First Time Truck Finance Can Be Difficult To Arrange – How To Overcome It
Written by Phillip Gruppelaar
We here it all the time, I’ve got a very lucrative contract all I need is a loan for my truck!
Then when we explain that there some serious hurdles to overcome, the prospective client cannot believe it. “I will be making plenty of money, you must be joking” is a common response.
The simple reason truck finance for the first time truck borrower is hard to organise, is that too many people before you have failed and the financiers have lost a lot of money.
If contracts were so profitable why do big company’s offer contracts. It’s simple, in good times they are profitable, but too many bad times occur for the big company to take the risk.
Bad times include
1. Loss of work
2. Change of work making vehicle inappropriate
3. Unscheduled Vehicle servicing causing down-time
4. Major Cost Breakdowns (e.g. blown engine)
5. Driver legislation limiting hours driving
6. Strikes and disputes
There are a number of issues that need to be addressed to obtain an approval, if you don’t cover them all you risk being declined. Below you will see a guide to improve your approval chances.
1. The vehicle
a. Is the vehicle price and age appropriate for your financial status (e.g. if you have no assets, the amount you can borrow will be limited and any financier will be looking for a late model vehicle)
2. Your Income
a. Many financiers do not take into account future income, they need proven income to approve a loan.
3. Your Contract
a.Many contracts issued don’t really guarantee for income.
b. The company issuing the contract may be a weak company that isn’t guaranteed to stay in business
4. Your Character
a. Have you got a good credit history
b. Is your credit history valid for the amount you want to borrow (e.g. If you credit history is a total of a well conducted $10,000 credit card, it’s not relevant if you want to borrow $250,000
c. Do you have any assets? (The financier isn’t looking to secure your assets, they want to see if you have had the ability to accumulate any wealth)
5. Your work history
a. Are you a stable person or do you jump from job to job)
b. Do you have truck driving experience?
6. Fall-Back Position
a. Do you have enough cash to get started and have you got reserves in case of bad luck (e.g. an engine rebuild)
b. Do you have a property with equity, you can raise cash against in case of bad luck
c. Do you have a credit card or line of credit with a minimal balance that can be used in case of bad luck?
7. Adequate Planning & Understanding
a. Do you have an accountant prepared cash-flow projection?
b. Do you have adequate truck driving experience?
c. Do you have an understanding of business or an advisor who understands the industry and your business?
8. Deposit, Trade In or Other Equity (this is probably the most important, deposit reduces risk).
The more deposit you have the more likely you are to be approved. You cannot use all your cash as a deposit, because you still need a fallback position (see No. 6)
a. First tier lenders (banks and major finance companies) are looking for cash or trade in to reduce their risk of loss in case of failure to pay
b. Second and third tier lenders will look at other assets you own to reduce their risk (an unencumbered trailer, car or similar) these assets must have genuine value.
A simpler way to assist you overcoming these obstacles, is to deal with an experienced Truck Finance Broker. It is probable that you cannot overcome all of the above, but they can guide you through to give you the best chance. They also are acutely aware of who and who will not lend you the money.
If you have bad credit first time Truck Finance is very difficult, we strongly recommend that you seek the assistance of an experienced Finance Broker.