The Complete Handbook for Buying and Financing a Truck

Trucks, trailers or any other commercial vehicles are important business assets required in the normal day-to-day running of your business operations. As a business owner, you are constantly faced with a number of critical decisions, whereby you have to decide – what is best for your business. So, if you are a business owner you should carefully consider a number of important factors when it is time to get a new truck, trailer or any other commercial vehicle, such as having:

1. The right truck that will help to keep your business competitive

2. The right truck for the work required and at the right price

3. The right finance arrangement to buy a truck

Different Types of Truck, Trailer or Commercial Vehicle

Business owners can buy any of the following vehicles:

>> New Truck

>> Refrigerated Lorry

>> Trailer

>> Tipper, or

>> Transporter (light or heavy)

Factors to consider before buying New Truck, Trailer or Commercial Vehicle

There are a number of factors you should take time to consider when buying a vehicle, and you should ask yourself the following questions:

>> Is the truck, trailer or commercial vehicle new or used?

>> Is the truck, trailer or commercial vehicle coming from a dealer, auction, or private sale?

>> Has the truck, trailer or commercial vehicle been previously written-off?

>> How many hours has the truck recorded?

>> Is there any money owing on the truck, trailer or commercial vehicle?

>> Are you considering drawing down from your home loan (e.g. equity release) to give you the required cash to buy your truck, trailer or commercial vehicle?

Finance Arrangement

Listed here is a brief summary of the types of finance arrangements available in the market place, and after you have read this article you should find choosing the right finance arrangement to be the simplest decision you will make:

Finance Lease – This financing arrangement enables you (the customer) to have the use of your truck, trailer or any other commercial vehicle and the benefits of ownership, while the financier (lender) retains actual ownership. The finance lease arrangement will also enable you to free-up your capital for other business purposes.

Commercial Hire Purchase – This financing arrangement is where you (the customer) hire the truck, trailer or any other commercial vehicle from the financier (lender). You have the certainty of a fixed interest rate over a set period (I.e. 2 to 5 years) and the flexibility of reduced monthly payments by including a final “balloon” payment at the end of the term.

Asset Loan – This financing arrangement gives you (the customer) the security of knowing that your truck, trailer or any other commercial vehicle is an asset of your business and it offers you the certainty of a fixed interest rate, over the choice of loan terms (I.e. 1 to 5 years).

Seek Expert Advice

I sincerely recommend that you should seek expert advice before choosing any of the truck finance arrangements because, the taxation and accounting treatments you choose may vary from option to option.

If you want to remain in the driver’s seat and concentrate on running your business so that you can cover your costs, overheads and running expenses, then look no further and take advantage of professionally qualified and specialised finance brokers, because:

>> They have a thorough knowledge of the finance and trucking industry

>> They have access to many lenders/credit providers as they deal with them on a regular daily basis

>> They can customise the best truck finance arrangement for you

>> They can get you into a new truck quickly and easily

So, if you don’t want to spend hours of your valuable time trying to find the right truck finance arrangement, then let a specialised and professionally qualified finance broker do the running around for you.

Learn the Importance of a Specialised Finance Broker in Getting Development Finance

Development Finance is a specialised form of funding suitable only for professional builders and developers. This form of funding will require the assistance of a professionally qualified and expert finance broker who has the required skills and experience to negotiate the finance on your behalf.

Suitable Development Finance Projects

If you are a professional builder or property developer, you must speak to an expert finance broker, who will help you in understanding the finance strategy required to fund any of the following projects:

>> Residential construction

>> Commercial property

>> Industrial property

>> Retail property, and

>> Land subdivisions

What Information do I need to provide?

Lenders/credit providers will look at a number of areas when they are considering your loan request. You will need to present a full proposal to the lender/credit provider, and they will require you to provide the following information:

>> Your Business Plan, which should list your background, professional qualifications and your trade and project management experience

>> Your experience as a property developer

>> The location of your proposed development

>> Development Type (Residential or Commercial)

>> The profit potential of the development

>> Your financial statement of accounts and personal assets and liabilities to determine your development cash flow

>> The amount of equity that you will bring to the development project

>> Copy of the planning consent and drawings for the scheme

>> Comparable evidence for the resales

>> A suitable exit strategy

Can I get an “In Principle” Decision?

When you are applying for development finance, you should have all the required information available so that the lender/credit provider can review and assess your finance proposal. The lender/credit provider will advise you:

>> If it is possible to arrange the required finance for development project, and

>> How long it will take to obtain an “In Principle” decision (You must remember that the lender/credit provider will make the final decision)

Why Choose a Professionally Qualified and Specialised Finance Broker?

It is always wise to start the development finance process with a professionally qualified and specialised finance broker because:

>> They will help you to prepare a Business Plan, which will set out your development finance requirements in exactly the way that lenders/credit providers wish to see

>> They know what the standard requirements for development finance loans are

>> They can accommodate a much faster credit decision for you, provided that they receive from you all the required documents as soon as possible (e.g. your professional qualifications, trade qualifications and certificates and your previous building or development experience)

>> They can structure a Customised Development Finance funding strategy that will meet your needs regardless of the size or complexity of the building or development project

>> Through their extensive network of specialised lenders/credit providers and private lenders, they are better equipped to offer you access to funds for your required building or development project

>> They can help you to secure the required finance so that you can fund all the stages of the construction cycle:

1. From financing the initial purchase of the land

2. Through to progressive construction draw-downs, and

3. To enable you to cover all the approval costs

So, this is what you, as a professional builder or developer, need to know about development finance. I sincerely hope this article helps you to understand why you need to seek assistance from only a professionally qualified and specialised finance broker.

