10 Financing Tips For Your Transportation Business

September 1, 2022

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Transportation companies are in many ways the type of business that the U.S. depends on most. According to the American Trucking Associations, registered trucks traveled over 300 billion miles in 2019, and over 3.3 million people are directly employed as truck drivers. And many of those truckers are employed by small companies: 91.5% of transportation companies operate six or fewer commercial trucks. And until the challenges brought on by COVID-19, the trucking industry had been growing steadily year after year, per Statista. All of this is to say that the trucking business is a lucrative, growing, and essential part of the American economy. And transportation business loans can help transportation entrepreneurs build strong companies.

But what loans are available? And how can trucking companies use those loans?

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Types of Trucking Business Loans

Lenders offer many different types of loans for borrowers in the transportation industry. Loan amounts, interest rates, collateral requirements, and repayment terms are all malleable based on the borrower’s intention for the loan. A borrower looking for a few thousand dollars of extra cash flow will be looking for a different loan than a small business owner looking to buy real estate. Your credit score, time in business, and monthly revenue will all be significant factors as well.

Term Loans (short and long)

Term loans come in two forms: short and long term. Short-term loans are lump-sum loans that must be repaid with interest in under 18 months. Long-term loans can take 10 years or more to be repaid and can be as large as several million dollars. Shorter loans tend to have higher interest rates, and vice versa for longer loans.

SBA Loans

SBA loans are a blanket term for three main loan programs offered by the U.S. Small Business Administration. The SBA guarantees these loans, meaning if the borrower is for some reason unable to pay back their loan, the government pays the lender up to 85% of the total balance of the loan.

The SBA 7(a) loan program is the SBA’s most popular program. 7(a) loans are term loans of up to $5 million and can be used for a number of business needs, from working capital loans to equipment purchases.

SBA 504 loans are intended for upgrading or modernizing some infrastructure in order to create jobs or build the local economy.

Microloans are similar to 7(a) loans but range only to $50,000. Nonprofit lenders in local communities work with the SBA to offer these shorter-term loans.

Lines of Credit

Unlike a traditional loan, where monthly payments begin immediately, lines of credit require payments only on the money borrowed under an agreed-upon credit limit. Many businesses keep this type of financing available for unexpected expenses. Business lines of credit are also withdrawable as cash, which differentiates them from business credit cards.

Equipment Loans

Equipment financing is a good funding option for many expenses in the transportation industry. In an equipment loan, a borrower is seeking funds to purchase, repair, upgrade, or replace a piece of equipment. That can include vehicles. Borrowers pay for a down payment, and then a lender finances the remainder. If the borrower defaults on the loan, the lender repossesses the equipment and sells it, protecting them from losing considerable money.

Business Credit Cards

Business credit cards are revolving credit lines in which a business is able to spend up to an agreed-upon credit limit. They work just like your personal credit cards, earning points or rewards for your business.

Merchant Cash Advances

Merchant cash advance (MCA) providers don’t give loans. Instead, receiving an MCA means that the provider has purchased a share of your future credit and debit card transactions. You don’t pay interest on that advance. Instead, you’ll be assigned a factor rate, which is multiplied by the size of the advance to determine the total repayment amount. If you receive an MCA of $8,000 and a factor rate of 1.2, you’ll repay $9,600. The APR on MCAs can be very high, but they’re also readily available for businesses with bad credit in need of quick cash.

Invoice Factoring

Invoice factoring providers also do not give out loans. They purchase unpaid invoices. Once the transaction is complete, the factoring company accepts payment for those invoices. Invoice factoring companies make money by advancing less than the full value of the invoices.

10 Ways Your Transportation Business Can Use Financing

Now that you know some of the many financing options available to you, consider the many ways in which a trucking or transportation company can use those loans.

1. Buying trucks

An equipment or term loan can both be good options for buying or leasing new trucks for your fleet. New vehicles in the industry can cost well over $100,000, so building these purchases into your business plan is a key part of building a great transportation company.

