Tidying up Your Company's Credit

10 steps to make your next truck loan application easier and less stressful.

Paccar Financial Pembroke Karen 2012

It may seem like the only companies that can get credit to buy new or used trucks are those that don’t need it, particularly in a recovering economy.

However, by taking proactive steps, such as gathering financial statements, dusting off the company business plan or completing one, and improving or maintaining your company’s safety fitness ratings, there’s little reason why companies shouldn’t be able to get a loan, said Karen Pembroke, director of credit for PACCAR Financial. Particularly if they work through a lender that understands trucks, fleets and the trucking industry.

“It’s a good idea to share your company’s story with your truck dealer so that the dealer can share your goals and needs with the lender,” Pembroke added. “We’ve had applications from companies working in the construction market in depressed parts of the country. And because they showed how they worked through those difficulties, their loan applications were successful.”

Pembroke said it’s also important to show lenders how you generate your income. Who do you haul for and how long have you been hauling for your customer(s)? Lenders are looking for longevity and stability when they consider whether to approve loans.

Pembroke offers a list of 10 tips that can help fleets improve their chances of an approval when they apply for a new or used equipment loan. Here they are:


Step 1 – Safety Pays: Examine your safety assessment on the CSA website.

Companies that operate interstate truck and trailers or that are required by their state department of transportation to have a federal DOT number on their trucks should examine their fleet’s safety assessment on the U.S. Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability (CSA) program web site:


“An unsatisfactory carrier safety rating could make you too much of a credit risk,” Pembroke explains. “If you have a checkered safety history, lenders will wonder about your ability to operate safely and efficiently and your commitment to repay the loan.”

If something shows up on their safety assessment, Pembroke recommends companies contact the FMCSA through the web site at https://dataqs.fmcsa.dot.gov/login.asp on how to best address the issue.



Step 2 – Gather your most recent financial statements from this fiscal year and from the last three fiscal years.

Some of the most important pieces of information that will help your company establish whether it can borrow money for new equipment are its financial statements.

Pembroke said the recent downturn in the economy may have wreaked havoc with your company’s profit and loss statements. If that’s the case, it may be important for your company to go back further and show financial statements from the past several years, particularly if they show your company was doing well before the downturn in the economy, she added. If your company has seen dramatically improved results in the last several months to a year, be sure to point that out. And explain how you think those results will continue. The key is to have statements readily available to provide to the lender.


Step 3 – Dust off your company business plan and update it. If you don’t have a business plan, consider drafting one.

It’s important for lenders to understand your business, who are your customers, how you operate, your company’s mission and future plans, Pembroke said. Your company’s business plan should explain where your company operates, how it operates, how it generates income and from which customers.

“If most of your company’s revenue comes from one or handful of customers, you should explain your company’s relationship with those customers, and why you think those customers will remain with you,” Pembroke advised. “If your company is planning to move into new markets in the next several years, that should be something included in your company’s business plan.”

If your company doesn’t have a business plan, visit the U.S. Small Business Administration’s web site for tips on how to write one: http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/how-write-business-plan


Step 4 – Establish good commercial credit references.

Establish or obtain commercial credit references from three or more companies with whom you do business, Pembroke said. A commercial equipment lender or bank is the most important source; additional references could be your tire dealer, diesel fuel provider, parts supplier, or anywhere your company has established accounts it pays regularly. The credit references can help show your company as a good credit risk.


Step 5 – Check your company’s business credit report and score at the major business credit bureaus. If your company isn’t listed, register your company with the business credit bureaus.

Check your company’s credit history by requesting a report from one, two or all three of the major business credit bureaus.

Verify the accuracy of the information contained in the reports. “If you see something that’s wrong, make note of it and write a brief, but detailed explanation of the error, why you think the information is incorrect and how the information should be updated or corrected,” Pembroke said. “Use accurate dates and amounts since the business credit bureau must verify the information you provide with your creditors.”

Because business credit transactions don’t have to be reported, any or all three of the business credit bureaus may not have a report for your company. See the sidebar on the differences between personal and business credit, how credit transactions are reported differently and how to establish a business credit report.


