Rob Misheloff
Truck financing in today's market comes with its unique challenges and opportunities.
In this episode, finance experts Jennifer Phillips and Addie Alvarez provide balanced insights and practical strategies to help you navigate the landscape of truck financing.
Whether you're facing financing difficulties or looking to make informed decisions, tune in to learn how to effectively manage truck financing and keep your business moving forward.
Transcript
Alright. Well, welcome back to our smarter equipment finance podcast, episode eight season three, hauling through hardships and tackling tough truck financing in today's market.
My name is Jennifer. I have been with our company for about three years and in the industry for about eighteen, and I specialize in customer service. It's one of my strong suits, and I'm very excited today to have my very close friend and colleague.
I'm Addie. I am an account manager here, and I've been with the company since two thousand nineteen.
So let's kick this off, and let's kinda chat about where the trucking industry is right now, kind of the landscape of it, and what has changed over the last few years.
I guess the first thing is of many things is insurance.
Right? Insurance has really increased. And it's it's interesting too because it's not just the rate of insurance for a lot of these truck drivers on a monthly basis, but it's the upfront cost. Right? And we typically hear that for start up trucking companies.
It's not just, you know, a couple hundred dollars a month for them to insure their vehicle.
A lot of the insure their vehicle. A lot of the insurance companies, they want that month policy over six months or they want it over a year. So they're asking for twelve thousand dollars or even twenty thousand dollars. I mean, I was just chatting with one of the reps on our team about a deal where it came to the very end of the road of the transaction, and the client had said the insurance handled. And when he went to move forward, he found out that he couldn't afford the insurance, and the insurance was eighteen grand for him.
So Yeah.
I've I've had that happen where, a customer backed out of a deal because his insurance was, like, four thousand dollars. But, you know, he had a an accident that he was at fault.
So if you've been in an accident, tickets, the type of, like, truck that you're driving as well.
Right. And it's interesting too because a volume discount is something that's huge too for insurance when a truck driver only has one vehicle versus they are adding a second or a third vehicle, normally, that first and second is the most expensive. And then after that, truck number three, truck number four, the cost goes down with them. Is that typical? Yeah. Yeah. So another big thing, which is changing, and you're starting to see this more on the coast of the country, California being one of them that's heading it up, is a lot of trucks are now going electric.
Isn't that crazy?
That is. So you get a lot of, like, new versus old.
Right. And the emissions are different. Mhmm. So many times, for truck drivers, for them to be able to haul to California or out of California, it has to be a specific year. It has to have specific types of technology for them. So if some of if there's a truck driver where the majority of their income is coming from farmers, well, there goes all of California with this which there's a majority of farmers out there, and they're not gonna be able to haul from there.
So can you imagine a full electric truck one day? No. It's in the future.
Yeah.
I mean, yeah, I see it happening, but I mean, it's gonna take some time.
I think a lot of people, like, still wanna stay with, you know, like, the older trucks, which we get a lot of here with customers, like, refusing to get the newer trucks. So we gotta find ways to get the older trucks.
Right. Right. Yeah. Because at the end of the day, I mean, it doesn't matter the year of the truck for some of our underwriters, but others do. Right? So that's another thing that's actually changed a lot in trucking is not only just the load rates that these truck drivers are getting, which, you know, based on if they're gonna get a higher rate or a lower rate, but rates, finance charges.
That has significantly changed, and that also changes because truck drivers, a lot of them want an older vehicle. And some of our underwriters, if it's an older vehicle, they require a warranty, And they also require a higher rate to pay on it because the risk Yep. Is higher.
Yeah. I've noticed a lot of, like, with the older trucks, they give, like, the customers a thirty six month, term, a forty eight month term, just, you know, because it's an older truck, I think.
What's the oldest truck that you've financed? Oh. Think of one.
A nineteen eighty nine.
Nineteen That was the oldest for trucks.
Oldest equipment I've ever financed was in nineteen eighty six, which we can actually talk about that a little later because it was a little bit of a success story, which we'll get into.
And now what else would you say has been a challenge or things that have really changed over the years for, for truck drivers. We've we've talked about finance charges, insurance, electric, load rates changing.
I've heard from, like, larger fleet owners. Sometimes they experience a shortage of drivers.
Oh, yeah. So It's hard to find drivers. Let's let's hit on our next topic, which why truck financing is more crucial than ever. You know, I think when it comes down to it, truck drivers have to rely on financing in order to get the vehicle that they need because to come out the gates and just have a hundred percent of that money in cash is rare.
