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How Does Equipment Financing Work for Truckers?

While technically there are two types of equipment financing options; a loan or a lease, we will focus primarily on equipment finance via a loan as this is by far the better method for the majority of our truckers.

Purchasing a Truck/Trailer/Equipment.

Equipment financing comes from a loan paid directly to the applicant or the dealer.

This type of financing is structured around installment payments, with the total repayment amount including both the principal and an interest component. The interest rate, primarily determined by the loan amount, the lender’s terms, and the repayment schedule, can lead to a loan term ranging from several months to over a decade.

To safeguard their investment, lenders typically require a lien on the financed equipment. This lien serves as collateral, ensuring that if the borrower fails to adhere to the repayment terms, the lender has the right to claim ownership of the equipment. For truckers, the actual equipment (truck/trailer/equipment) is the collateral.

Equipment financing, like other loan types, requires applicants to meet certain qualifications and eligibility criteria, including specifics about annual revenue, credit scores, and a comprehensive business history. These factors enable lenders to assess the viability of the loan application.

Lenders might also request detailed personal and business financial statements and sometimes also a business plan outlining the company’s future growth prospects. This information provides lenders with a deeper understanding of the business’s operational framework and growth potential.

Loan to value calculations play a part in loan size.

While the specific terms can vary, it’s common for lenders to offer less than the full purchase value of the equipment, known as ‘loan-to-value’. This is typically up to 80% of the equipment’s cost. For instance, for a $20,000 equipment purchase, a lender might offer $16,000, with the interest rates on such loans varying widely from as low as 4% to as high as 30%, depending on the lender’s policies and the borrower’s creditworthiness.

Not all lenders are the same.

It’s crucial to recognize that not all lenders or equipment vendors operate under the same conditions. Some lenders are more expensive than other or have high closing costs, especially for truckers with less than stellar credit. It’s essential to thoroughly review all agreements and understand the terms before proceeding with the application.

Of course, any business looking for financing should certainly look to secure an SBA loan for the equipment as a first choice. This is because of the unique way the SBA has designed their loan programs makes payments easier and spread out over a longer period.

Learn more about how to apply for an Equipment Finance Loan with BLF

BLF is here to assist you

Our goal is to provide you with expert help and guidance for you needs. Whether you need funding or business services for your trucking company, you are in reliable hands.

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