The Top 7 Things You Need When Applying For Truck Financing For a New Business
Getting truck financing is one of the hurdles you’ll face as a new truck business owner. However, if you know what big truck financing institutions want, you’ll stress less.
Truck financing plays an important role in the success of your trucking business. The sooner you can fund the purchase of a new truck, the sooner you can start making money with it.
And just like other types of financing, this process could be worrisome. That’s because truck business financing could be a drawn-out and complicated process.
But if you know what truck finance companies want, getting approved will be quick and smooth.
There are a number of important considerations to keep in mind. And in this article, we’ll talk about those prerequisites for getting approved for truck financing. This way, you can get funding for your new purchase and launch your business with ease.
The 7 Prerequisites
Prerequisite #1 – A Registered Australian Business Number
A new trucking business owner is required to get a registered Australian Business Number (ABN). After all, the ABN is required to operate a business in Australia.
An ABN is a unique 11 digit number issued to your business by authorities. It identifies your operation to the government and corporate entities. And truck finance companies need it to process your truck loan application.
If you’re the sole owner of your business, you’re required to get a Sole trader ABN. But if two individuals or more are involved in your business, a Partnership ABN is needed.
You can register for an ABN via the government’s Business Registration Service. It’s a free service.
Prerequisite #2 – Background & Work History
Every legitimate financing company wants to know who they will be doing business with. As such, they need documentation about your background and work history.
Specifically, they want to know if you’ve held down jobs as a truck driver or a heavy machinery operator in the past. That’s if you’re an owner-operator.
If not, they’ll be interested in the administrative structure you’ve put in place for the smooth running of your business. This includes having an office manager, a bookkeeper, or an accountant.
Your background and work history play a significant role in the approval of funds for your new vehicle.
Prerequisite #3 – Work Confirmation for New Truck
Since you’re applying for a loan to buy a new truck, the loaning company will need assurance that you can pay the loan back. So, you’re required to submit some form of work commitment along with your application.
This could be a work source letter from your clients. The letter would confirm that you’re their preferred contractor earning a certain amount each week.
But it could also be a work contract with a prospective client. It should state the contract terms and pay rates for the foreseeable future.
If a truck financing company is assured that you have enough earning potential, they won’t hesitate to approve your application.
Prerequisite #4 – Proof of Income and Expenses
Of course, your financial statements matter.
The financing company wants proof that you’ve earned money in the past. They’re also interested in your expenses. As such, you need to provide them with your business’s financial statements.
You also need to submit a cash flow projection of your business’ income and expenses for the next 12 months. This has to be prepared by an accountant, although the financing company may offer to help you with it.
Prerequisite #5 – Availability of Deposit Funds & Asset Backing
You need to provide a deposit to the truck vendor before your application gets approved. This will indicate your seriousness in getting the loan. It will also mitigate some risks the vendor might face later on.
If you can’t make an upfront deposit, the firm might accept collateral over things that you own. This could be a property, another vehicle, or a piece of encumbered capital equipment, as long as these assets provide financing backing for you.
This is essential for the approval of your application.
Having good equity in property is especially favourable for your application. After all, it can be used to quickly generate funds to cover repairs if the truck has an unexpected major breakdown.
A good working capital also boosts your chances of approval. After all, owner-drivers often prioritise business expenses like fuel and maintenance and timely loan payments from the get-go. And they need to show financial institutions that they can handle those expenses.
Prerequisite #6 – Credit Score
It’s time to address the elephant in the room:
Will a low credit score impact your application for truck financing?
Well, as you guessed, the answer is yes.
Having a low credit score or adverse credit listings affects your application if you’re a first-time applicant. You’ll get a higher interest rate compared to someone with a better credit score.
Nevertheless, your approval depends on your application as a whole, although your credit score is a key factor for getting approval.
Prerequisite #7 – Age of New Truck
As a rule of thumb, the majority of mainstream lenders shy away from financing trucks older than 5 to 7 years. It’s because these trucks are more prone to develop faults. As such, their high cost of maintenance could make the owner’s loan repayments slow and erratic.
That’s why lenders often require larger upfront deposits for applications for those types of trucks.
The younger your choice of your truck, the easier it is to obtain financing for it.
Get Financing For Your New Truck
Truth is, getting financing for your new truck doesn’t have to be difficult.
The key is preparing adequately for your truck loan application. If you take note of the prerequisites mentioned in this article, getting approved for truck financing will be quick and smooth. They form the core of what truck finance companies need to approve your loan.
However, only you deal with the best truck business financing companies to avoid unnecessary hassles. They have more experience in handling finances for new trucks.
And if you need more guidance in buying the right heavy-duty truck that meets your needs, visit Truck Dealers Australia.