Alternative Financing

Alternative bank financing has significantly increased since 2008. In contrast to bank lenders, alternative lenders typically place greater importance on a business’ growth potential, future revenues, and asset values rather than its historic profitability, balance sheet strength, or creditworthiness.

Alternative lending rates can be higher than traditional bank loans. However, the higher cost of funding may often be an acceptable or sole alternative in the absence of traditional financing. What follows is a rough sketch of the alternative lending landscape.

Factoring is the financing of account receivables. Factors are more focused on the receivables/collateral rather than the strength of the balance sheet. Factors lend funds up to a maximum of 80% of receivable value. Foreign receivables are generally excluded, as are stale receivables. Receivables older than 30 days and any receivable concentrations are usually discounted greater than 80%. Factors usually manage the bookkeeping and collections of receivables. Factors usually charge a fee plus interest.

Asset-Based Lending is the financing of assets such as inventory, equipment, machinery, real estate, and certain intangibles. Asset-based lenders will generally lend no greater than 70% of the assets’ value. Asset-based loans may be term or bridge loans. Asset-based lenders usually charge a closing fee and interest. Appraisal fees are required to establish the value of the asset(s).

Sale & Lease-Back Financing. This method of financing involves the simultaneous selling of real estate or equipment at a market value usually established by an appraisal and leasing the asset back at a market rate for 10 to 25 years. Financing is offset by a lease payment. Additionally, a tax liability may have to be recognized on the sale transaction.

Purchase Order Trade Financing is a fee-based, short-term loan. If the manufacturer’s credit is acceptable, the purchase order (PO) lender issues a Letter of Credit to the manufacturer guaranteeing payment for products meeting pre-established standards. Once the products are inspected they are shipped to the customer (often manufacturing facilities are overseas), and an invoice generated. At this point, the bank or other source of funds pays the PO lender for the funds advanced. Once the PO lender receives payment, it subtracts its fee and remits the balance to the business. PO financing can be a cost-effective alternative to maintaining inventory.

Non-Bank Financing

Cash flow financing is generally accessed by very small businesses that do not accept credit cards. The lenders utilize software to review online sales, banking transactions, bidding histories, shipping information, customer social media comments/ratings, and even restaurant health scores, when applicable. These metrics provide data evidencing consistent sale quantities, revenues, and quality. Loans are usually short-term and for small amounts. Annual effective interest rates can be hefty. However, loans can be funded within a day or two.

Merchant Cash Advances are based on credit/debit card and electronic payment-related revenue streams. Advances may be secured against cash or future credit card sales and typically do not require personal guarantees, liens, or collateral. Advances have no fixed payment schedule, and no business-use restrictions. Funds can be used for the purchase of new equipment, inventory, expansion, remodeling, payoff of debt or taxes, and emergency funding. Generally, restaurants and other retailers that do not have sales invoices utilize this form of financing. Annual interest rates can be onerous.

Nonbank Loans may be offered by finance companies or private lenders. Repayment terms may be based on a fixed amount and a percentage of cash flows in addition to a share of equity in the form of warrants. Generally, all terms are negotiated. Annual rates are usually significantly higher than traditional bank financing.

Community Development Financial Institutions (CDFIs) usually lend to micro and other non-creditworthy businesses. CDFIs can be likened to small community banks. CDFI financing is usually for small amounts and rates are higher than traditional loans.

Peer-to-Peer Lending/Investing, also known as social lending, is direct financing from investors, often accessed by new businesses. This form of lending/investing has grown as a direct result of the 2008 financial crisis and the resultant tightening of bank credit. Advances in online technology have facilitated its growth. Due to the absence of a financial intermediary, peer-to-peer lending/investing rates are generally lower than traditional financing sources. Peer-to-Peer lending/investing can be direct (a business receives funding from one lender) or indirect (several lenders pool funds).

Direct lending has the advantage of allowing the lender and investor to develop a relationship. The investing decision is generally based on a business’ credit rating, and business plan. Indirect lending is generally based on a business’ credit rating. Indirect lending distributes risk among lenders in the pool.

Non-bank lenders offer greater flexibility in evaluating collateral and cash flow. They may have a greater risk appetite and facilitate inherently riskier loans. Typically, non-bank lenders do not hold depository accounts. Non-bank lenders may not be as well known as their big-bank counterparts. To ensure that you are dealing with a reputable lender, be sure to research thoroughly the lender.

Despite the advantage that banks and credit unions have in the form of low cost of capital – almost 0% from customer deposits – alternative forms of financing have grown to fill the demand of small and mid-sized businesses in the last several years. This growth is certain to continue as alternative financing becomes more competitive, given the decreasing trend seen in these lenders’ cost of capital.