lines of credit give you access to a pool of cash you can draw from multiple times on an as-needed basis. You can keep drawing from the line of credit until you hit the credit limit, and you only pay interest on the outstanding balance of the line of credit.

Interest rates for lines of credit can be higher than term loans, ranging from 8 percent to 60 percent APR or more. Loan amounts may also be capped at $100,000 or $250,000, depending on the lender. However, the benefit is that you may be able to use the loan for costs outside of the equipment purchase, such as paying for shipping, installation or repairs.

SBA loans

SBA loans are business loans insured by the U.S. Small Business Administration. This insurance helps protect lenders from losses when borrowers default, which means lenders can offer easier approvals and large loans, upwards of $5 million.

There are a few different SBA loan programs that you can use to buy a semi truck.

Common uses for semi-truck financing

If you’re in an industry that requires a semi truck, a reliable vehicle is essential. As semi trucks are an expensive asset, financing is appealing to many businesses.

Some common uses for semi-truck financing include:

• Purchasing a new or used truck
• Assistance with repairs or updates
• Engine overhauling

Semi-truck financing vs. leasing

Semi-truck financing makes sense in many cases when you need a semi truck for your business but don’t want to shell out the full cost up front. It also works best if you’d like your business to retain equity in the truck as an asset, which you can sell later to recoup your investment.

However, semi-truck leasing may work better in certain scenarios, such as:

• You don’t qualify for semi-truck financing. Leasing is also a good option if you don’t meet the lender’s requirements to get financing. Most lenders want to see a few months or years in business, a track record of profit and a minimum credit score. Leasing can give you time to build your business and your business credit.
• You don’t have the capital for a down payment. If you can’t make a 10 percent or 20 percent down payment for semi-truck financing and pay the other costs of financing, you can get a lease. Leases don’t typically require you to put money down, freeing up money that you can use to grow your business.
• You need the most up-to-date equipment. While semi trucks can last a long time, you may choose to lease if you want to stay in a new semi truck. You may not want to deal with the upkeep of a used semi truck, which could require repairs and maintenance. Leases also can come with maintenance packages, which help you repair your truck without as many out-of-pocket costs if your truck breaks down.

Alternatives to semi-truck financing

While there are benefits to obtaining a semi-truck loan, this type of financing won’t be right for every business. Instead, you can choose from these alternatives to semi-truck financing.

• Business line of credit. A business line of credit is typically revolving, meaning your credit line replenishes as you pay back what you’ve spent. You can typically use a line of credit for any business expenses, but they often have lower credit limits than other types of business loans.
• Term loans. With a term loan, you get a lump sum of cash upfront and pay it back through a series of regular payments. Term loans can be secured or unsecured and used for almost any business need. Repayment terms for term loans will vary, often ranging from a few months to five years or more.
• Invoice financing. If your business collects invoices from customers, you could use invoice financing to receive up to 90 percent of the invoice amount. You then repay the loan once customers pay the invoice, plus financing fees. If you choose invoice factoring, the factoring company will collect the invoices for you.

Bottom line

Semi trucks are an expensive investment but a key tool for many businesses in many industries. Whether you need to buy a truck to help move your company’s goods around or want to get into the industry as a truck operator, financing can help you achieve your goals.

There are several types of semi-truck loans you can use, including equipment loans, equipment lines of credit, SBA loans and semi-truck leasing. But before you sign on the dotted line, make sure to shop around and compare offers from multiple lenders to get the best deal.

Frequently asked questions

• What is a good interest rate for a semi truck?
  

  Semi-truck financing can have interest rates that range from 6 percent to 30 percent or more, but the right interest rate for you will depend on factors like your credit score, time in business and annual revenue. Established businesses with good credit and a track record of strong revenue will qualify for the best rates. If you are a new business or you have bad credit, you will likely see loans with interest rates of 15 percent to 35 percent or higher.

   

• What credit score do you need to finance a truck?
  

  To finance a semi truck, banks and credit unions tend to look for borrowers with strong credit scores of 670 and above. Online lenders have more relaxed requirements, often accepting personal credit scores of 600. Some online lenders will even go as low as a 500 credit score.

   

• What is the average life of a semi truck?
  

  The average semi truck has a lifespan of about 750,000 miles, according to the truck dealership Rechtien. But this can vary with the type of truck, its components, where it operates, and the maintenance it receives. Well-maintained trucks can last for 1 million miles or more. Poorly maintained ones operating in harsh conditions can die much sooner. The typical truck drives about 45,000 miles per year, meaning a truck can last for more than 15 years.