What is commercial vehicle financing?
Commercial Vehicle Financing is an asset-based lending product funded by lenders that provides businesses with loans or lease programs to acquire a commercial vehicle.
Commercial Vehicle Financing will include either loans for long term vehicle purchases or leases for either short term or revolving vehicle needs.
As businesses that rely on Commercial Vehicles keep adding vehicles to their fleet to grab market share in their respective industries.
What companiew could use Commercial Vehicle Fianancing for?
Commercial Vehicle Financing products can work for all types of companies wholesalers, distributors, retailers, and manufacturers that use Class 6, 7, and 8 vehicles. Including owner/operators, private fleet operators, leasing companies, and commercial vehicle dealers.
These asset-based lending options can be used by any companies that utilize Vehicles to function and operate their businesses. Including but not limited to: vehicles to travel from client to client, carry supplies, work vehicles, food truck owners, transportation, trucking, delivery, taxi, or ridesharing companies.
Assets that may be acquired utilizing Commercial Vehicle Financing include just to name a few: Freight Semi-Trucks, Box Trucks, Dump Trucks, Utility Vehicles, Work Vans, Sprinter Vans, and Trailers.
What are the two main types of Commercial Vehicle Financing products we focus on:
Commercial Vehicle Loans
Commercial Vehicle Leasing
What is a Commercial Vehicle Loan?
Commercial Vehicle Loans are funded by lenders to businesses to provide the capital required to acquire a vehicle from a dealer, distributor, or private seller. Companies can use these loan products to buy vehicles needed for work-related operations, delivering products to clients, completing jobs, and transporting employees.
The benefit of these asset-based lending commercial vehicle loans is that they help businesses avoid potentially draining their capital reserves by paying full price upfront to obtain an additional vehicle.
Once a company has isolated a Commercial Vehicle that needs to be acquired from either a dealer or from a third party the business can utilize a lender to finance the transaction.
Typically most lenders for this asset-based lending product may require the business to provide a down payment per vehicle. Meaning a portion of the vehicle’s total worth will be deposited up front, and paying more on a down payment can lower future payment installments.
For the lenders that do require a downpayment 5% to up to 30% is the industry standard range. Businesses that utilize Commercial Auto Loans are able to maintain the cash flow reserves and finance their long term vehicle purchases, but they need to keep in mind the trade-off will be the interest expenses over time.
Interest Rates will vary from lender to lender as all finance companies charge a small percentage on top of the loan amount that also must be paid off over time. Loan terms on this asset-based lending product can range from as short as 12 months to up to 84 months but the average term maxes out between 48 to 60 months.
The longer the loan term is, the lower the monthly payment installments will be. However, the longer the loan term is, the more interest will accrue, therefore increasing the total amount the business will pay over the lifetime of the loan. With Commercial Vehicle Loans the asset being financed serves as collateral for the loan.
Therefore if the business were to default on the payments at any time, the lender would be forced to repossess the vehicle as a means to recoup as much capital owed as possible. Depending on the value of the asset being financed or the profile of the business that is using this product some lenders may require an additional lien be placed on the overall business during the term of the loan.
At the end of the financing term, the business will own the Commercial Vehicle outright so they can keep it for long term use as intended, sell it, or use it as collateral for additional financing down the road. Commercial Vehicle Loans can be a great way for companies to expand their fleets beyond having to fund every new asset from their capital reserves.
Commercial Vehicle Loans can be great financing for the vehicles a business uses every day.
One of the major benefits of using Commercial Vehicle Loans is that businesses don’t have to use the company’s cash reserves to pay for vehicle purchases.
These loans, therefore, allow companies to focus their cash funds elsewhere and use their own capital funds to grow their business by not paying for every new vehicle completely.
This asset-based lending product can offer business the capital needed to finance up to 100% financing for new vehicles and up to 90% for used vehicles.
This product can offer both floating interest rates loans and competitive fixed-interest rates which help businesses avoid fluctuating monthly payment amounts.
Commercial Vehicle Loans can provide businesses with the financing and refinancing needed to acquire new and used vehicles with terms ranging from 12 months to up to 84 months.