People typically don't have fifty, sixty thousand dollars sitting in the bank. I mean, we look at bank statements every single day, and it's hard for them to have that consistent income. So I think truck financing is just insanely important for truck drivers just to be able to get a vehicle. Again, who has that type of money?
So how much does a truck driver typically need when they're getting up and running for the first time?
For a start up, rule of thumb, twenty percent.
Yeah. With good credit. Right? Yeah. And if they do have challenge credit, it could go up.
It could go up a little higher. Yeah. Even forty to fifty percent down, which is insane to think of. Right?
Yeah. But believe it or not, a lot of these truck drivers that wanna, you know, go on and start their own businesses will actually have that in the bank because you've been saving for such a long time.
Yeah. So twenty percent down, and then there's equipment financing. Right? So there's typically two types of financing.
There is. Yeah. There is equipment financing and leasing.
And leasing. Yeah. So, the similarities, I would say, would be the terms, the general terms. Monthly payment, we know that it's gonna be a monthly payment.
Mhmm.
We know that it's a two year, a three year, a four year, a five year. Right? Twenty four months, thirty six months, forty eight months, sixty months. But, with financing, they own it.
They do. Right? It's their truck. With leasing, that is a little bit different. So when you lease on with a company, you know, there's there's different terms, right, that are that are very interchangeable.
When you say, you know, finance charges or rates where we could talk about finance charges of the loan itself and then the load rates. Same thing with leasing. Like like, leasing on with a company sometimes means that you're driving their truck, and you're you're making monthly payments to them, or you can technically lease a truck. So you go to a company that sells them, the trucks themselves, and you have their in house financing.
And you what you would do is you would have a buyout in the end, twenty percent, thirty percent, or what have you, and you would pay a lease payment. Sometimes it shows up on their personal credit. Sometimes it shows up on their business. And sometimes for leasing, it shows up on neither.
So that's really important for business owners if they're trying to build that credit and they've decided to go with a leasing option versus a finance option that it's reporting somewhere. Because that's huge for business credit. We were actually talking about that the other day, business credit.
Yeah. We were, I've actually had a customer who thought they were sending in their payments within the ten day grace period, but come to find out with PayNet, there is no grace period.
Yeah. Well, for business credit, there's typically most of our lenders don't offer grace period. I actually don't even know of any that do offer a grace period. It's not like a mortgage.
No. But it's similar because it's called an installment loan. So an installment loan is something that you're paid on a term or sometimes it's secured, sometimes it's not. So, yes, they technically don't have a grace period.
If it's a day late, it's late.
Yeah. And and that's the thing. In their heads, they were thinking, oh, it's, you know, like a consumer loan. And so I had to take the time to explain to the customer, your personal credit is very different from PayNet.
Like, PayNet, you cannot be late. You know, this is your future. Like, you pay something off, you can go back to these, you know, underwriters and get another loan. Right.
And they'll see your pay history. Like, wow. This person paid this, you know, forty eight month term perfectly without any leads.
And, you know, they'll loan them, like, twice as much. Yep. Or even more.
Just That's huge. Mhmm. It's huge. I just wanna touch on one other, just comparison in regards to a lease versus a loan. One might be better for, a client versus another because keep in mind that the liability it's not just the payment.
It doesn't fall on the client at the end of the term for an equipment financing agreement, but it's a liability.
So if the client's doing an EFA, they're technically the registered owner. We are the apartment. So right? They're not the owner of it.
So the liability falls on the underwriter or the lender. So that's sometimes why some truck drivers want to take that option. So that's a big thing as well. Yes.
Which is good for insurance too if you don't want that liability.
Yeah. No.
With, when you get a lease, you actually have to get higher coverages.
Oh, interesting.
Yeah. Because the, technically, the the lender owns it.
So Yeah.
They need to protect their assets.
So they'll increase the coverage.
Yep. So it's huge. There's two types of approvals that, that we can get for a client. One of them is called, just a standard approval, and another one is called a placeholder. So a placeholder is when the client actually hasn't picked out the vehicle. Unfortunately, placeholder doesn't actually mean that they are approved.
It really just means that the lender is okay and thinks that they wanna work with them. However, we then have to get the vehicle approved. So, right, it's a whole package of stuff that we are requesting, and the vehicle makes a big difference if it's a two thousand and nineteen versus a twenty twenty. If it has four hundred thousand miles versus five fifty, the approval could change significantly, hundreds of dollars. So that's something that we help coach our clients in.
