Keys to Financing a Truck and Trailer

As a budding owner operator, before you can seriously look for your truck and trailer you need to know how much you can spend. If you have funds set aside to help with the purchase, then you are a step ahead, mainly because financing a truck and trailer usually requires a down payment of between 10-20%. But there are a few options that require little to no money down.

You may be thinking “what about leasing?” And my response is flush that idea, and here’s why.

It is virtually impossible to lease other than a new truck, which will have monthly lease payments exceeding $3,000 per month. This is not an element for success. Attempting to cover the lease payments and high insurance premiums on a new truck will have your spinning your wheels trying to make a profit.

The following 21 minute video by SurviveTheTime shows a spreadsheet breakdown of leasing a truck. Bear in mind that this video shows a fuel cost of $4.00 per mile. If you were to adjust this number for current fuel costs and adjust the value of a used truck purchase downward, you begin to see that purchasing a used truck as an owner operator is the way to go to make money.

So no shiny new truck for you. If your primary motivation in being a truck driver is to drive a shiny new truck, then go the company driver route. If your primary motivation is money, independence, and respect, then read on.

What we need to be realistically looking at is getting about $65,000 in financing - $54,000 for the truck and trailer and $11,000 for working capital (i.e. cash to cover expenses).

I spent countless hours looking for financing with little to no money down. I will save you the countless hours and direct you to two places that you stand a decent chance of getting financing: Accion and Balboa Capital Corporation.

I got financing through Accion because I wanted to include the working capital piece of the loan and because they tend to specialize in helping businesses get started. I worked with a great agent that ensured every step was covered.

As I look to expand I will probably turn to Balboa Capital because of their expertise in the trucking industry. I encourage you to contact both companies to discuss your situation and your needs.

Loan payments are probably the next biggest expense for you after fuel expenses. There are three factors that affect your loan payment: principal loan amount, interest expense, and time period for repayment. To minimize your monthly loan payments you want the smallest amount borrowed (principal), the lowest interest rate, and the longest repayment period.

As I mentioned above, you will want to avoid buying or leasing anything new because this will create an unbearably large loan/lease payment. Buy the best truck that you can find for under $45,000 and trailer for under $20,000.

When seeking financing, your credit score, your down payment, and loan term length will determine your interest rate.

As a new owner operator, you will probably have a high interest rate (between 9% - 15%) because you have no business operations history There’s very little you can do about this right now. Just accept that the interest rate will be high – it’s the price to pay for admission into running your business.

The loan term length may have an impact on the interest rate, possibly changing the interest rate by 1% - 2%.

So what is a rough approximation of your loan payment?

If your truck is $42,000 and your trailer is $18,000 and you put a down payment of 10% ($60,000 minus $6,000 down payment equals $54,000), the interest rate is 10%, and the loan term is 60 months, then your payment will be about $1,150 per month.

Don’t forget that you will probably need about $10,000 of working capital to pay expenses until you start to get paid for your loads. With this in mind, your loan principal will be $64,000, resulting in a monthly payment of about $1,360 per month.

This is a reasonable payment for your equipment, meaning that the payments will not drown you and you will be able to generate a profit early in your operations.

For current owner operators, how much did you spend on a truck and trailer? Please share in the Comments section below.

-May the wind be at your six and weigh stations closed.

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