There are many financing loan options for Commercial Vehicles and a lot of lenders are willing to work with businesses and owners without stellar personal and business credit scores to find funding solutions.
Assets purchased by utilizing Commercial Vehicle Loans do not have mileage limits, but businesses need to keep in mind that vehicles with more miles on them will tend to depreciate faster over time.
Although vehicles that are owned by a business instead of leased tend to rack up miles quicker and thus depreciate faster. Companies are typically able to benefit from tax deductions for depreciation, businesses should consult with a tax professional to make the best use of any tax benefits.
This asset-based lending product can be a great tool for growing businesses that are frequently adding Commercial Vehicles to either expand their fleet or to replace vehicles that break down.
Commercial Vehicle Loans can be a great tool for businesses to quickly add new assets to their fleet as they take on additional customers, add larger vehicles to keep up with market demands, or new vehicles when their customers demand change.
These loans can be used to change vehicles due to new environmental regulations like emissions changes or to add electric commercial vehicles to their fleet.
Securing this asset based lending product involves a lot of preparation because the owners must illustrate the businesses capital needs while assuring the lender that the company will be able to service the debt and the loan will have minimized risk. In order to obtain a Commercial Vehicle Loan, the owners must be prepared with not only the business documentation but also their own personal records.
In order to qualify for Commercial Vehicle Loan lenders may require the business to provide a Business Plan and Loan Proposal. This needs to be a quick and important way of selling the business and the owners to a lender. The proposal and plans should detail certain key pieces of information, including the vehicle that will be acquired, how much capital that the business needs to obtain the vehicle, what collateral the business is willing to use, data-based forecasts of future revenues, and the payment timeline the business knows that it can meet.
One of the key components of the business plan lenders will most likely want to take a look at your company’s books. Typically lenders will want to review a minimum of the 2 most years of revenue reports and financial statements for established businesses.
Most lenders will require a minimum credit score of 620 for the owner operators and a decent business credit score in order to qualify for this asset based lending product. Although there are plenty of loan programs for businesses and owners with bad credit, please keep in mind it may be harder to process these types of loans and the terms are not nearly as favorable. Additionally, outstanding serious issues with child support payments, a history of repossessed vehicles, or current bankruptcy proceedings could prevent you from qualifying for the loan as well.
Commercial Vehicle Loans typically require most businesses to provide a down payment per vehicle purchase. Down payments can range from as little as 10% down, however for newer owner-operators, the down payment may be a bit higher ranging from 13% to up to 27%. The age and the condition of the vehicle the business is trying to obtain will also be a factor of the amount of down payment that may be required. On average the new vehicles require a lower down payment compared to older commercial vehicles.
When a business uses this asset based lending product to purchase a commercial vehicle the asset itself will be used as collateral for the loan in case of default. However, businesses with shorter time in business or businesses acquiring multiple vehicles may be required to provide their lender some additional collateral. Collateral that is either owned by the business or the owner-operators. It could range from a piece of property, inventory, accounts receivable, or some other asset that can be pledged to taken from a business in the event of a default on the loan.
Some lenders may require the owners to sign a personal guarantee for the Commercial Vehicle Loan if the business and it’s owners have poor credit scores or for a relatively new business. On the other hand if the collateral is in good standing, the business may be able to secure this asset based lending product without requiring this extra step.
In addition to this list of items to have on hand this is also a list of the documentation that is typically needed in order to apply for a Commercial Vehicle Loan:
- alid Driver’s license for all loan signers, proof of insurance for every vehicle being financed and CDL (commercial drivers license)
- Valid Business licenses (if applicable
- Partnership agreements or Master Service Agreements
- 12 most recent months of business bank statements
- Profit-loss statements and balance sheets for the 2 most recent years
- 2 most recent years of business tax returns
- Cash flow statements
- Articles of Incorporation
- Proof of the companies Federal employer identification number (EIN)
- Valid US Department of Transportation Number (USDOT)
- US Motor Carrier Number
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What is Commercial Vehicle Leasing?