It's, you know, a temporary truck.
For instance, I had a customer who wanted a truck, got her approved.
Now, when she went out and looked for a truck, she picked out an older one with higher miles. So she had to put down, twenty percent down. Oh, yeah. And the the term was Shortened. Shortened to thirty six months. So she went back out and just picked something that fit the criteria, narrowed down, longer term. Awesome.
Yeah. It's challenges. It it's it's and the biggest thing that we do here, we could just say, okay. Here's your term. But we try and really coach people and say, you know, based on your credit, we could get you this program. But if you don't wanna put that money down and what's most important to you? And I think that the that the discovery process that we do here is way more extensive than any company I've ever worked for.
And it's huge because then it really sets the person up for the right product that fits their needs.
Yeah. I always ask them, what's the most important thing for you? Like, do you want a long term, short term down payment? Like, what are you thinking? So definitely important.
Give me some insider tips. What do you think would make the application process smoother and increase someone's chances of getting an approval?
I'll send them a checklist of the items that I'll need to make everything smooth. A lot of the times for, like, my older customers, I'll have to guide them and teach them how to download their bank statements, how to, you know, do certain things, like, as far as, like, don't take pictures of your bank statements and text them over.
Just, you know Scan a PDF copy.
Right? Try and download it instead of taking pictures. Yep.
Yeah. You know, those sort of things.
Making sure that they have the twenty percent down available. Right? Yeah. We I did have someone take a picture of actual cash once.
Cash. Cash. Yes. Right? So we don't want pictures of cash. We want the cash in the bank account.
Yes. Yes.
Yes. At least twenty percent. Yes.
Absolutely. If they're a startup that's required. Yeah. Yep. Awesome.
Can you tell me some success stories that you've had?
Yeah. Absolutely. So, it's funny, actually.
I had a client who was very passionate about one specific truck. So it was definitely a challenging transaction.
A lot of people call in and they say that they wanna work with a private party with versus a dealer. And, yes, you can get a great deal on a private party transaction versus a dealer transaction, but keep in mind that a dealer sells a volume of trucks, and they are held to a higher standard.
A private party is held to no standard.
So when you are buying something, you are buying it as is no matter what.
So some of our underwriters don't work with private parties. So number one, that was a big challenge.
Number two, the client wanted to purchase a vehicle that was nineteen eighty nine.
Nineteen eighty nine. And he told me it was a clean, beautiful truck. Don't get me wrong. Clean and beautiful is not things that I would ever correlate to something from nineteen eighty nine. I mean, I'm born before nineteen eighty nine, but I'm not a piece of equipment or a truck that's been driving on the road for that amount of years. So yes. And it had over a million miles away.
And it was still running.
It was still running.
We got a lot of declines.
And this client was getting frustrated, so I just kept coaching him through. And I said, listen. You know, there's a process that we do, and we our biggest thing is not making sure that his credit was dinged up, so we didn't go anywhere where there was a hard pull. But he had a seven fifty two FICO, and he's never been told that he was declined before. So I just said, listen. We are bringing in a challenging transaction to an underwriter.
And I wasn't able to provide income at that time because he was ramping up for his busy season. So many times, we have to show bank statements. So we we were just it was an uphill battle for everything that we were trying to get for him. Well, we did have an underwriter who approved it, bought the deal, funded it, and it was quite challenging, especially because the private party didn't know anything about technology, didn't even know how to use his camera on his cell phone. And, he was leaving on a vacation, so I had two business days to get everything done.
So, yeah, all of this is coming back. It's, like, flashing back in my head, but we got it done. We got it funded.
It's a huge successor. I actually just contacted the client about a month ago just to check-in on him, and he is loving his nineteen eighty nine over a million mile truck. And it is making great money for him, and he's moving and shaking. So now let's talk about some common pitfalls and how our clients can try and avoid them.
So there's potential risks. So let's chat about the different mistakes and risks that truck drivers, are doing in the financing process. Many times people will come with to us and they won't keep up with their secretary of state. It will be inactive.
Right? Or they'll have people on their secretary of state that aren't even involved in the business anymore.
That could be a big common mistake. You wanna make sure that your your your business filing with your state is active, active members, that you're paid up in full.
Because if you've been in business for a long time, that's how we view your time of business is through the secretary of state. Yes. Right?
Another common mistake is Yeah.
