Time Plays A Crucial Role In Securing Commercial Financing
If you are looking to purchase a new or used truck or commercial equipment to grow your fleet and business, you probably wonder how to secure a good loan. We all know that time is precious. Time also plays a crucial role in securing commercial financing. Like Commercial Fleet Financing (CFF), lenders often require that a trucking or transportation business be established for a specific time before being eligible for most financing programs. So, when it comes to truck or equipment financing, what does it take to get approved for a loan? What kind of credit do you need?
Why Time in Business is Important for Securing a Loan
It is standard procedure for every lender to ask how long you have operated your business. The longer you’ve been in business, the better it is for your application because it shows a lender that your business is financially sound and has had long-term success.
Ultimately, the threshold that you should keep in mind is three years, while some industries may only require two years. If your business is less than two years old, it doesn’t make it impossible to get a business loan, but it does limit your options.
Qualified trucking and transportation business owners who have operated their businesses for three or more years have a more substantial chance of being approved for commercial business loans. At the three-year plus mark, business owners have already achieved some forward momentum in their business, and they can take on more debt obligations. Business owners, who have been in business less than two years, may be declined for a commercial business loan due to time in business (TIB). So, time in business becomes vital for qualifying for and securing a good loan.
Commercial Fleet Financing’s ideal customer profile has at least five years TIB, primarily due to the abundance of financing options available for the customer, including low rates, great terms, and no money down financing.
Two Or Three Years In Business
With two or three years in business, you may also qualify for those same great rates as long as you maintain a good credit score and home ownership. If you have a lower credit score, count on making a down payment toward a new or used commercial truck purchase. And being a homeowner provides a comfort level to our underwriters and adds another layer of protection.
Startups are a high risk to underwriters. If you own a startup, underwriters will want to see your financial commitment. Startups with good terms can be approved with at least 20% or more down payment. Down payments give you equity in the truck, and it keeps you above your costs.
Usually, CFF doesn’t recommend going above a five-year term if you are buying a new truck or equipment with 10% down. Financially, this five-year term works well for your business if you are pulling general freight. CFF is always on your side and doesn’t want you to become truck broke where your payments versus your revenue don’t balance out correctly.
CFF also recommends using the free CFF Budget Builder tool to make more informed buying decisions. The tool helps you determine the profitability of your desired equipment purchase.
Age of the Equipment –The Heartbeat of the Loan
The age of the equipment will drive the term. An older vehicle with higher miles won’t get a 60-month term. The equipment depreciates over time. Therefore, you should also factor in overhaul costs and what kind of maintenance and repairs are necessary as the truck ages and miles increase.
In certain applications, you don’t necessarily need to buy used equipment. When purchasing used equipment or a truck, consider the following factors. Facing a stream of repairs and maintenance as your equipment ages can get expensive and complicated. The lease term and rate will be higher. It would help if you considered your finances as you may have to repair older vehicles with thousands of miles. You will need some cash reserves if your used truck needs repairs.
Keep in mind this question: If your truck is in the shop, how can you pay your bills, especially if you only have one truck in your business? If you are considering buying a used truck, then CFF suggests that a mechanic looks at the used truck to give a second set of eyes toward the quality of the truck. CFF recommends looking at newer vehicles and equipment versus older equipment with high miles.
The Importance of Building Good Credit
Good credit always helps in securing a loan. Once you’ve started your business, it’s a smart idea to establish accounts with lenders and vendors that will report payment history to the business credit bureaus. Some lenders will check business credit and may look at the information the business credit bureaus report to confirm the time in business you stated on your application and other relevant factors.
Watch this video on FICO scores, including factors that can affect your score.
Contact CFF Today (Even If Your TIB is Less Than Two Years)
Once you have organized your financial statements and are prepared to tell the story about your business and financials, contact CFF to help you grow your business. CFF’s team of experts will help you figure out the best financial option to empower you to be more successful.
Committed to helping customers grow their businesses, CFF has funded over $1 billion dollars to over 10,000 clients and maintains annual funding above $150 million. Commercial Fleet Financing is America’s most trusted commercial equipment finance firm and a market leader in the commercial truck and equipment financing industry.
About Commercial Fleet Financing, Inc.:
At Commercial Fleet Financing (CFF), our pros have given smart advice to fleet owners and owner-operators in the transportation, moving, towing or construction industries for more than two decades. With CFF, finding the right financing solutions is a phone call away and most borrowers secure commercial vehicle financing with ease. To talk directly with one of our finance pros and get started with credit approval in as little as two hours, CFF’s phone number is (469) 281-2962.