Buying a Commercial Truck with Bad Credit
If you are looking for financing to buy a truck, it can seem very hard, heck, even impossible. Lenders want a ton of money as a down payment, ridiculously high interest rates, or string you along for weeks only to deny you, without ever giving you a chance at all. All the while, you have a perfect driving record, making tons money for your company, and your boss, basically everyone but you. But all you want to do is get your own truck so you can work for yourself and get what you know you deserve.
It is not your fault! Commercial truck financing is perhaps the most difficult financing to get. This is because of the massive turnover rate within the trucking industry, it makes for a high repossession rate. Due to this fact, lenders make it harder to get loans for trucks by offsetting their risk. They will require more money down, higher interest rates, etc. However, we have worked with hundreds of drivers and after reviewing these transactions, we have put together a list of the things you need to do, and things you shouldn’t do, so you can finally get your own truck and make the money you deserve.
HERE'S HOW TO BEAT THE LENDERS AT THEIR OWN GAME.
1. CASHFLOW IS KING
Almost all lenders will review your cashflow by looking at your bank statements, pay stubs, even your tax returns. Have these documents available and readily accessible. Commercial financing can take time to move from your initial application to underwriting, so having these documents up front can save processing time.
Lenders want to know you have money moving through your bank account so they will look for cashflow. They want to know you will be able to pay back your loan, therefore having money coming in, as well as money in your bank at the end of the month is key. They don’t want to just see a few hundred dollars in your bank accounts, and they especially don’t want to see your accounts in the red. This is why paying your bills on time is so important.
With that said, make sure you never overdraft. Overdrafts are an indication that you have more money leaving your bank account than coming in. This type of negative cashflow is a red flag to lenders and will kill any shot you have at securing a commercial truck loan.
2. OPEN FOR BUSINESS
Commercial financing is a business loan, so you will drastically improve your loan terms if you have an active business. You may have a sole proprietorship, but some lenders won’t accept this. Instead, spend the extra few hundred dollars, and set up an LLC or an INC in your state.
First you will need to set up your LLC or INC in your state if you have not already done so. Go to your state’s .gov webpage for information on how to establish your articles of incorporation, online. This process is very easy, and generally can be done within 30 minutes. Depending on how you structure your company, we do suggest speaking with a tax professional, however an LLC is the simplest way to set up your business and is usually done for less than a few hundred dollars.
Once you have your business set up, you need to get your EIN number. You can do that for free by click HERE.
After you have done that, go to your bank or credit union with your Articles of Incorporation, and your EIN number, to set up a business bank account.
When your business bank account is established, make sure you have all of your income running through this account to show cashflow. Keeping as much money in this account at the end of the month as possible will help you to show lenders that you will have money available for your loan. Lenders pay close attention to end of the month balances so keep an eye on this.
Now that you have your business all set up and your accounts in place, you will want to start building business credit. This can be done by opening a business credit card with your bank or credit union where you set up your business bank account. You can also open Net30 accounts under your business name and beginning to show the ability to pay these accounts on time. This shows your business is credit worthy.
Your goal should be getting a loan through your business since this is a business purchase, and it will also help protect your personal credit score, which is entirely separate.
It is worth noting that your business credit score is very different from your personal credit score. Setting up a business credit card and Net30 accounts does not require any money to do. In fact, after setting them up you can start making small purchase orders on business related expenses for as little as a few bucks a month.
Paying off credit card purchases and purchase orders from net30 accounts in a timely manner will start raising your business credit score.
If you want to begin building business credit but aren’t sure exactly where to start, we have linked an excellent guide that will walk you through every single step to build business credit yourself.
See that guide HERE.
3. FIXING OR IMPROVING YOUR PERSONAL CREDIT
This is by far the most crucial of the three steps to obtain your commercial truck loan. Start building business credit like we talked about in step two as soon as possible because having a younger business means your loan will still probably need a “personal guarantee”. This means that the lender will make their final decision to give you a loan or not give you a loan based on your personal credit scores. Before applying for a loan, and risking a hard inquiry on your credit reports, check your credit scores. Do not use Credit Karma as it does not utilize your FICO scores and will not be close to what the lenders will pull up.
You can check your scores HERE or go to Freecreditreport.com. Once you know your credit scores, you need a full credit analysis.
Getting a full credit analysis will allow you to speak with an expert and go over your credit reports in depth, to see if there are any inaccuracies, or ways to increase your score. Over 72% of people in the United States have errors on their credit report and almost everything can be legally removed, even repossessions and bankruptcies. Removing these items and taking simple steps like maximizing your credit utilization can boost your score by as much as 150 points in a matter of months.
Boosting your credit score is extremely important for you and your lender because it shows them your worthiness to pay your debts. Again, even if you followed step two and now have great business credit, lenders can and will check your personal credit score as well. That is why you want to make sure you have boosted your credit score past 600, 650, and optimally, into the 700 range, as this will drastically improve your loan terms like your interest rate, money down, and what kind of truck you can get. It will also simply improve your chances of successfully getting a commercial business loan for your truck.
Although you may be able to improve your credit score on your own, we know that as a driver your time is limited, therefore we recommend you hire a professional company to help you fix your credit to ensure it is done quickly and without error. There are many credit-repair companies out there, but we linked you to the most reputable credit repair company that works specifically with drivers and has proven results.
You can take advantage of a free credit analysis from them to go over your credit reports, where they will hand you the blueprint to increasing your credit score. They will come up with a game plan for you to get you into your new truck and begin to help you fix your credit in as little as 30 days.
They also have a full money back guarantee if you are not satisfied. The increase in your credit score will end up saving you tens of thousands of dollars in interest on the life of your truck loan so this really is a no brainer. Click the link below to take a short survey and set up your free credit analysis. This is the first step to buying your own truck, so what are you waiting for?