If your credit score is bad, it might feel as though it cancels out everything else you have in your favor when applying for trucking business loans. While that may be the case with some lenders, some might be willing to finance a strong trucking company that’s working through some credit issues.
Let’s walk through what you’ll need to keep in mind when applying for a trucking loan with bad credit, such as the factors that go into loan approval, tips for finding the right lender and qualifying, and ways to boost your credit score.
Thinking Outside the Credit Score
Lenders consider your credit score when you apply for a trucking loan, but your credit score isn’t the be-all and end-all. If you do well in these other categories, you could potentially make up for a weak credit score.
Business revenue. Ultimately, a lender’s top priority is whether you’ll be able to pay back the loan. If your trucking business has strong annual revenue — say, around or north of $150,000 per year — then you could be a good candidate for a loan, even if your credit isn’t great.
Years in business. Lenders will also consider how long you’ve been operating. The longer, the better, as it shows a track record of success.
Collateral. Collateral is a valuable asset that backs up a loan in case you can’t repay the loan. When you take out a trucking loan, your vehicles can be offered as collateral. Having good collateral makes it easier to qualify for loans when you have bad credit.
Current business debt. Lenders will check to see whether you have any other outstanding business loans — after all, if you’re already making payments on something else, you have less money to cover a new loan. On the other hand, if your business has little to no other debt, that improves your chances of landing a loan.
Business credit history. Your company can have its own credit report that’s separate from your personal credit report. If you’ve been consistently paying your business bills and repaying business loans, your business credit history could balance out a poor personal credit score.
A strong business plan. If you have a business plan that shows how new capital expenditures — such as a new truck — will boost revenue and profit, it’ll make you look better to a lender.
Qualifying for Trucking Business Loans
If you’re looking to take out trucking business loans, these tips can help you navigate the market, find the right lender and increase your chances of qualifying.
Get your financial documents in order. Before contacting a lender, collect your most recent financial statements, put together a short plan showing how you’d use the trucking loan, and check your credit report to make sure that there aren’t any mistakes. Having your documents in order will leave a good impression, even if your credit history is weaker than you’d like.
Find the right lender. Not all lenders are willing to work with business owners with bad credit, but some are. Traditional brick-and-mortar lenders tend to have tougher standards and credit requirements. Alternative lenders are more accepting. Before spending time filling out that loan application, make sure that the lender offers loans to businesses with bad credit.
Schedule a meeting. Don’t let a bad credit score stop you from applying for trucking business financing. Schedule a free consultation with a loan specialist and see what they offer. You might be pleasantly surprised.
Ask about prepayment penalties. If your credit score is bad, your loan might carry a higher interest score. But that doesn’t mean you’ll be paying it off forever. If, say, a new truck boosts your revenue, you could potentially pay back the loan ahead of schedule, thus paying less interest. But some lenders charge prepayment penalties — extra fees charged when you pay back your loan ahead of schedule. Work with a lender that doesn’t charge a prepayment penalty, and you might be able to get out of debt early.
Keep up with your loan payments. If you take out trucking business financing, make your loan payments on time — especially if you’re using your trucks as collateral. That way, you don’t have to worry about losing the vehicle because you didn’t make a payment. Making loan payments on time boosts your credit score, too.
Refinance. Refinancing is when you replace an existing loan with a new one at different terms. If you take out a trucking loan now, when you have bad credit, and your credit score goes up later, you could try to refinance the loan at a lower interest rate.
Improving a Low Credit Score
Trucking business loans can help you raise money now, while you have bad credit. But you should still focus on improving your credit score over the long term to open up even more funding options.
Make your scheduled loan and credit payments. Every time you make a credit or loan payment on time, it adds points to your credit score. If you miss a payment, though, your score drops. If you’re late on a payment, you have at least 30 days to make it before the lender reports a missed payment — and some lenders will give you up to 60 days, Equifax says. Use this window to catch up and avoid a hit to your credit score.
Pay down your credit card debt. Lenders and credit agencies also look at your total credit card debt versus your total borrowing limit. Forbes recommends paying down your balances to 30% of your limit or less.
Set up a business credit report. Setting up a separate credit score for your business can help offset your personal credit history. And if your business’s credit score gets high enough, you could take out business loans that you wouldn’t have to personally guarantee. If you haven’t done so, contact the rating agency Dun & Bradstreet to open your report.
Ask vendors to report your payments. Another way to improve your score is to ask vendors to report your monthly payments to your business credit report. This helps show lenders that you can be counted on to pay your bills — and pay them on time.
Don’t let a bad credit score get in the way of growing your trucking business. You can still qualify for many types of business loans for bad credit. By working with the right lender, you can get funding today and put your company in a much stronger position for tomorrow.