We have helped countless aspiring business owners finance their first piece of equipment over the years and we sometimes forget that getting your first commercial loan can seem overwhelming. There are a lot of questions that come along with it, so in this article we're answering some of the most common questions out there.
Before we get started though, there's one very important thing to keep in mind... and that is that there are a lot of different financing programs. However, each one has different requirements to qualify, so there's really a lot of flexibility.
1. What credit score do I need?
This is the #1 question we get asked. The short answer is we have options for all credit scores. The catch is that not all credit scores qualify for the same programs. Some programs require a 700 + credit score, others a 650+ and others a 550+. More important than your credit score though is your credit history. This includes things like your credit depth, credit utilization, comparable credit and payment history.
The better your score is, the better your chances are of qualifying for a better program which means lower rates and lower down payments. Which leads us to the next question!
2. How much do I need for a down payment?
If you are over a 700 credit score you may qualify for just 10% down or even a bit less in some cases. If you're under 700 though, you should typically plan to have at least 20% to put down. Challenged credit may still qualify for 25% down, but in some cases you might be required to put down a bit more if you've had repossessions, charge-offs or bankruptcies.
3. What's the interest rate?
If you have good credit you've probably had an auto loan with a rate around 3 or 4%, right? Well commercial loans are much different, especially for new business owners and you should expect a rate higher than what you had on your last car loan. At least until your business has started building some commercial credit.
The starting rate is 8.59% and rates adjust from there based on your industry experience, credit score, age of equipment and sometimes financials when required. On average most customer's buying their first piece of equipment generally tend to fall between the 10-15% range.
4. Do I need a CDL?
If you're in the transportation industry and buying your first truck, then your CDL (Commercial Drivers License) experience will make a big difference as to what programs you qualify for. Two years of experience is the industry "norm". Anything less than that and you should prepare for a larger down payment or you'll need to have very strong credit (and maybe financials) to help make up for the lack of experience.
5. Are there age/mileage restrictions?
The newer the equipment the easier it is to get approved. Why? Because your success is our success and we want to be sure that the equipment you buy doesn't turn out to be a problem for you. The easiest way to help make sure we protect you from this is by helping you finance equipment that isn't doomed to incur costly repairs. Typically newer equipment is more reliable and holds it's value longer.
Here are some general age and restriction guidelines for common equipment. There is some flexibility and keep in mind that the better your credit is the more flexible we can be.
Semi-Truck: 10 years or newer / less than 750k miles.
Over 750k miles? The truck will most likely need a documented overhaul.
Semi-Trailer: 10 years or newer
Reefer Unit: 12,500 hours or less on the reefer unit.
Heavy Equipment: 15-20 years or newer, depending on the equipment.
Not sure if you need a business name before applying for a loan? CLICK HERE