What is Commercial Fleet Vehicle Financing?
Commercial fleet financing allows a company to acquire multiple business vehicles on credit. There are several ways to finance a commercial fleet. Asset-based loans are a common form of funding secured by the company’s valuable assets, providing capital for fleet maintenance or acquisition. Fleet financing options are available to businesses in multiple industries.
Equipment Financing
An equipment loan is one of the most common commercial fleet financing methods. With this type of loan, the fleet vehicles serve as collateral – if you default, the lender repossesses the fleet. Since the collateral is built into the loan, you usually won’t have to add any additional collateral or business assets.
The self-collateralizing equipment loan also means potential fleet owners usually get higher borrowing amounts, longer terms, and reasonable interest rates. Here are some key facts about equipment loans at a glance:
- Up to $5 million per piece.
- Loan terms are between 1 and 6 years.
- Interest rates start at 3.5%
- Funded in 3-10 business days.
The process starts with getting an invoice for the commercial fleet. Then you submit that invoice along with your equipment loan application. The lender pays the vendor directly, and you receive your fleet. You then make the regular monthly payment until the loan is paid in full, per the loan term. You can use equipment financing to purchase new vehicles or used vehicles.
Other Business Loan Options
Small business owners seeking financing for a commercial fleet can also consider alternatives like SBA loans and business term loans. Both options can provide significant sums for various business purposes, such as fleet purchasing.
In some cases, a commercial line of credit (also called a business line of credit) could provide the necessary funding. A business line of credit is a flexible financing solution that lets you use funds as needed rather than a one-time lump sum payment. The amount of available credit will determine if this is a viable solution for fleet financing.
Consider your needs and qualifications when deciding on the best financing process for your business. Comparing options can help you find the most cost-effective financing options.
Fleet Financing Companies
Some financing companies, dealerships, and commercial vehicle manufacturers offer direct financing for commercial vehicles. Many of these arrangements operate like a car loan—the asset(s) you’re financing serve as collateral.
You make regular monthly payments for the length of the loan until it’s paid in full. Ford Pro FinSimple offers a wide range of financing options for commercial fleet vehicles, including vehicle leasing, purchasing, and lines of credit. Many fleet financing companies provide additional services to maximize your investment. For example, several provide access to commercial fleet insurance to help protect vehicles. Their expertise can help support your fleet operations.
Commercial Fleet Leasing
Another option is to lease your commercial fleet. Since vehicles are depreciating assets, some companies prefer the lower commitment of leasing. Remember that some vehicles, like construction vehicles or semi-trucks, have a slower depreciation than cars since they’re designed for a long lifetime of work. Operating leases allow businesses to use vehicles without ownership, with the lessor responsible for maintenance and repairs.
Alternative Funding Options
Small business owners can also seek alternative options like crowdfunding or grant assistance. Government financing programs offer various financial tools, such as loans and grants, to assist businesses in obtaining funds for fleet financing.
How do I qualify for Commercial Fleet Vehicle Financing?
Each fleet financing or leasing company sets its own qualifying criteria. The specific requirements vary depending on the lender and the type of loan.
To finance a commercial fleet with an equipment loan through United Capital Source, you will need the following:
- Credit Score: 600
- Years in Business: 1 year
- Annual Revenue: $250,000
Commercial Vehicle Requirements
Financing a commercial vehicle also requires the following:
- Commercial vehicle insurance.
- The vehicle identification numbers (VINs) for each vehicle.
- Year, make, and model of each vehicle.
In addition, if you’re purchasing semi-trucks or other specialty vehicles, you must provide a Commercial Driver’s License (CDL).
How to apply for Fleet Financing:
Applying is relatively fast. You can apply directly through our one-page application in a matter of minutes or contact one of our loan experts to guide you through the process.
Step 1: Make sure the fleet is the right purchase for your business.
You want to ensure that the fleet you’re purchasing can handle the intended work and that you’re purchasing reliable vehicles from a reputable vendor or dealer.
Step 2: Gather your documentation.
When applying for a commercial fleet loan, you need to provide the following:
- Driver’s license.
- The invoice for the commercial fleet showing the purchase price.
- Voided check from your business checking account.
- Bank statements from the past three months.
- Financial statements.
Step 3: Complete the application.