2. Hiring Drivers

Your trucks aren’t going to drive themselves. You can use many different loan options to help keep your employees paid and on the road. Put simply, your business cannot exist without people sitting behind the wheels of your trucks, and the right small business loan can help you make sure you’ve got the best people there.

3. Acquiring a Competitor

Maybe you’re an established trucking company and a rival company’s owner is looking to retire. Or maybe there’s a small company you’re aware of with a dedicated customer base in a niche you haven’t broken into. Financing can help you acquire that competitor and expand your trucking business into new areas.

4. Vehicle Repairs

Even the best drivers make mistakes, and sometimes vehicle damage happens completely at random. Equipment loans, or even small term loans can help pay for the necessary repairs that come with having vehicles running up thousands and thousands of miles.

5. Equipment Upgrades

Your vehicles can always be upgraded to make life better for your drivers and make sure that your customers are receiving their freight as intended. If you transport food products, that might mean updating outdated refrigeration technology. It might mean ensuring that your communications equipment is up to date. It could also mean that you’re upgrading equipment outside the cab. If you’ve got dispatchers, they may need updated computers or software. There are any number of ways you can make your company’s assets work better.

6. Marketing

Getting the word out about your company is hard. Remember those statistics from earlier – there are a ton of transportation companies out there carrying billions of pounds of freight. How can you make sure that your potential customers see what you’re carrying?

Financing some of your marketing costs can help. Whether that cost goes toward hiring a professional to build a beautiful website, launch a social media campaign, design billboards, or a mix of all of the above,

7. Expansion

Expansion is a huge part of the growth of any business. Offering new services to new areas is one of the primary ways a transportation company can boost its bottom line. But those new services and new areas can be pricy. Specialized freight carriers, new hires, additional tolls, gasoline, and vehicle maintenance can all necessitate some small business financing.

8. Working Capital

Sometimes, business financing isn’t intended for any one specific purpose. Sometimes, a company just needs some extra working capital in order to pay the bills like rent, utilities, wages, and other debt payments.

9. Refinancing Existing Debt

If your company has gone from poor credit to good credit since you first took out business loans, you might want to consider refinancing that old debt. Refinancing, or the act of taking on new loans to pay off old ones, is a helpful strategy particularly when your company’s new financial situation makes it more likely to receive low interest rates. Sometimes, a startup has to take loans that aren’t borrower-friendly. But once you’ve got some years in business and a strong credit history, you can likely refinance those old loans into more palatable ones.

10. Deal With Unexpected Costs

Life happens. Trucks drive through hailstorms and require body work. Perhaps you’re presented with the opportunity to buy a new vehicle at a steep discount. Maybe a truck suffers a massive bit of damage and requires repair before it can be back on the road. The unexpected is a part of any business, and having a line of credit or some sort of quickly-acquired financing can make sure that your transportation business doesn’t fall behind due to randomness or some other unforeseen expense.

How Do I Pay Back a Merchant Cash Advance?

Repaying an MCA comes primarily from on-going credit card receipts or debit card receipts. In most cases this will be drawn daily or weekly directly from your merchant account as a percentage of sales. That means your company will have reduced cashflow going forward until the advance amounts are repaid.

Another way in which MCAs differ from more traditional types of financing is the way they’re repaid. While a typical term loan requires regular-sized or fixed payments each month, MCAs are paid using what’s called a holdback.

MCAs are an agreement from an MCA provider to purchase a percentage of your company’s future credit card transactions; the holdback is the percentage of each transaction that’s sent to the MCA provider. That percentage comes through each day. So if you’ve got an agreed-upon holdback rate of 16% and your company brings in $3,000, the MCA provider will take $480. If you have a better day and make $7,000, the MCA provider takes $1,120. Fortunately, it works the other way too. A poor day of only $1,000 in sales will require a payment of only $160.

Keep in mind, since your business cash advance repayment amount is pre-determined based on the factor rate, paying it off faster actually increases the the implied annual percentage rate.

