How to finance a truck or trailer purchase

Do you really need a new truck?

It’s tempting to add a vehicle if sales are going well. But are you using the ones you already own to their full capacity to meet demand? Have you thought about adding a shift or two, so that your existing trucks don’t sit empty for 18 hours a day? Simultaneously, ask yourself if this surge in business is strong enough to cover all the new costs. If not, you could end up losing money. 

Perhaps the truck you want to replace is just not working well. Would repairs be sufficient to extend its life? That’s worth investigating.

“Oftentimes, clients who come to me to finance a vehicle don’t need it,” Mazerolle says. “What they need is improvements to their fleet. We can finance repairs.”

Do your research 

Once you are convinced you want to move ahead, you need to determine which model will best suit your business needs. Is a pickup truck like a half-ton or a three-quarter-ton enough, or do you need heavy trucks for moving and delivery? 

Canada has incentives in place to decarbonize transportation, so you may want to consider lower carbon-emitting vehicles, too. 

From pricing to brands, it pays off to do your research. Shop around!

“Ask subject matter experts—an engineer, a truck repair mechanic, a towing company even, what vehicles are the most reliable,” Mazerolle says. 

How does truck and trailer financing work?

Truck models are only part of your research. Next, you need to determine the kind of financing that best fits your situation. 

Generally speaking, there are two avenues to seek a loan: one is directly through truck dealers, the other through financial institutions. Both have their pros and cons, and ranking your priorities will help you make a decision. Are you in a hurry, or is flexibility more important? How much are you able to repay every month? Be ready to compare offers. 

Common types of truck and trailer financing 

1. Vendor financing

Truck and trailer sellers can finance the purchase through vendor financing, which can also be called dealer financing. Many manufacturers and retailers have financing divisions that offer discounts to stimulate sales at dealerships. Other equipment sellers without in-house financing options have partnerships with other financial institutions to help get a lease or a loan.

Opting for vendor financing has the advantage of being fast, convenient and having lower upfront costs. It can often be done on the spot with limited financial information and a credit history check. 

Some brands will also offer 0% interest on new models. Be aware, though, that the price tag was adjusted to make it worthwhile for the dealer. It will be difficult bargain it down, Mazerolle says.

2. Equipment loan

An equipment loan is a specialized term loan used to finance equipment acquisitions. It is usually secured by the equipment being bought, meaning that the lender can seize it if you don’t make your payments. 

This is a more flexible option than vendor financing. With an equipment loan, you can also get extra cash to cover any additional costs associated with the equipment purchase. 

Some banks, including BDC, also offer principal postponements for up to the first two years on equipment loans. 

3. Working capital loan

A working capital loan (or a cash flow loan) is a short-term business loan to finance your day-to-day operations. 

Cash flow loans usually have shorter amortization schedules (around 6-7 years), while equipment loans can be repayable for up to 12 years. 

What documents do I need to apply for equipment financing

Most financial institutions will ask for the following documents:

• Company details: Information about your company’s history, current operations, strategy and management team experience.
• Financial statements: Banks typically review financial statements to understand a company’s financial health, profitability and capacity to repay debt. For larger loans, statements are needed for the past two years along with interim statements comparing the latest period with the same period in the previous year.
• Financial projections: Banks typically require a monthly cash flow forecast for the remainder of the current year and the following 12 months. In some cases, two years of projections may be requested.
• How you’ll use the loan: Give details about the project or plans for using the financing and exactly how it will help your business.
• A quote or invoice: Banks will ask for a quote signed by the vendor and the buyer with all relevant vehicle information (model, serial number, mileage etc.).
• Personal finance information: Lenders may request for more information to evaluate your net worth or ask about your credit score. 

Can I get a loan to buy a used truck?

BDC routinely finances used trucks. Since new vehicles lose value the moment you drive off the lot, purchasing one that’s one or two years old can be a solid option, Mazerolle explains. But inquire about past accidents, and make sure you know the maintenance record is stellar. And be aware there will be costs down the road.

“Many people nowadays want to buy used vehicles, but don’t realize they’ll have to pay for the brakes, the tires, the oil, the tune-ups,” Mazerolle says. “You need to have repairs budgeted in your vehicle purchase.”

Plan for maintenance 

Whether you buy a new or second-hand truck, consider how you plan to take care of maintenance and repairs. 

Do you have someone in-house who will take care of your fleet, or will you rely on the dealer you’re buying from? While such services can be included in a finance package, Mazerolle warns that warranties don’t always cover enough mileage. 

Is it better to lease or buy a truck or trailer?

If you don’t want to deal with maintenance, consider leasing, a time-determined rental with guarantees that typically cover most of the issues you may encounter.

“Large trucking companies will deal with one trucking brand because they’re expecting the service in their vehicles,” Florence Mazerolle says. “If you aren’t that big, leasing might be a good option because you’ll worry less about maintenance.” 

If you aren’t convinced about the durability of trucks in the market and prefer driving the most recent models, then leasing might also be a way to try various brands. 

On the downside, you may not get as much flexibility for customizing your truck or trailer. If you have a solid cash flow, buying typically comes with a lower overall cost than leasing.

Don’t pay your loan off too fast

Look closely at the terms and conditions. 

You may need to pay a fee or provide a down payment, with amounts depending on the lender, the vehicle and the company’s age. That could work to your advantage. Loans that cover 100% of the purchase often end up being more costly. 

Pay attention to the amortization period too. If the payments are too high because you agreed to pay the loan off quickly, you may find yourself unable to finance unexpected repairs and in need of another loan in an emergency. 

“This is one of the biggest mistakes,” Mazerolle says. “Lots of people will buy things with dealer finance or leasing financing, and all of a sudden, their payments are so big. They’re done paying in five years, but a heavy truck can last you 10, 20 years if you’re caring for it!”

Consider the useful life of your vehicle and match your amortization period with it, she says. If your cash flow allows, you can always make extra payments along the way.

Next step

Prepare a compelling loan application with our free business loan toolkit and improve your chances of getting financing.