Commercial Truck Financing: What You Need to Know

Business / Financing

Commercial Truck Financing: What You Need to Know

Other than the consumer, trucking is the backbone of American commerce. How does it work, though? Much like personal car financing, commercial truck financing is structured in payments over a term until the truck is paid off. Financing is convenient for your customers because commercial trucking is an expensive investment, and financing these purchases can give them an easier way to expand their business without having to buy upfront.

Outright purchases expend exorbitant amounts of capital, but financing gives them a more digestible way to pay by spreading it out over an extended period of time, like a personal car loan. But unlike a personal vehicle, commercial vehicle financing uses different terms: operating or capital leases. To understand what you should offer your customers, it’s important to understand how commercial truck financing works. 

Operating Leases

With operating leases, your customer will never actually get to own the vehicle. If you’re looking for more lease-to-own options, this probably isn’t the choice to offer your customers. Nevertheless, we’ll break it down.

Operating leases are essentially renting. When your lease is up, they return the truck, or you can cancel the lease and return the truck. With this, the truck never belongs to the customer. Operating leases can be convenient for them if they want to keep up-to-date equipment and switch things out every few years.   

Capital Leases

According to Smart Trucking, capital leases are lease-to-own options. At the end of the lease – when they finish paying – the vehicle becomes theirs. Like a personal car loan, they’re responsible for the upkeep and maintenance of the vehicle, along with the taxes and ownership costs. 

Again, according to Smart Trucking, lease terms for semi-truck financing exceeds 75% of the estimated life of the truck, and usually are around 48 to 60 months. A large perk of capital leases is that they can be deducted as an operating expense on federal taxes, so this is a good way to advertise to your customers the advantages of financing their equipment. 

What Should You Know About Truck Financing? 

There are several factors you should base your decision to offer financing around. Lenders will pay attention to your customers’ personal or business credit score and their experience. The types of financing available will also depend on their time in business, if they want to put money down, if they want a fleet, and the types of trucks they’re looking at. Not every customer will qualify for financing, but it can be highly beneficial to your bottom line if you open up that option. 

How Does Truck Financing Benefit your Business?

Trucking is vital to many small businesses’ success, and as a commercial truck dealer, you probably already know this. That’s why leaning into that demand can be a huge advantage.

Offering to finance commercial trucks can offer up your services and your products to more businesses looking for commercial trucks. Those who may have been deterred by purchasing a truck outright will have a way to get what their business needs through financing. This opens up your customer pool and gives you the ability to close more deals.

Financing, fundamentally, gives customers an easier, less-stressful way to cover the cost of such large purchases by splitting it up over several years. Your customers pay the lender, while the lender pays you the amount in full. You don’t have to keep track of their monthly payments, and the entire process is a cakewalk. 

What Does It Mean For Your Customers?

According to Seek Financial, there are three big positives for your customers:

  1. Commercial truck financing can give them a competitive edge. Especially for startups, financing their trucks can help them gain the initial revenue they need and have a way to get their products out. Even for established companies, it’s sometimes hard to wait on capital to make moves – they have to go for it in order to succeed.
  2. They don’t have to use their own money. Smaller businesses usually don’t have the excess cash flow to purchase upfront, so financing give them a way to use that daily cash flow for other needs.
  3. Financing can be structured to meet individual business needs. Depending on the type of business, financing can give them a more flexible way to get the vehicles they need. There are different options and different terms that will maximize their outputs.

As with any financing, there’s going to be a few drawbacks. This is why it’s important your customers have a good business plan, a good credit score and a clear understanding of the amount of funding they need, or they could end up in worse shape than before. Commercial truck financing does raise the cost of doing monthly business – and their business success could hang on their ability to pay – but if they need the equipment, it’s usually worth the investment and risk. As a vendor, it’s important you let your customers know all these benefits and risks before they take on commercial truck financing.

If you want to start offering financing, or are using a broker and want an easier way to offer financing, FaaStrak is your answer. We automate the financing process and give your customers the excellent customer service they deserve. For more information, sign up for a demo today.

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