How Commercial Trailer Financing Works – Lewis Capital

If you've ever attempted to purchase a trailer, similar to how you would purchase a truck, then you likely stumbled into some confusion early on. They age differently, they're valued differently, and there are a lot of lenders who aren't that familiar with this part of the industry that price deals properly. So if you're looking to understand the commercial trailer financing process before you sign on the dotted line, here's the truth with no jargon or sales pitch.
The financing of trailers at Lewis Capital is not a side product of the financing deal on the truck, but rather something we do daily. So we'll take a walk through it as we would explain it to be sitting across the desk from us.

Commercial Trailer Loans: What Influences the Deal?

The first factor that affects your loan is the trailer itself. Each type of dry van, reefer, flatbed, lowboy and tanker has its own resale curve and its own maintenance profile. A 53-foot dry van can remain useful for more than 10 years with just simple maintenance, and a refrigerated van has a cooling system that costs and complicates the acquisition and ongoing maintenance.

This is significant because there is no standard formula when it comes to the types of equipment a good lender would use. They consider the age of the trailer, what it will be used for in your operation and price the loan based on that not based on a "vehicle" category which treats a tanker just like a box trailer.

How Numbers Change: New vs. Used

After the trailer type has been decided the next question is new or used and this can alter the shape of the deal.
New trailers generally have better terms and rates because there is no wear history, and the equipment has a long runway to go. If you're looking to run the trailer hard for years and guarantee payments for a long time, that's appealing.
Operators looking to add capacity without a large investment, however, may find used trailers to be the better choice, particularly for equipment that retains value such as dry vans and flatbeds. The compromise is the terms on the loan typically aren't as long, and the lender will examine the condition and expected life of the trailer before establishing terms. This is where it's important to use a lender who understands the concept of trailers: a used trailer on a good price, appropriate term and life, is superior to one crammed into a loan structure that is just not designed to support the equipment.

The Trailer Financing Company Application looks like this

This is where lots of operators would like to see more friction than actually happens. A typical application will include basic business information (time in business, revenue, and sometimes recent bank statements) and information on the trailer (make, model, year, condition, purchase price). When you're buying from a dealer, they will likely have the paperwork available; if it's a private transaction or from an auction, having some photos and a bill of sale in hand will help smooth the way.
The most important element is not paperwork, it's speed. Used good trailers don't wait around for someone to secure financing. One of the primary reasons operators seek out a finance company that specializes in the financing of trailers versus a traditional bank is because a finance company would have a quicker time making a decision on granting the loan to the buyer typically within a day or two, as opposed to a couple of weeks.

Learn the terms and details about down payments with a Commercial Trailer Lender

The down payment amount on commercial trailer loans is typically between 0% to 20% of the vehicle's value and depends on the credit profile of the individual, length of time in business and the type of trailer. A term is usually between 36 and 84 months. More recent or higher dollar equipment such as a new reefer trailer will typically have the longer end of the range, whereas older used trailers will typically have the shorter end of the range, corresponding to the asset's remaining useful life.

If you are financing more than one trailer, you might want to ask your lender what they do for repeat customers. A commercial trailer lender who has no record of you with them, but who considers your second, third or fourth commercial trailer deal to be easier to approve is better for you in the long term that someone who does not have a history of you at all, and assumes that each business deal is a new start.

Why Operators Work With Lewis Capital is the most significant.

We built our process around the way trailers work in this business: They don't value like trucks, good used equipment sells quick, and owner/operators do not have time to sit on a decision for two weeks while a trailer they wanted sells. Lewis Capital offers financing for all types of new and used trailers, dry van, reefer, flatbed, and specialty equipment, and we build the financing deal around the trailer and the operator not a template.
Whether you're purchasing your first trailer or expanding your existing business' asset base, knowing the financing inside and out will help you get ahead of the game when it comes time to negotiate with the seller, as well as your lender.

Frequently Asked Questions

What is a trailer financing?

The lender considers the type, age, and condition of the trailer and the length of time your business has been in operation, as well as the revenue generated, then develops a loan that is based on the useful life of the equipment to be financed, and includes a term (usually 36 to 84 months) and a down payment (usually 0-20%).

Do you qualify for a loan for a used trailer?

Yes. The value of used flatbeds and dry van trailers are high, and they can be financed regularly. Often the terms are shorter than new trailer financing and are dependent on the condition and age of the trailer.

What credit score is required for financing a trailer?

The minimum is not one-size-fits-all, as lenders take into account both business income and length of time in operation, as well as personal credit. The better the credit score, the better the rates and the less the down payment, but many operators with average credit will still be good.