MCAs also come with specific repayment terms. Pay an MCA back too early or too late, and you might face heavy fees. It is important to understand all the terms of your business cash advance and your future sales projections. Like most contracts, your agreement may be negotiable and you should carefully match the terms with your expectations of future sales. If there are elements of the agreement that don’t align with your business model, ask for the MCA provider if they will consider modifying the agreement.

If you’re already struggling with cash flow, losing a significant chunk of your daily credit card sales to your MCA provider can create a debt spiral, in which you need additional financing to stay afloat. Bear that in mind as you consider the prospects of an MCA.

How Expensive is a Merchant Cash Advance?

MCAs do not come with an interest rate. Instead, MCA providers make their money using what’s called a factor rate.

Factor rates are typically between 1 and 2. Multiply the advance amount by the factor rate and you’ll find the total amount of money you’ll need to repay. If you receive an advance of $5,000 and a factor rate of 1.4, you’ll need to repay $7,000. If you receive an advance of $12,000 at a factor rate of 1.1, you’ll repay $13,200.

When you convert these rates into an annual percentage rate, or the total interest paid on a sum of money over a full year, the results can be quite high. It’s not unusual to see MCAs with effective APRs in the triple digits.

And paying back your MCA early doesn’t help. In fact, the faster you pay it back, the higher your APR, since repayment ends at a particular number no matter how long it takes. For those reasons, MCAs are one of the most expensive forms of business financing.

Do I Qualify for a Merchant Cash Advance?

The approval process for a business cash advance regarded as one of the simplest and quickest processes for financing. Decisions are based on monthly revenue and sources of sales and receivables. This is one of the financing programs that look almost exclusively at the business operation and not at the personal credit history of the owners. Additionally, it is rare that the business owner will be required to make a personal guarantee for repayment.

Most merchant cash advance companies won’t look at your credit history when it comes to deciding on an advance. Think about it: MCA companies care about your credit card payments and debit card sales, not about whether you paid off a loan three years ago. So, in most cases your financing determination will rarely be contingent on your personal credit score.

Poor credit is typically not a hindrance when it comes to getting an MCA. Instead, slow credit card processing is. If you’ve got a high, regular volume of sales and a projection of future sales, MCA providers will be inclined to work with you.

That’s beneficial to companies with bad credit but also to companies who are in the early stages of growth. A business’s credit card is impacted by its credit history, and new companies don’t have much history by definition. MCAs can provide the funding startups need.

Benefits and Drawbacks of a Merchant Cash Advance

So now that you have a good idea of what merchant cash advances are, what they cost, and how they’re repaid, take a moment to consider all of the benefits and drawbacks that come with this unique form of business financing.


  • Fast. MCAs take no time at all. The application process is fast and easy. Show some bank statements to prove you’ve got a high volume of card sales, and you can have your cash advance in your bank account as soon as the day you apply.

  • Flexible. MCAs can be used to cover nearly any of your short-term business needs. From buying inventory to hiring to utility repair, MCA money doesn’t require a specific purpose at the time of application.

  • Available. Your credit score doesn’t matter as much with an MCA as it would with a traditional bank loan. Instead, strong monthly revenue and a projection of future sales indicate to MCA companies that you’ll be able to repay the advance.

  • Variable payments. Payments on a line of credit or term loan are of a fixed size, made each month. MCAs, on the other hand, don’t have fixed payments. You’ll pay more or less each month depending on your sale volume.


  • Cash flow. If you’re already in a tough financial position, it can be a real hindrance to lose an additional 15% or more of your daily income to an MCA repayment.

  • Expensive. MCAs can have APRs in the triple digits. You won’t benefit from paying them back faster, and the repayment amount won’t change.

Should My Company Pursue a Merchant Cash Advance?

As is the answer to nearly every question in business, it depends. If your company has the cash flow to weather the squeeze that comes from losing a significant portion every day, and you’re in desperate need of financing quickly, MCAs can be a good option. They’re fast, they’re flexible, and very available to the right borrowers.

However, if you’ve got good credit and aren’t pressed for time, other loan options might be a better solution. They’ll offer qualifying borrowers lump sum payments like an MCA, but with longer repayment periods, higher loan amounts, and are less expensive in the long term.

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