Go to our application page or give us a call for more information.
Step 4: Speak to a representative.
After we receive your application, a senior account executive will contact you. The account executive will discuss your business needs and focus on your commercial equipment financing options and fixed-term business loan offers. We offer complete transparency, and there are no hidden fees or surprises.
You’ll get a complete breakdown of loan amounts, terms, interest rates, and fees. Once you have all the information, you can make an informed decision about commercial fleet financing.
Step 5: Get approved.
Your equipment loan goes through when your application meets underwriting requirements and gets credit approval. Next, your money goes directly to your account. We can help you set up automatic payments, or you can arrange to pay by check or electronic payment.
What are the advantages of Equipment Financing for a Commercial Fleet?
One of the most significant advantages of equipment loans is the large borrowing amounts available. With funding up to $5 million per piece, you could finance most commercial fleet needs.
When you use an equipment loan, the asset you’re financing – in this case, commercial vehicles – serves as the collateral. As a result, borrowers do not typically need additional collateral. This is known as a “self-collateralized loan.” Other self-collateralized loans include auto loans and mortgages.
Since the loan structure is self-collateralized, it’s sometimes possible to get 100% of the cost financed, meaning no down payment is required. However, that largely depends on the lender, the total cost of the loan, and your creditworthiness.
Applying for an equipment loan is simple. You can complete the application in a few minutes and receive funding in 3-10 business days. Bad credit equipment financing is available for borrowers with less-than-perfect credit scores. Equipment loans also offer the potential for significant tax savings with the Section 179 deduction.
What are the disadvantages of Equipment Financing for a Commercial Fleet?
While equipment financing has many benefits, it also has some drawbacks. For starters, commercial vehicles may lose value or become obsolete before the loan is paid off.
All financing arrangements involve some costs in terms of interest rates and fees. The lower your credit score, the higher your interest rate will be.
While some amortizing loans allow you to save interest by paying the loan off early, equipment loans often include prepayment penalties.
Equipment Financing for a Commercial Fleet: Pros & Cons
Here are the pros and cons of using an equipment loan for commercial fleet financing.
Pros:
- High borrowing amount, up to $5 million per piece.
- Easy application process & quick access to funds.
- Less-than-perfect credit scores accepted.
- The asset serves as collateral for the loan.
- Potential to borrow 100% of the market value.
Cons:
- You will have to pay interest and fees.
- The assets could depreciate or become obsolete before paying off the loan.
- Possible repayment penalties and a down payment might be required in some instances.
Frequently Asked Questions
Here are the most common questions about commercial fleet financing.
Can I get Commercial Fleet Financing with bad credit?
You’ll need a minimum personal credit score of 600 to qualify for an equipment loan. Some commercial fleet financing companies offer special programs for small business owners with poor credit. In addition, you could try a bad credit business loan.
These loans typically have higher interest rates and fees, but you could use them as bridge financing until you qualify for a more advantageous loan. Review your credit report before applying for financing to see if you can boost your credit score.
Is it better to Finance or Lease a Commercial Fleet?
Deciding between leasing a fleet or purchasing it with a loan depends on your business’s specific needs. Leasing is less of a commitment, but you don’t own the fleet.
With a loan, you own the fleet, but its asset value might depreciate, or you might need to replace it before paying off the loan. Consider a lease with a terminal rental adjustment clause (TRAC), which allows you to purchase the fleet at the end of the lease term.
Can I finance only one Commercial Vehicle?
Yes, you can use an equipment loan to purchase one or several vehicles (fleet). Buying a fleet of vehicles often decreases the price per individual vehicle, but sometimes you might only need to replace or acquire a single vehicle.
Commercial Fleet Financing – Final Thoughts
Purchasing a commercial fleet is a significant decision for any business. You need to find the right vehicles at a reasonable price, obtain insurance, and potentially brand the vehicles with your company’s logo and information.
An equally important part of the process is how you will pay for the fleet. Most businesses can’t afford that large of a purchase and turn to finance arrangements.
While there are plenty of financing options, equipment loans are increasing in popularity due to the flexibility in the loan structures. An equipment loan could be your best option to acquire or grow your business’s fleet of commercial vehicles.
Contact us to apply for a commercial fleet equipment loan or if you have additional questions.
