So you’ve found the commercial truck that has all the characteristics you seek to maintain a great fleet. Congratulations! Now comes the tricky part: financing.
We’ve already covered how lease financing your commercial truck can benefit your business. Now it’s time to learn why the wrong bank or lender can hamper your future.
5 Situations to Avoid
1. Lenders That Don’t Get Your Business
Why waste valuable time explaining your business to a lender?
A lender familiar with your specific business and the type of trucks and equipment you need will give you less of a hassle. They’re more likely to finance older equipment and more specialty vehicles that fit your business’s needs.
A bank or lender that isn’t up to speed will probably make you provide extensive information beyond the standard bank statements, tax returns, and credit application.
(Click here for more on what to expect during the preapproval process.)
2. Having a Credit Line Tapped or Your Assets Tied Up
Credit lines should be used for ongoing business expenses. Tapping a credit line for a major purchase like a commercial truck or a large piece of equipment can drain your credit line and slow your business’s growth for months at a time.
Another sticky situation: Sometimes lenders employ a UCC (uniform commercial code) blanket lien. This means they can lay a claim to almost any of your assets in the event you don’t keep up with your truck payments. Needless to say, this can tie up your assets and create a headache.
3. Lenders That Charge a Fee and Application-Only Lenders
Is your potential lender charging you $50, $100 or even $250 to apply for financing?
You should never have to pay to apply. A bank or lender shouldn't be trying to make money off you before they even have a relationship with you.
Think about it: What is the lender’s motivation in charging an application fee? Is the lender truly invested in helping you find your next commercial truck or just interested in making a quick buck?
Also, anybody who only looks at an application when determining whether to approve lending isn’t getting to know you and your business. An application doesn’t show the whole picture of your business or your personal financial situation, so why rely on numbers alone?
4. “No Money Down” Financing
While it might seem swell to drive a commercial truck off the lot without spending a penny, the long-term consequences could really limit your business’s growth. With “no money down” financing, you get no equity built up in your vehicle.
If you’re financing with no money down, you’ll need to be on the road practically 24/7 to cover your resulting higher monthly payment. That’s OK when your truck is running well, but what about when it inevitably needs preventative maintenance?
In summary: This sort of financing limits your ability to improve your business should the need arrive.
5. Lenders that Threaten You With a Prepayment Penalty
Many borrowers get an unpleasant surprise when they try to pay off a loan early and find out they are still being held to the payment schedule. The reality of the prepayment penalty is that it’s the lender’s way of limiting your flexibility.
(Example Time: Say you have one year left on your loan and decide to pay the remainder off all at once. You might incur a 1% fee because the lender doesn’t want you paying it off early.)
Someone unwilling to work with you and who will charge you just to get out of the lease early typically doesn’t have your long-term interests at heart.
Watch for the Signs
Finding the right lender can be the difference between a healthy, growing business and one that struggles to stay afloat. The essentials of a quality lender boil down to this:
- Tries to give you a fair deal rather than tacking on fees and other obstacles.
- Values your time.
- Builds a relationship with you to understand you and help secure the best possible commercial truck.