Commercial Truck Loans: What to Know if Financing

Maybe you’ve been a trucker for 2 months or 20 years, or maybe you’ve never even been behind the wheel of a big rig. But if you’ve been paying attention to the industry, you probably know that the US is facing a huge driver shortage. That need means there’s an opportunity for new business, which is music to an entrepreneur’s ears.

In 2005, there was a shortage of roughly 20,000 drivers, according to a report by the American Trucking Associations. Then the 2008 recession hit, and the shortage disappeared—until it grew to 38,000 in 2014. The trucker shortage is now estimated to be 60,000 and could grow to 100,000 in a few years. Growth of online retailers like Amazon and Walmart is partially to blame, paired with experienced drivers aging out. On top of that, the trucking lifestyle has long struggled to attract women. Millennials aren’t eager to jump on board either.

And if you’re looking to get into trucking for the money, working for a major company might not be the way to go. Trucker salaries are subpar in many states, and big companies know exactly where to cut corners. But with some business acumen and resources, becoming your own owner-operator could be more lucrative than working for an existing company.

Before you explore commercial truck financing options, you’ll need to get your affairs in order. Here are three things you need before starting your trucking business:

1. A Solid Business Plan

Putting together a detailed business plan benefits you both as a business owner and as a borrower when it comes time to get financing. Flesh out details you’d find in a traditional business plan, such as:

• Business Structure and Management: Do you plan to register your company as an LLC or sole proprietorship? Are you going alone or with a business partner? What size will your fleet be? Having a clear understanding of how you plan to run your business will give you an understanding of where to prioritize your time and money.
• Financial Projections: How much do you expect to earn over the next few years based on your plans and approximations? When do you hope to turn a profit? How much will you be spending on equipment? Projecting your expenses will help you determine how much you should borrow and how quickly you’ll be able to repay your truck loans.
• Funding Calculations: How much money do you need over the next few years to get your business up and running? Borrowing too much or too little due to a lack of research could be detrimental.

There’s a lot more to writing a trucking business plan, so it’s key you do your due diligence. A solid business plan gives you a strong foundation for launching a successful new business.

2. A Good Credit Score

As a new startup with no business financials or business credit history, a small business loan isn’t always an option. Banks might not even give you the time of day. But there are other commercial truck financing options, and your personal credit score will likely be a major factor for consideration.

Before you start filling out applications or talking to prospective lenders, make sure your credit score is satisfactory. Generally, you’ll want a credit score of at least 680 but the higher, the better. A poor credit score can be a barrier to funding, whereas a higher credit score can both increase your chances of qualifying for funding and get you a lower interest rate when you get approved.

Research what factors impact your credit score the most to identify actionable ways you can improve it. For example, credit utilization ratio—the amount of credit you’re actively using versus the amount of credit you have to your name—accounts for 30% of your FICO 8 credit score. So carrying a lot of debt on your existing credit cards could lower your credit score significantly. Paying off some or all of that debt can have a positive impact on your score, making you more desirable to lenders. Make an effort to check and improve your credit score before you seek business financing.

3. A Clear Understanding of How Much Funding You Need

Are you going to buy or lease commercial trucks? Are you going to have a fleet of drivers or drive them yourself? How many people will you hire? How much will you pay your drivers? Until you have a clear understanding of your business financials—which you can calculate as you develop a business plan—you won’t truly know how much funding you need, nor will you know how much you’ll need to make to start paying it back.

Without projecting detailed financials, you could end up in a situation with too little or too much funding. Picking a number out of the air won’t work either. You might think $50,000 is all you need to get started, but once you’re in the weeds, you might realize you need a very different amount.

You’ll never be able to predict every little detail, but with ample research and resources, you should be able to come up with a funding amount that makes sense, at least for your first year or two in business. And that can make the process of getting funding much easier and faster.