Commercial Vehicle Leasing is an asset-based lending product funded by lenders to businesses that provides the capital necessary to lease commercial vehicles over the fixed lease term.
At the moment almost 40% of the Businesses utilizing Commercial Vehicles costing under $50,000 are being leased. The number of businesses leasing vehicles that exceed $50,000 jumps up to 60% of the companies is leasing their Commercial Vehicles. Lenders commonly work directly with dealers to finance a business’s short term or revolving commercial vehicle needs.
For used vehicles, there is also an option called a Value Lease which can also offer businesses substantial savings, when they choose to lease used, low-mileage vehicles. At the end of the lease term, the vehicle can either be returned to the leasing company, swapped out for a new vehicle, or purchased for the residual value. This product is used by businesses as a means to expand their fleet without depleting their cash flow.
There are two main types of Commercial Vehicle Leases that focus on what happens to the asset at the end of the lease term. Closed-End Vehicle Lease or an Open End Vehicle Lease
Closed-End Vehicle Leases also called Capital Vehicle Leases are best used for long-term leases of business assets. In these leases, the piece of equipment, or vehicle in this event, is considered an asset under the respected business. Businesses that intend to keep a vehicle by purchasing it at the end of the lease term by paying the value of the vehicle in a balloon payment of sorts.
The advantage of this commercial vehicle lease is that companies are seen as owners. Which could offer the business some off-balance-sheet financing opportunities? However, this is still considered a lease, not an outright loan. So, given the nature of this commercial vehicle lease option, the value of the vehicle will depreciate and the tax benefits work more like that of a loan compared to that of a lease.
At the end of a Closed-End Vehicle Lease the business being the lessee has no responsibilities except for body damage, excess mileage, or abusive wear and tear damage.
Open End Vehicle Leases also called Operating Vehicle Leases are a completely different form of Commercial Vehicle Leasing. These leases in essence are basically loans that are typically short-term and more formally known as a service lease.
With this Commercial Vehicle Lease, is that this asset-based lending product provides businesses with the option of bargain purchasing. At the end of the term, Open End Vehicle Leases allow the business to be the lessee to enter into an end of lease settlement. In other words, if a company decides to purchase the vehicle outright, they can under this lease.
With a Commercial Vehicle Lease lenders provide capital to businesses to lease new or used vehicles and trailers, sometimes even including most soft costs like taxes and registration. Lenders basically purchase a vehicle asset and lease it out to businesses. The business being the lessee can use the asset for a prearranged amount of time, as long as the monthly lease payments are made.
This asset-based lending product offers terms ranging from 24 to 60 months and flexible payment options. On average the terms of a commercial vehicle lease are between three and five years. With Commercial Vehicle Leases the business will make monthly payments, the same as any asset that is being rented.
Assets that are leased always come with limits on how much mileage can be added to a vehicle per year. If a company needed additional miles to utilize on the vehicle or the company goes over the allotted amount of miles. Then the businesses typically have to pay based upon the penalty amount that is detailed within the lease agreement.
Leased vehicles may be tax-deductible based on vehicle usage but a business should confirm with their tax professional. In order to secure a Commercial Vehicle Lease, most lenders don’t demand a down payment but most will require the first month’s payment and a security deposit. At the end of lease terms, businesses have the added benefit of either dropping off the old vehicle and end of lease and picking up the latest model available, walking away completely, or purchasing the vehicle outright.
Depending on which leasing option the business obtained the vehicles under. Businesses not only have the advantage of holding onto their capital reserves instead of tying up their capital in large vehicle purchases. Which in turn keeps businesses liquid with their own capital and it also helps businesses keep their fleets expanding.
Some lenders, not all do offer additional lease options that do carry varied repayment methods. This is a list of the potential lease repayment options besides standard monthly payment options:
Short-Term Leases: Businesses that qualify for this product can elect flexible lease terms for as little time as three months up to 1 year.
Seasonal Leases: These can offer companies skipped lease payment options, the business is not billed during their offseason.
