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Becoming an owner of a heavy truck you can consider yourself an owner operator. This can be a rewarding career both professionally and financially. However, you are not only a trucker but now you are as a business owner and you have additional responsibilities. You are responsible for getting equipment and for running operations. These responsibilities can be expensive. Unless you have enough capital, you will need financing to get your new trucking business rolling.
Getting your first truck is likely your biggest and most important expense because without a truck, you don’t have a business. Being as commerical trucks cost upwards of 200,000 K you will need to consider which options is best for you. There are two ways that you can get a truck: purchase it with a loan or lease it.
Purchasing a truck is pretty straightforward. You make the initial down-payment and then pay monthly until the truck is yours. Financing a truck can also be quite simple if you are buying new and from a dealer. Most dealers have some sort of factory financing in place with mulitple options for you to choose from.
If you decide to lease a truck you will find that leasing can be a little more complex. A lease is structured almost like a rental, in which you can use the truck in exchange for a monthly payment. At the end of the lease period, you either return the truck or purchase it. Often, the purchase price is defined in advance and is known as the “residual value.” Each senario has advantages and disadvantages and each is based on individual situations. This variability makes giving specific advice difficult.
Once you have your truck, your next big cost will be running your business. The biggest expenses for owner-operators are fuel and repairs. You need steady cash flow to be able to pay these expenses on a monthly time frame. Most shippers pay on net 30-day terms or even 60 days. That means you may need to wait 30 to 60 days until your invoices are paid, which few owner operators can afford. This is where borrowing extra at the start is essential for survival. This is a factor that a lot of owner operators forget and having a line of credit is crucial to getting through the first few months of operations.
Getting started in the trucking business can be frustrating if the owner has limited or bad credit. Financing alternatives are still available, though they may be structured differently or priced accordingly. Keep this in mind as you review all your options.
Because the trucking industry is an asset based industry a truck is considered an asset that can be used as collateral for financing. If the owner operator defaults, the truck can be repossessed. Also invoices are considered assets that can be financed through a line of credit.