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Financing Used Highway Trucks
“Financing Options For Used Highway Trucks”
If you’re looking to acquire a used highway truck or semi trailer or highway tractor, depending on what you want to call it, there can be a number of different options available to you.
But the first thing you need to focus on is where you and your financial and credit profiles are likely to fit in the market place.
First of all, most leasing companies do not provide financing for highway trucks, so its a fairly specialized form of financing.
There are a number of reasons for this, but the primary one is access to the asset in the event of default and then the ability to effectively liquidate the truck to get repaid.
Regardless of the reason for financing or not offering financing for this type of asset, its just important to realize not only who is providing financing, but what types of programs they offer.
For instance, there are leasing companies that will finance semi trailer tractors for businesses that have been in existence for more than three years, but not for any individual or operation less than three years in business.
The next bit of pre work to do before applying anywhere for credit is to self assess how much money you are going to have to put into the deal.
As a general rule, a used truck will require a 10% down payment for a company that has been in business for three years and has a solid credit rating. It is possible to get financing with an even lower down payment, but credit and historical financial statements are going to have to be very strong.
And with a weaker financial and credit profile, you still may be able to qualify for financing, but it may take a 20% to 25% down payment to make things work.
One of the main focuses of any equipment financing transaction is the minimization of the initial cash outlay. This is why equipment leasing solutions tend to be preferred for transport financing requirements.
Bank and institutional lenders that provide loans will typically issue credit at very good rates, but will want 25% down for even strong applications and at the time of purchase, you not only have to part with 25% of the down payment, but outlay the sales tax for the asset as well. You’ll likely be able to get the sales tax back in some way or another, but the timing could be difficult to manage.
With a leasing arrangement that requires 10% down, the leasing company is also paying the sales tax at time of purchase, requiring you to only pay sales tax on the individual leasing payments. So the overall transaction is very cash flow friendly to get started.
And if you’re looking to expand your operation, leasing companies can allow you to acquire anywhere from two to five trucks with high leverage where as a bank or institutional lender is going to want to always see an overall debt to equity ratio for your whole operation of 2:1 to 3:1.
The bottom line is that leasing will likely provide you with the most leverage to finance used highway trucks and tractors.
And the highest potential leverage available to you will directly depend on the asset being acquired and your financial and credit profiles.
With respect to the asset, you are going to get more financing options and more leverage on trucks that are no greater than 5 years in age. Age and condition will both be assessed as the leasing company is going to want to know that the unit you want to acquire has enough useful life remaining for the intended use over the leasing term.
So in review, longer time in business, solid credit, and newer asset will result in lower down payment, longer leasing term, and better rates.
Older assets beyond 5 years can be still financed, but their condition and mileage and repair history are going to be key components to the lending decision. And you can also expect higher down payments, shorter terms, and higher effective leasing rates for older trucks as well.
If you require financing for a used highway truck, give us a call and we’ll go through you’re requirements and options together.