Truck Finance is easier than you think. For many trucking companies or owner operators, the thought of obtaining new finance for a replacement or new truck can often be daunting. Sourcing the right truck finance can be time-consuming and, in many cases, painful.
Securing the right truck is a crucial component of your business success. Just as crucial is sourcing efficient and effective truck finance. The following tips will make it easier to get the best truck finance for your next new or used truck.
PURPOSE OF TRUCK FINANCE
Have clear goals and visions of the purpose of your truck finance. The lender will want to understand the purpose for your new lending. Is the truck being used for business? Is the truck a replacement vehicle or is the business expanding and adding to it’s existing fleet? Maybe you are lending for a new business that has no track record in the industry? A lender will view your application more favourably if your goal is for increased profitability. Support this with evidence of past and potential income.
Many lenders will only lend to businesses that have an Australian Business Number (ABN) operating for a minimum of 2 years. There are, however, other lenders that don’t have this restriction. They require evidence of steady ongoing income to support the commitment of repayments. If you have been operating successfully with an ABN for longer than 2 years you will find more truck loan options available. You will have a wider choice of lenders and the interest rate is often lower.
NEW or USED TRUCK FINANCE
Lenders prefer new vehicles from a dealer for truck finance. Most banks do not approve truck finance for vehicles any older than 5 to 7 years. However, some banks will lend well beyond this age bracket. Finance for these older trucks will often incur a higher interest rate.
During these unprecedented times, the banks and lenders are competing fiercely for business. This fierce competition is demonstrated by competitive truck finance interest rates available for businesses with low risk profiles.
The added incentive of the $150K instant asset write-off has kept strong demand in the asset finance lending industry. The banks will however still need to be assured their money is safe and will be repaid. Most lenders are requiring a COVID-19 statement. In this statement business applicants are required to explain how their business has been affected by the COVID-19 restrictions. Banks require confirmation that the borrowing entity has sufficient cash, working capital and work in progress to trade through a 6 month downturn whilst still maintaining payments.
Different lenders will have different requirements and criteria for borrowers. It’s helpful to have an insight into what the lenders are looking for with a truck finance application. The industry commonly refers to ‘the 3 C’s’ that are the key to your successful application. This is your ability to display character, capacity and collateral.
A summary of your business history, along with an understanding of your industry experience can help the banks be confident that this is not your first ‘rodeo’ and you have ‘ridden a bucking horse’ before. Banks want to provide truck finance to persons with good financial track records and reputation in business. Documentation of financial statements, with evidence of ‘on time’ payments and revealing flow of income, will assist. They want to know you are a person of integrity with a willingness to repay your debt.
Lenders will want to know your ability to repay the debt. A strong surplus from the bank’s debt servicing analysis, will display a stronger ability to repay the debt. In other words, the stronger the bank perceives your financial position to be, the better your capacity to pay back the loan.
Collateral is the banks security position. Generally, the truck is the security. If you were to run into trouble, like going bankrupt and unable to repay the debt, the bank could sell the truck and recoup its funding. The bank usually will lend the full amount. Some lenders also prefer lending to property owners. The deposit and extras like the insurance can all be bundled into your truck finance.
TRUCK FINANCE APPLICATION REQUIREMENTS
Not all lending institutions have the same application requirements for truck finance. The following is what most banks will require:
Australian Business Number :(ABN) Many lenders require an ABN for truck loans to businesses that have been operating successfully with an ABN for longer than 1 to 2 years.
Tax Invoice: A copy of the tax invoice from the vendor with truck details like make, model, year, kilometres, engine number etc.
Rates Notice: If you are a property owner.
Bank Statements: If you are a new customer, statements from the last 3 to 6 months will give an overview of your existing customer conduct.
For different business types there are different identification requirements:
- Sole traders: ABN, Driver’s Licence, Business Registration Certificate
- Partnership: Partner’s Driver’s Licences, ABN, Business Registration Certificate
- Company: Director’s Drivers Licences, Australian Company Number (ACN)
- Trust: copy of the original Trust Deed
SHOP AROUND FOR TRUCK FINANCE
Just as it is important to shop around for the best price for your truck it is important to shop around for the best deal for your truck finance. Check finance features and rates.
Compare apples with apples. There are a number of costs associated with truck finance. It is not all about the rates. Whilst the rates have a significant bearing on the cost there are other associated costs. Some lenders charge ongoing account fees. These, over the term of the truck finance, can be quite significant. Often comparing the monthly repayments is the best way to compare loan offerings. However, make sure the terms of the loan are the same and the loans have the same balloon or residual amount. A balloon or residual is the amount owing at the end of the loan term.
Some finance products are very rigid, but truck finance is flexible. In these unprecedented times flexibility is needed for small businesses. Many industries requiring trucks are seasonal. If not seasonal, they often have a down time. The building industry, for instance, is renowned for extending the downtime of the festive break into the hot month of January. Most truck lending has the ability to align repayments with the business cash flow requirements. In other words the repayments can be organised when your business gets paid. Statements showing your cash flow and terms of contracts will give evidence for flexibility if needed.
Approaching an experienced Finance Broker to arrange your truck finance will save your business time and money. They know who has the most competitive deals for your business lending requirements. Will Finance, a finance brokerage firm that specialise in truck finance, can get your next loan application approved. Approvals can be as quick as 24 hours and up to 1 week for more complex applications.