If a company relies on one or more commercial vehicles in either a short term or revolving capacity to help it conduct business daily, and it wants to be sure that the vehicles can always be able to meet their customer’s needs. Then Commercial Vehicle Leases can be a great option for businesses to expand and take over market share within their industry.
Commercial Vehicle Leasing can be a great option for any business that needs nearly all types of vehicles anywhere from 1 to up to 500 units per company.
Leasing Commercial Vehicles can help to improve the business cash flow by not depleting the coffers for every vehicle addition.
Commercial Vehicle Leasing offers businesses the ease of consolidated billing cycles that manageable and help to Reduce administrative time and costs
Most Commercial Vehicle Leasing options do not require a down payment typically one or two months of payments as well as any applicable fees and taxes are what is required to acquire an additional Commercial Vehicle
This asset based lending product offers tax benefits to the business leasing the Commercial Vehicles. There are some tax-deductions available based on how a company uses the vehicle.
There are lease options available for some businesses that can go all the way up to 75 months in term however 36 to up to 48 months in term is the industry standard
Lenders of Commercial Vehicle Leases are willing to offer competitive rates and work with dealers and resellers to offer businesses advantageous pricing and payment structures
Businesses that utilize Commercial Vehicle Leases can take advantage of dealer or vendor incentives and rebate offers in conjunction with their lease that will reflect in toward the final deal for the company or leasee.
Some lenders offer leasing options to obtain Commercial Vehicles that are used up to 6 model years old with maximum 700,000 miles, depending on collateral type that the business is willing to provide.
There are some lenders that also offer options to lease the vehicle to the business directly without requiring the owner operators of the company to be signers of the Commercial Vehicle Lease agreement. Business name only commercial vehicle lease options are for qualified companies with solid business credit scores.
Depending on the type of lease the business chooses at the onset at the end of the lease term the company may have a few options to either turn in the vehicle and lease a different vehicle, walk away completely, or purchase the vehicle.
In order for businesses to qualify for Commercial Vehicle Leasing, there are a handful of minimum requirements that a company must meet as well as a few documents that they must have on hand.
Every lender may operate slightly differently whether a business is working with a dealership’s preferred lender or working with a lender directly. These items are just the industry standard:
Corporate documents validating the business are active and registered.
Drivers License for all majority owner-operators of the business and some lenders may require to prove of CDL (commercial drivers license) valid drivers to operate the vehicle
Valid US Department of Transportation Number (USDOT) in good standing
Valid Motor Carrier Number
Any business licenses or required certifications
Most lenders may request up to 12 most recent months of the business bank statements
Some Lenders may require business tax returns anywhere from 1 to up to 3 years
Some Lenders will request a Company Business Plan in order to gauge the availability of to operate the business and carry the monthly payments of the leased vehicles
Businesses plans typically include the companies recent financials P&L and Balance Sheet
COMPETITIVE TERMS
EXPERT SERVICE
Available Capital Limit
Up to 100% of Vehicle Cost
Standard Interest Rates or Cost
Rates Start as low as 3%
Typical Underwriting TimeLine
3-5 Business days
Average Term Limits
12 to 60 Months
In closing, The global Commercial Vehicles Market was valued over 2 trillion in 2018 and is estimated to expand at a CAGR of over 7% from 2019 to 2025. There are approximately 129 million Commercial Vehicles in use in the United States by the end of 2018 and those numbers are constantly growing.
As businesses that rely on Commercial Vehicles keep adding vehicles to their fleet to grab market share in their respective industries. Those companies are going to need a trusted partner that knows how to navigate through the waters of Commercial Vehicle Leasing in order to help companies secure not only their desired vehicles quickly but also working diligently to provide them the best pricing available in the market.
AmeriDream Capital has seasoned funding consultants that specialize in providing Commercial Vehicle Financing. We understand the unique challenges of the sector and can provide the financial support your company needs to help manage growth, take advantage of opportunities to grow and expand your business fleet.
Our team at AmeriDream Capital is ready to provide your company with access to the best Commercial Vehicle Financing options available. Please apply online, email us for an appointment, or call us today.
Our team is committed to helping your business grow with Commercial Vehicle Financing and will guide you through the process each step of the way.
