Time for a New Truck: Guidelines for Handling the Purchasing Process

Pay attention to these guidelines when it’s time to borrow money for your next truck.

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Is it time for another truck?

Whether your business is expanding or you simply need to replace an older piece of equipment, you can expect to spend a fair amount of time making your decision. That new asset is an important investment, and you’ll want to make sure you get one that meets all your needs.

But once you’ve picked it out, your decisions aren’t over.

Perhaps you have the resources to pay cash up front, but it’s more likely you’ll need to finance the purchase. And that means more choices. Will you take financing from the dealer? Get a bank loan? Consider other options?

Your course of action is anything but automatic – and when you’re preparing to take this step, you have to be deliberate about which choice will be best for you and your business.

Dealing with the dealer

Dealer financing – whether it’s part of a program from the manufacturer or is independent of the company making your new vehicle – is probably the path of least resistance. Just being able to do “one-stop shopping” for a truck and loan together is likely to make it attractive.

Don’t snub the value that convenience offers you. At the same time, though, don’t forget that you have other options.

Financing through a dealer or manufacturer could be a bit more expensive. One reason is that in its eagerness to make a sale, the dealer- or manufacturer-affiliated lender might be willing to take a bit more risk on the loan than a conventional bank – and the riskier the lender thinks you are, the more you’re going to pay.

If you’re a strong candidate for a loan, however, you may do better going through that conventional bank.

Taking it to the bank

For most businesses seeking a loan for some piece of heavy equipment – a vacuum truck or a trailer-mounted jetter, perhaps – “it is just as easy to get it through bank financing as it would be to go through your dealership,” says Bud Miller, chief sales officer and senior VP for small business sales and distribution at TD Bank.

“Strong borrowers are very attractive to banks these days,” Miller says. While the economy is still a bit feeble, the downturn winnowed out the weakest banks. The survivors are now ready to try to grow again, he says, and so “the competition is very, very strong for strong borrowers.”

The ‘3 C’s’

The key to a bank loan is to understand that your banker’s top priority is making sure the bank gets its money back and profits from the deal. One easy way is to show them you’re on top of all of the “3 C’s” – cash flow, credit history and collateral.

You want to show the bank your business has a strong cash flow and that paying your loan on time will not strain your budget.

That doesn’t mean you have to present a formal business plan simply for a loan for one piece of equipment, but you will need to be sure your recent business tax returns are in order and easily show the condition of your business.

In demonstrating your cash flow can support the loan, you’ll want to look forward, not just backward.

If this is replacement equipment, your job may be fairly easy: Just show how you’ve profited from the unit your new purchase will take the place of. If the new one has efficiencies built in that could make it do more work in less time, make sure to show that, too, as concretely as you can.

But what if your new asset will allow you to expand into a new geographic area or a new subspecialty in your work? Your task might be a bit tougher, but if you’re making a realistic decision, you should be able to demonstrate it. Show the bank you’ve crunched the numbers and produce solid evidence for the increased business you’re projecting.

“If you’re buying a truck because you just received a new contract, and your current cash flow is fine for what you currently have, but adding on will stretch your cash, having some projections for what the new business is going to bring you is going to be important,” Miller says.

Good credit

You’ll also be asked for both a business credit report and, in all likelihood, a personal credit report. Paying your debts on time, as a business and as an individual, can make the difference down the road as to how much it will cost you to borrow when you need to make that purchase. If you ran into a crunch sometime back and it shows up on your report – business or personal – “be prepared to discuss what happened,” Miller warns.

Another standard request will be for a copy of the invoice on the equipment you’re buying. The bank “will want to make sure its value is appropriate to what the individual is paying.” After all, if you do default on the loan, the bank will be stuck with having to resell the item in order to recoup its losses. That’s the collateral.

Most lending programs for vehicles and similar business assets are pretty straightforward. Miller notes, however, that there are some additional options for smaller companies through the federal Small Business Administration.

SBA-backed loans can be especially helpful for newer companies that haven’t been around long enough to build a strong business track record. Essentially, the government agency helps guarantee the private bank’s loan, which can make the difference for some companies in their ability to borrow, or borrow at a better rate. From time to time, SBA has waived up front fees on loans like that, so make sure to see if your bank is participating in such a program and what help it might offer you.

SBA loans can also help if you want to put less money down, Miller says.

A lease on life

Still another option might be a lease. Leasing is likely to cost a bit more than a conventional loan, but Miller says it doesn’t have to be significantly more expensive – perhaps a half a percent or 1 percent more. The big advantage to a lease is that it could allow you to buy the asset with no money down.

Whatever decision you make, one thing will make the whole process a lot easier: a strong relationship with your bank going in.

The importance of relationship

Forming that relationship and nurturing it long before you actually have to seek a loan can do a lot for smoothing the application and approval process, Miller says. That way you have an ally and a supporter in the bank who can hear the unique story of your business and then relate it up the chain in their own organization to make the best case possible on your behalf.

And when the time comes to buy that truck, you may find that the choices are actually a whole lot less complicated than you feared.



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