For those running a business that has trucking needs, your commercial vehicles are often the backbone of your operations and having them in running order can be the key to generating revenue. However, commercial trucks can be costly to maintain and you will need to prepare for both recurring and unexpected operating costs. To learn more about truck repair financing, continue reading below.
How Much Do Truck Repairs Cost?
Annual maintenance and repairs for a semi-truck are estimated to be around $20,000. The yearly cost of replacing the tires on a semi-truck alone can reach upwards of $5,000. Other common maintenance and repair items include the brakes, wiring, air or line hoses, and alternators. And those are just some of the most common expenses associated with owning a large truck. Multiply that by however many trucks you own and add in a contingency budget for unexpected expenses and repair costs can really add up.
What Is a Truck Repair Loan?
A truck repair loan is a specialized financing option designed to help with the maintenance and repair of commercial trucks. They are available to both fleet owners, independent operators, and anyone else who requires repairs on a commercial truck.
Types of Loans For Truck Repair
There are a number of different options for those seeking financing for maintenance and repairs on trucks. Let’s take a look at some of the most popular alternatives below.
Equipment Financing Loans
Equipment financing loans allow those who own their truck or other equipment to use it as collateral to finance maintenance and repairs. To qualify, your equity in the equipment will need to be higher than the amount of the repair.
For example, if $10,000 worth of repairs is needed then the value of the truck minus the amount owing must be $10,000 or higher. One thing to note is that the lender will use the liquidation value of your asset to determine the valuation rather than the amount that you paid for the truck.
Small Business Term Loans
Small business term loans are good options to borrow larger amounts while reducing your regular installment payments. Lenders will generally lend up to two times your business’ monthly revenues while the interest rate and how long you can borrow for will be highly dependent on your business credit history. Term loans are reported to credit bureaus as well which helps your business build its credit history. An additional benefit of small business loans is that the interest on the loan is tax-deductible.
Merchant Cash Advances
Merchant cash advances are short term solutions designed to be an immediate source of funding. The term for merchant cash advances is usually six to twelve months and they function under a daily payment format where payments are deducted every business day. While this option can provide short term relief, having a payment deducted daily for an extended period of time can be a burden for your company’s cash flows. Additionally, the cost of borrowing tends to be very high, as the annual percentage rate can be anywhere from 50% up to 200%.
Using a Factoring Company
For companies with outstanding accounts receivables, a factoring company can help them get their funds sooner. The factoring process is when a business sells its accounts receivable to a third party in exchange for a reduced cash amount.
For example, a business with $100,000 of receivables due in 60 days may sell their invoices to a factoring company to get funds instantly. The factoring company then applies a fee for the service which is deducted when the invoices are settled.
Some concerns with using a factoring company for equipment repair are that these agreements are not reported to credit bureaus. This means that it will not help your business build credit. Additionally, when converted to an annual percentage rate, the cost of borrowing with factoring companies can be very high. It can be more than 60% in some cases.
What Do I Need to Apply for a Truck Repair Loan?
The requirements to apply for a truck repair loan are similar to those for a regular business loan. However, there are a few other components such as the condition of the truck and applicable licences. A checklist of what you may need to provide to apply for a truck repair loan include the following:
- Personal information (e.g. driver’s licence, proof of address)
- Business information (e.g. articles of incorporation, corporate profile)
- Financial information showing business revenue and income (e.g. bank statements or tax returns)
- Proof of insurance and applicable truck licences
- Details of the truck which shows its current condition
Should I Use a Loan For Truck Repairs?
Truck repair loans are designed specifically for fleet owners and independent contractors to manage the expensive maintenance and repair costs of commercial trucks. Generally, requirements are lower and the approval process will be smoother than when applying for a regular business loan, as the lender will be specialized in truck maintenance and repair financing. Borrowers with a low credit rating or a lack of credit history may still be approved as the truck being repaired can be used as collateral. Loans Canada’s lender directory and loan comparison platform can help you find a lender that meets your unique needs.