Starting a trucking company, much like so many other endeavors related to starting a business, requires capital. Many startups fail because business owners don’t line up the proper amount of financing to keep the business afloat as they grow and find more sources of funding. But what is a budding business owner to do to stay ahead of the money game and operate a successful venture? Let’s cover all the different ways you can fund a trucking company.
Short Term Loans for Trucking Companies
Trucking business loans come in many fashions. But short-term loans for working capital growth or lines of credit are most common. Fleets use these to overcome unforeseen cash flow problems. The best working capital loans from trucking companies have short repayment terms. You can also expect them to fund quickly. Why? Because truckers sometimes need to make quick repairs or get owner-operator startup loans as quickly as possible.
Short-term business loans are a good fit for trucking companies for many reasons. First, when you need working capital to grow your business sometimes you need to front expenses. By fronting the expenses necessary to take on new contracts, short-term loan providers help trucking companies stay in business. Short-term loans carry an expected annual percentage rate (APR) of up to 50%, and you can get repayment terms of as long as 36 months. You can also access a variety of payment plan timelines.
So, why are short-term loans the best? Well, short-term loans are best for trucking companies because you can grow while you wait for the shipper to pay you. Beyond that, new routes require capital to pay for labor and truck expenses. And these expenses land before you complete scheduled deliveries. Short-term loans work great because they fund in as fast as one day, and you can repay them as soon as your customer pays you, which lower the amount of interest you have to pay over the life of the loan.
How Should You Determine the Best Loan?
Trucking companies have a lot of unpredictable expenses. Little repairs and adjustments add up when you run your own fleet. So what can you expect? How about oil leaks, blown tires, or driver overtime due to unforeseen traffic or unexpected delays in delivery. No fleet manager can know exactly what costs and revenues will be. Trucks break down and people need to be paid. That’s why it’s important for any small business loan you get to be something you can access quickly.
However, quick access to capital is only one factor we considered when choosing the best business loans for your trucking business. Other factors included the amount a lender is willing to provide, and the costs and repayment terms of the financing. After all, only you know how much your business needs. And not all repayment terms will be favorable. You have to be willing to compromise to keep your cash flow in a good place.
Yet it may not be so easy anymore to get a short-term loan. Many traditional lenders don’t like lending to businesses in the trucking industry because of the uncertainty and seasonality of the business. Trucking companies need short-term funding because of the uncertainty. Yet, lenders don’t want to lend to them for that very reason. It creates a difficult situation for all parties.
Only the biggest trucking companies, which bring in millions of dollars in revenue every year, stand a chance of getting the best loans from the biggest banks. However, the trucking industry is huge, and alternative lenders have stepped in. This, as a result, has made getting a business loan easier for trucking companies and owner-operators who need quick cash.
Small Business Lines of Credit for Trucking Companies
Although lines of credit have been all but eliminated in the residential and personal loan sectors, they are alive and well in the trucking and transportation sectors. A business line of credit (LOC) is a revolving line of credit you can borrow from and repay without going through a new application process each time. You can use it to grow your business and pay for expenses. And you only pay interest on the amount you borrowed and not the full credit line itself.
A business LOC is also a good fit for trucking companies who need quick financing. Whether it be to combat unexpected expenses like blown tires, which make up over half of all unexpected expenses on the road for trucking companies, break failures, or otherwise – trucking companies need money. The lenders use company assets as collateral to fund the lines of credit.
A line of credit is also useful to cover regular and necessary expenses like paying for registration or insurance. The money is there to help you not just keep trucks in technical shape, but to also keep regulatory and back-office needs funded. Fleets can apply for a line of credit with either traditional banks or online lenders.
Freight Factoring for Trucking Companies
Have you considered freight factoring for your trucking company? Trucking and freight carriers can also use freight factoring to streamline cash flow. Freight Factoring is when your accounts receivables are immediately or very quickly converted into cash by selling the outstanding invoices to a freight factoring company. Then, instead of waiting for 30, 60, or even 90 days for a load to be paid out, the factoring company will get you that money now. Of course, service fees do apply, but they are generally affordable and provide transparent terms.
Factoring is a specialized service designed specifically to help you maximize your cash flow. In the end, it helps you reduce delinquencies and grow your business. It provides another avenue of financing when you need cash in a pinch or when shippers aren’t paying on time.
For some freight companies – especially smaller or privately owned operations – this type of immediate payment can save the company. When it comes to managing a weekly or monthly budget, freight factoring is key. It allows you to cover expenses without incurring any debt, which is a precious strategy when you are growing your business. Check this out if you want to examine freight factoring as a full-service outsourcing business.
Non-Profit Micro Lenders and SBA Micro Loans for Trucking Companies
Most states have organizations, typically formed by people who have been successful in business and want to give back, that will give loans to people who are trying to start new small businesses. They will only give you the loan if they are confident you will be able to pay it back. They are called micro lenders and, in many cases, operate as non-profits. The key to ensuring you can get a micro lender to work with you is to have a good business plan.
Many micro lending operations are regulated by the states they operate in. As such, the state is a guarantor of the loan’s quality. Micro loans attract a lot of interest, so you have to stand out if you want the lender to give you the loan over others who have also pitched them. So, the best way to show them your competence is to come up with a good business plan.
SBA micro loans might also be an option for your freight company. It is important to remember, however, that the SBA does not actually provide micro loans, it just backs them. Bank intermediaries actually issue the loans. Here is a handy list of intermediaries by state you can access. You can also learn more about SBA’s Microloan Program by clicking or tapping here.
Top Tips for Increasing Your Trucking Loan Approval Chances
Regardless of which type of loan you apply for, you need to take certain steps to improve your approval chances. First, you need to keep your business and personal income separate, improve your credit score, grow your revenue, and eliminate how much you pay out monthly by reducing business expenses.
This may sound obvious, but to be a successful business owner you must learn how to save money. If you don’t have any savings at all, you might want to wait a few months and practice saving as much money as you can. Not only will that give you some money for your new company, but it will help you develop some habits that will help make you successful. It will also increase your chances for getting a loan if the institution loaning to you sees you have plenty of capital on hand.
There are certainly plenty of ways to fund your trucking company, but above all else you must run it well. Pay close attention to the needs of your operators and always stay on top of safety and compliance. This way, you can grow regardless of whether you get another source of funding or not.