Overdrive Magazine | Trucking Business News & Owner Operator Info
Issue link: https://read.dmtmag.com/i/85435
Financing your equipment your operation, the more comfortable he will be lending you the money. Show the lender you are a business owner first and a truck operator second. FINANCING SOURCES Banks are not your only option for borrowing money. Check around for the lender that best suits your needs. BANKS. Banks are reluctant to lend Shorter loan, cheaper truck The ideal loan term for a three-year depreciable asset like a heavy-duty truck is three or four years, during which you can reap the tax benefi ts of depreciation to maximize the affordability of the monthly payments. New truck: $118,000 at 7.5% Loan term length/years Monthly payment TOTAL VEHICLE COST money for an over-the-road truck. In their opinion, "rolling collateral" is not a good risk. If you've been doing business at the same bank for a long time, however, and have an established relationship with a loan officer, it's worth a try if your credit is good. CAPTIVE LENDING INSTITUTIONS. These finance companies are owned by equipment manufacturers. They often are more willing than banks to lend money to new owner-operators because they are in the business of selling trucks. A used truck dealer might refer you to lenders other than captive finance arms. COMMERCIAL LENDING INSTITUTIONS. These finance companies are not necessarily affiliated with truck manufacturers, but certain ones cater to the trucking industry. GETTING THE MONEY Whatever type of financing you choose, keep in mind that truck loan interest costs easily can consume up to 4 percent of your gross revenue. Interest rates can vary by two or three percentage points, even more – a difference of as much as thousands of dollars in interest over the life of a loan. 3 4 5 $3,120 $2,425 $2,010 6 $1,734 $130,018 $134,107 $138,289 $142,562 No matter where you obtain financing, the following can affect your interest rate: • Credit history. People who have good credit get the lowest interest rates. • Stable job history. Job-hopping indicates a lack of responsibility and rings the alarm for a lender. • Longtime residency. People who live at the same address for a long time usually have a better credit rating. Don't take the first financing option you're offered. You can negotiate loan rates just as you can haggle over the price of a truck. Interest rates vary from lender to lender, and from one part of the country to another, and finance managers have some leeway when setting the rate for your transaction. NEGOTIATING THE DEAL Getting a serviceable truck at the lowest payment possible is your goal. Before you head to the bargaining table, however, know how much you want to pay for a truck, how much you can manage per month and what interest rate you want. Then negotiate with what you consider to Carriers with lease-purchase plans Lease-purchase plans are popular paths to truck ownership, particularly among operators with otherwise shaky credit, but some carrier contracts make it difficult to generate enough revenue to meet payments. Appealing to nascent operators who have few financial resources or less- than-sterling credit histories, the contracts may require high weekly payments, maintenance accounts or end-of-lease balloon payments. They generate the most controversy for practices that favor the company at the expense of the owner-operator. Common complaints include mileage manipulation in the latter stage of the contract and unadvertised fees and charges. But another approach practiced by some carriers is centered around developing an owner-operator base and helping contractors develop their businesses. Do diligent research on the carrier and analyze the lease carefully. If you have questions after reading the contract, consider hiring a lawyer or financial adviser to review it. Make sure items such as down payment, weekly or monthly payments, maintenance escrow account, length of contract and what you'll owe at the end of the agreement are spelled out. Work up a budget to give you an idea of what truck payments you can afford and how much revenue you'll need to cover payments and other financial obligations. Given the age of the truck, estimate what it will be worth when you complete the contract. Many carriers offer no- money-down contracts, but this often means higher periodic payments. Weekly payments of $400 to $600 aren't uncommon. (Continued on Page 62) 46 OVERDRIVE MAY 2012