Dreaming of freedom, owning your own truck and running the show? There’s a lot of opportunity for experienced truck drivers eager to make the leap from employee to owner. One of the problems we hear about most is the lack of capital to get the ball rolling. Fortunately, we’re here to help.
Whether it’s your first big purchase or one of many, we’re here to help in any way so you can drive off the lot as soon as possible.
Getting started doesn’t necessarily mean having a ton of cash, a few steps in the right direction starts by understanding what lenders are looking for when deciding to approve a loan.
In this article, we’ll shed some light on available options, how to optimize your potential and provide you with helpful tips to help grow your business.
How to get a loan
Step 1: Start before the loan is needed. It is critical to build a relationship with your lender before the business actually needs the loan. Remember, people do business with people they know, like, and trust. lenders work the same way.
Step 2: Lenders will look at the following factors so review them carefully & consider taking any appropriate remedial action:
- Credit score. Lenders still look at the personal credit scores as a way to judge the reliability of the principals who are borrowing the money. Good credit does not guarantee a loan.
- Industry risk– Is rated based on government SIC codes which are ranked. A small business owner needs to find out how their industry is rated.
- Cash flow & outstanding debt- Lenders will review loans & debts to determine that your cash flow will be sufficient to pay existing loans & obligations as well as the new loan contemplated.
- Assets in the business. Lenders will review the assets in the business, particularly current assets as such as cash & accounts receivables.
The higher the operating cash margin, the better the chance there is for your business to survive slower market conditions.
In the final analysis, most lenders give money based on the company’s cash flow since it measures the ability to successfully repay the loans.
- Time in business– lenders will tend to look more favorably on businesses that have been operating for several years or more. For example, less than 2 years in business is hard to find financing for because often times there is not enough business credit.
- Stability- owning a house/ married -this is where personal & commercial credit comes into play
Step 3: Save for a deposit. Depending on the overall financial health and credit, you will need anywhere from first payment all the way to 30%.
NOTE: To overcome a low fico, no credit or thin credit, < 2 TIB or low cash flow, consider adding a Personal Guarantor (co-signer) that can help. (Better score & strong income) and or more collateral that is free & clear.
Now that you have a better idea of how a lender views your overall package, it’s time for a 3-month plan.
To double or triple your income we start by:
- NOT overspending for the next 3 months
- SAVE, save, save
- No NSF in your bank statements
Building a desired application for a commercial loan will, in turn, help you build your commercial credit. It’s that simple.
Step 4: Make sure your taxes are current & financial statements are in order. Depending on the size of your loan, your financial statements & accounting records will be reviewed carefully by the lender. So make sure they are complete, correct, thorough and up to date. Include balance sheets, income/loss statements, cash flow, gross margin debt to equity ratio, accounts payable, accounts receivable, EBITDA, etc. And be prepared to answer questions on those topics.
Step 5: Gather detail information for your small business loan application:
- Name of business (including any DBA’s)
- Federal Tax ID
- List of executives officers & their background/ resumes
- A legal structure such as LLC, S corp or Corporation, click here to learn more
- Financial statements for the past 2-3 years
- Business credit reporting agency like Dun & Bradstreet & Payment
- Potential collateral that is free & clear for the loan
- Tax return 2-3 years.
- Business bank statements
Being an owner-operator gives you the freedom of being your own boss. With that freedom comes new responsibilities, however, among them the need to get financing for your truck. Follow the 5 steps detailed above to help you qualify for and get the best rates on semi truck financing.