Step 6 – Actively manage your company’s debt.

If your company is current with all of its creditors, congratulations! Since payment history contributes significantly to its financial score calculation, staying current with bills is the best thing you can do to keep your company’s score higher, Pembroke said. If your company has any delinquent payments on its record, it’s vital to get current and stay current with payments.

“The longer your company pays its bills on time after being late, the higher its credit score will rise,” she added.


Step 7 – Create a list or flow chart of your company’s corporate structure.

To help lenders understand your company’s organizational structure, create a flow chart that explains who is responsible for what at your company. Does your company have a CFO, fleet manager or vice president of operations? If so, does your fleet manager report directly to your vice president of operations, or to the CFO? Or as the owner of the company, do you act as the company’s fleet manager, CFO, and operations executive? Lenders will want to know who is ultimately responsible for your company’s equipment and who holds them accountable. Keep the flow chart current so you don’t have to create a new one when applying for a loan.


Step 8 – Draw up a fleet description, listing the number and type of trucks and trailers your company currently operates and how they are used.

In that description, it’s also important to explain how the new or used equipment acquired with your loan will be used. Will your company be able to go after new or more business with the new equipment; or is your company replacing older units? If so, why and do you expect any improvements in driver satisfaction, efficiency or payload or reductions in expenses with the new equipment?


Step 9 – When financing your trucks, diversify your resources by using a captive lender that truly understands trucks and the trucking industry.

By using a captive lender that’s linked at the hip with the truck manufacturer and truly understands trucks and the trucking industry, like PACCAR Financial, truck operators don’t have to explain the necessity for certain equipment on their trucks, Pembroke said.

For example, a heavy hauler may need expensive equipment like higher horsepower engines, auxiliary transmissions or fully locking rear differentials that raise the cost of their trucks, but makes them more efficient in generating revenue.

Using captive lenders also helps companies diversify their source of loans, allowing them to reserve lines of credit at the bank for operational needs, she added.

“By using a captive lender that understands trucks and the trucking industry, you’re setting your company up for a more successful lending experience,” Pembroke added. “For example, since PACCAR Financial understands how some trucking operators like agricultural product haulers or loggers have cyclical businesses dependent on things like the weather, PFC can offer payment options better suited for their business.”


Step 10 - Be prepared to make a down payment, depending on the extent and quality of your past credit history.

Pembroke said lenders are still looking for loan applicants who have an appropriate amount of “skin in the game” by asking for a down payment.

Applying for state and federal grants, like those available from the California Air Resources Board, can help you pay for new equipment with technology to reduce emissions and to run more fuel-efficient, Pembroke said. While having those grants when you apply for your company’s loan can make your company’s loan application more attractive to a lender, be careful, Pembroke advised. For example, don’t count on the grants alone to automatically qualify you.

“They want to know that the company borrowing the money has a vested interest in the equipment,” she said.

“By utilizing lenders who understand trucks and the trucking industry, tidying up your company’s safety fitness rating, and getting your company’s business plan and financial statements together, you’re placing your company in a good position to qualify for a loan,” Pembroke said.

Plus, following these tips will most likely make the loan process less stressful.”

Be Aware of Differences in Business Credit Reporting from Personal Credit Reporting

Trade or business credit, which is not reported the same way as personal credit, often refers to transactions involving business issuing another business credit.

Business credit bureaus gather information about trade credit transactions to create a business credit report using the business’ name, address and federal tax identification number (FIN), also known as an employer identification number (EIN). Business credit scores range on a scale from 0 to 100, instead of the 300 to 850 range used in personal credit ratings. As with personal credit scores, the higher the business credit score, the better the company’s credit rating.

In many cases, lenders will rely on a company’s business credit report to determine if they want to grant a company credit and how much credit they'll give.

Because information provided to the business credit bureaus is sent in voluntarily—businesses are not required to send it in--the credit bureaus may never receive all or even any information about a company’s business credit transactions. So, establishing a business or trade credit report for your company at one or all three of the business credit bureaus would be a good idea.