Whether you’re an individual or a business owner looking to invest with a truck loan etting a loan for your new truck is like getting a loan for anything in that it follows similar steps for each process.
Some people find getting approved for a loan challenging. But it doesn’t always have to be difficult – every lender will have similar criteria they compare your application against which are generally similar. We’ll talk about these below.
So, there are certain things you should get organised in advance of your application to improve your chances of getting a better deal on your loan, getting the amount you need, or even just getting your loan approved altogether. Read on to find out how!
How To: Get your truck loan approved
(or at least have a better chance!)
1. Check the market and figure out how much you’ll need to borrow and how much you actually want to borrow.
Knowing what your budget is will make you look like you’ve at least done some homework.
This information will also be used for the lender or finance broker to get an initial idea of what you’re looking for in your loan. It also facilitates the discussion about your repayment options and how long you want or need the loan to be.
2. You can pick your truck or at least know the type.
Though it is not essential to know what truck you want to purchase at least having the type and use in mind shows you’ve taken steps to get organised. It also demonstrates forethought – when you know what type of truck your business needs it shows that you have considered how the investment will work for your business.
This shows you have a solid plan behind your purchase and gives the lender confidence that the asset will be able to pay for itself as you use it in your line of work.
Many lenders will however be perfectly happy to pre-approve you – it just depends! But to have the best chance of getting your loan approved then it’s best to know what you need to get the job done.
3. Make sure your cash flow is positive so it can flow to your loan repayments.
Lenders are not only looking to see if you have chosen the right truck for your work requirements.
They’re also wanting to know that you’re a trustworthy borrower who can repay the loan on time and relaibly. One massive component of this is of course your cash flow. Is it regular and able to cover the loan repayments for the amount you’re seeking to borrow? If so, that’s good, if not, that doesn’t mean it’s a “no”, but it will be harder to get approved.
If you have 24 months of healthy/normal business or employment activity and your books or personal accounts reflect this then you will be more likely to have an easy time showing the lender that you’ll be able to make your repayments. However, if it has been months between jobs and your cash flow is irregular there will most likely be more difficulty in proving that you have the income, as there will be no clearly evident source of income. This may not be a problem if you have a significant amount of savings available to service the loan over the whole term of the loan. It just depends on the situation and the whole application.
If you need to have a projected cash flow document organised or your books organised it can be wise to hire a professional accountant for the job. When properly prepared these documents add credibility to your application by neatly and clearly present your financial case. Not 100% necessary but every little thing can help.
4. Got some debts? What about assets?
When it all boils down, lenders just want to give loans to borrowers with a low level of perceived risk, so the easier you make it to give you a loan the better your chances of getting approved are.
Lenders will evaluate your entire finances before granting you approval. This means you will need to have an up-to-date assets and liabilities statement prepared by your accountant or bookkeeper. Being up front and honest is the best approach to this situation, as your credit file will also be checked together with your bank account. As they say, everything comes out int he wash!
But don’t worry – it is expected that you will have some degree of liabilities and debts as pretty much everyone does.
5. Assets and obligations – know what you’re agreeing to.
Taking out any kind of finance is a contractual obligation that binds you to repaying your debt. Be sure to take it seriously as it can be very detrimental or very beneficial depending on how you manage your loan.
People often ask us if their personal items can be used as assets. Though they are not essential and usually not used for a commercial loan, they can be used as security against your loan depending on the loan arrangement. This can result in a lower interest rate and a better chance of getting your loan approved due to a lower degree of risk involved in lending to you.
But most lenders will choose the truck itself as the security. Security means hat if you default on your repayments you’ll lose the truck as it will be repossessed and sold to recover the cost of the loan. It will also have the effect of giving you a bad credit score, or at least lowering it substantially. So it goes without saying that you must take your finance obligations seriously.
Your personal property is usually not used for a commercial transaction, so if your business is purchasing the item then it will be liable for the loan. This means that for example you can’t lose your home or personal car. It does mean that your business can be legally pursued, which can be worse depending on your financial situation. Long story short – if you take out a loan just do the right thing and you’ll be fine.
6. What type of loan works best for your business?
There are a variety of different finance options available depending on how your business is set up and structured. The various different types come with different tax obligations and advantages. It is 100% worth choosing the correct arrangement to suit your situation as it can save you money in being able to claim the cost of the loan and the asset against your taxed amount. You can also control how you classify the asset depending on the finance arrangement you choose.
The three main types of finance you’re likely to come across are a chattel mortgage, hire purchase or lease. At Equiplend we mostly work with chattel mortgages, but we can point you in the right direction so don’t hesitate to get in touch. We also speak about the different loan types in this article.
Ultimately, if you aren’t sure what kind of loan would suit you best you should consult your accountant before making any decisions. Then if you want the best deal on your finance contact a finance broker like Equiplend who works with a large range of lenders. We actually work with over 35+ lenders so you’re bound to get the best choices available.
That’s it for now.
Let’s talk about your truck finance – say “g’day” through the form below!