You know, there's been clients that don't do their due diligence where they buy their trucks. And, you know, once we finance it, it's theirs.
So Right.
So they won't test drive it.
They won't. No.
And they'll get it approved?
They'll get it approved. They'll take it. I don't know. They just think it's, you know, it's it came from heaven. It's perfect. And two months into it, the truck breaks down, and we can't help them anymore.
Right. Right. So one of the biggest things when you say do do your due diligence, that's a talk about a hard word to say, make sure that you go down to the dealership. You before we go through the whole approval process, make sure that this is the truck that you want.
Right? Test drive it. Maybe put a deposit down on that truck. If that's your end all, be all, baby, and you want that truck and you feel really confident about it because industry wide, we're finding a limited amount of vehicles.
I mean, the good ones are selling quickly. So just making sure that if you have your heart set on it, making sure that's the right truck, checking it out, and then maybe even having a certified mechanic check out the truck. Yeah.
And keep in mind that there's so much that goes into it. By the time that we are ready to fund a dealer, you are I mean, we're done. We've now there's been money exchanged. There's been titles that have been signed off on. There's been contracts.
There is insurance in place. So we need to make sure that when contracts go out to a client that that client wants that. Right? Yeah. So when they are gung ho and passionate about it, you know, making sure that you say, have you test driven it? And they're like, well, yeah. But no.
Have you test driven that truck? Is that your you know? Yeah. Or would there be anything wrong with it, or there would there be a reason that you would back out of this situation? Because you're looping in so many other parties and wasting money.
There has been clients where they get pictures expected. Right.
Right. So another, potential risk and something to to think about when clients are applying for financing is when they've incurred recent debt. Right, evolving as well as on their business?
Yeah. Like, for example, like, during COVID, a lot of these business owners went out and took out several loans.
Yeah. So, I would say one of the strategies, that I would suggest for clients is a few things. First thing is is any loan that they take out commercially, making sure that they keep that for anywhere from twelve to twenty four months. Right?
Because that's considered a a comp a comparison, which is huge because you wanna build that business credit. Another thing is not to have a ton of debt incurred Many times, we have clients that call in, and they have they, you know, they have their fuel cards reporting onto their personal credit, and they show that they don't have any availability. That percentage is below twenty percent or even forty percent. And many times, our underwriters won't approve a client if they are considered what's called over leveraged.
They have too much revolving debt sitting on their personal credit. So a tip or trick for a client, if you are ramping up to purchase a vehicle, making sure that your revolving debt is low as possible during that approval process, making sure that the cash flow is showing that you're consistent. You know, don't be a a crazy person from nineteen thirty four and tuck away money in your in your, Under the couch. Under the couch or in the mattress.
Because, unfortunately, in today's day and age, these underwriters wanna feel warm and fuzzy inside that you have access to funding. God forbid, what? You need money for insurance or your truck breaks down. It's very expensive to fix a commercial truck.
It is. Great.
I had a client who, instead of using her business credit, she used just personal.
And she couldn't even buy a house because she had so many loans, like, in her personal credit, but it was all, like, trucking. Right. So I explained to her, you have to separate your personal credit from your commercial credit.
Another thing too is growing too fast. A lot of our clients come in and they're ready for that next truck. And I always say, you know, when you are a little kid on Christmas morning and you want all the things and you have that big list of stuff, like, we need to tone it back a little bit, and let's get the bare minimum, you know, what you need at this exact moment. And that's really the the the perspective that you should have when you are growing your business.
Try and pay that debt down as much as you possibly can. You don't wanna overextend yourself. God forbid, you know, three of your trucks break down. What are the chances?
But it could, and now you have no income coming in. So just making sure that you are most the most conservative way that you can be in regards to your cash flow and and what have you.
So those are some successful tips that I think we both agree on in regards to completely agree.
Yeah.
Companies.
So well, thank you so much for your first episode Thank you, Joe. On the Smarter Finance podcast.
This was fun.
Yeah. Definitely. A lot of fun.
I think that a lot of our clients come here to learn about, a lot of different things, and we try and give as much information. So, if another topic is interesting to you and you're watching our podcast, let us know. Comment below.
Let us know if you like this, if you want additional topics. Any articles that we chatted about will be linked below, and definitely give us a follow and a like. And thank you so much. I don't even know if we actually introduced ourselves, so maybe we should get there really quick. But this is miss Addie. And I'm Jennifer. And thank you so much for joining us on the Smarter Finance podcast.
Thank you.