In short, the answer to this question is yes you can – BUT it all depends on which financial institution you apply with.
Generally, the big four banks would not give a truck loan to anyone that does not own a house, unless the customer is contributing a large upfront deposit (30% or more) or if the business is existing with strong profitability.
Why is owning a house so important?
When Financial Institutions assess a customer’s risk profile, a property owner’s risk is decreased due to the following reasons;
- Demonstrated ability to save money and make consistent loan payments
- Has the ability to raise money against equity in the property in the event of a slowdown for the business
- In some instances, the property can be used as security (by way of caveat, first mortgage or second mortgage)
- Evidence that customer has assets, which can be pursued in court in the even that the truck or equipment is repossessed and monies still owing
So financial institutions, believe that properties are less likely to fail and therefore can achieve a lower risk rating.
Given a property owners lower risk profile, these customers can obtain the following;
- Better interest rates on loans
- Higher loan amounts
- Loans with no deposit requirements
- The ability to borrow on equipment that is older than five years old
- Access to a greater range of low doc products (no financials)
- Access to more diverse range of lenders
- Access to greater levels of capital (particularly important during the growth phase of a business)
- Quicker turnaround times on approvals and settlements
How to get a start in business if I don’t own a house or have a large deposit?
Fortunately for those looking to make a start in business by purchasing their own truck, there are options out there, even if customers do no own property or have funds to contribute towards a large deposit.
Tier two lenders can provide funding to non-property owners, if the customer can provide;
1 – work source letter indicating they will have work for the truck as a full-time contractor earning X per month
2 – confirmation that they have funds to cover running costs (must be genuine savings over a 3-month period)
The information required by the tier two lender is nowhere near as onerous as what it would be for a bank.
Where do tier two lenders obtain money to lend?
Tier two lenders can source funds from either private funders or believe it or not some large financial institutions. In any event, the provider of the capital expects a higher return on their investment, as they are aware that their funds are being loaned to high risk customers.
This being said, customers that use tier two lenders will pay a risk premium on the loans obtained, so the investors can realise their higher return on investment.
Should I use a tier two lender?
If an applicant for truck finance has been refused through a large bank, there is always the option of negotiating with a tier two lender.
Please consider the below two scenarios;
- Worker not able to obtain bank funding and therefore continues to work for wages as a truck driver
- earning approx. $60K per annum
- worker building up a business for his boss and not his or her own
- no establishment of commercial credit history
- worker obtains finance via tier two lender and secures work with a large company as a subcontractor
- earnings increase to $250K per annum
- worker building up a business for themselves that can be sold in the future
- establishing a commercial credit history, of which will make it easier to borrow for truck loans in the future
The most important thing to consider whether or not to apply for a loan with a tier two lender, is to consider the opportunity cost of not obtaining bank finance and continue working for wages, or to apply with the tier two lender and become self-employed.
As long as the net position on the latter exceeds the gross wages on the former – then it might very well be worth looking at a tier two lender, when applying for truck finance.
Do I need financial statements to apply for these types of loans?
As a general rule, customers do not need to provide financials. These loans can be approved under low doc, but at lower limits than the big banks. At worst, clients will need to provide a copy of their bank statements to confirm income over a 3-month period or to confirm that funds are available to cover running costs.
Can I payout and refinance the loan down the track?
A refinance of the existing facility could be achieved after the customer has between one to two years of accountant prepared financial statements.
Moreover, the payment history on the existing facility would have to be perfect and the balance of the loan would need to have amortised sufficiently, so that the payout does not exceed the value of the truck. As a general rule, payouts or refinances on existing equipment can be achieved after year 2 or year 3 of the loan contract.
So what does this all mean?
Back to the initial question of “ Can I get a Truck Loan if I don’t own a house? “ . The answer to this question is most certainly – yes you can.
If bank funding is not available to customers obtaining loans for new or used trucks, then they can always look at tier two lenders to either get a start in the industry as a self-employed contractor or to extend the fleet of trucks for an existing business.
Heavy Vehicle Finance has no deposit truck finance options for customers that are unable to obtain bank finance. Heavy Vehicle Finance always asks their customers the following questions in order to ascertain suitability of this type of product;
- how much will the truck earn going forward
- are the nominated payments of X per month affordable?
- can a work source letter be obtained, indicating that the customer will have work for the truck earning X per month
- are funds available in the bank to cover running costs
If the answer to the above questions are yes, then customers qualify for truck loans with Heavy Vehicle Finance.
Prospective customers looking to source truck finance can apply online in order to obtain a finance pre-approval.