Alternative Financing and Loans for Trucking Company Owners: How to Use Them and What Types Are Available

November 30, 2022

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The owners (and owner-operators) of trucking and transportation companies must often turn to loans in order to fuel their companies’ growth and operations. Depending on your company, your needs, and the intended purpose of the funds, there are many different types of loans that can work for a trucking company. In this blog post, we’ll break down these types of loans, how they’re used, and give you the knowledge you need so that you can make the right decisions for your trucking company owner loan.

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How to Use Trucking Company Loans

Loans for trucking company owner-operators are designed specifically for people who want to start or grow their trucking and transportation businesses. Many different lenders offer these types of loans, so it’s important to shop around and compare interest rates and terms before deciding just which loan to get.

If you own a trucking company, then you know that it can be a difficult business. With rising fuel costs, staff shortages, and increased regulation, it’s no wonder that so many trucking companies go under each year. According to FreightWaves, a supply chain data provider, 2022 was particularly difficult for small transportation companies due to the skyrocketing cost of diesel combined with inflation causing big customers to stick with larger trucking companies to reduce costs.

However, one way that you can help give your trucking company the boost it needs to survive is by taking out a business loan. And there are a number of ways an owner-operator can use a small business loan to build a trucking company.

Working Capital

Seemingly everything in the trucking industry is more expensive than it was even a year ago. According to Truckstop, a company offering transportation software solutions, 2022’s breakeven cost for truckers is up 51% over 2021’s cost, due largely to increases in the cost of fuel, wages, and repairs.

If you’re operating your company through long-term contracts, you are likely finding that your company’s got cash flow issues. Using one of the following financing options can allow for sufficient working capital.

Purchase new trucks or equipment

One of the most common ways trucking company owner-operators use business loans is to purchase new trucks or equipment. By investing in new trucks or equipment, you can help increase efficiency and productivity for your company, which can lead to increased profits.

There are trucks to buy, lease, or repair, of course. But that’s not all the equipment necessary for the trucking business. There are also specialized trailers for transporting freight that requires refrigeration, particularly tall items, or even liquids or gases.

On top of that, if you operate your business out of an office, you’ll need to equip that too. Office equipment, computers, software, furniture, and even decor can all require funding.

Hire new drivers

Another way to use a business loan if you own a trucking company is to hire new drivers. The industry is currently experiencing a significant shortage, according to CNBC. In fact, the American Trucking Associations estimates that a million new drivers will need to be hired to fill needs by 2030. Hiring these truckers will be expensive and time-consuming, which is why funding may be necessary.

Expand your operations

If your trucking company is doing well but you want to take it to the next level, then expanding your operations is a great way to do that. An expansion could involve adding more trucks to your fleet or opening up new bases for operation in other parts of the country. Whatever your expansion plans are, a business loan can help you achieve them.

Cover unexpected expenses

Unexpected expenses are always popping up in the trucking industry, whether it’s an unexpected repair bill for one of your trucks or an accident that damages some of your cargo. Seeking out a commercial truck loan can help you cover these unexpected expenses so that they don’t put a strain on your finances.

Invest in marketing

Finally, another great way to use a business loan if you own a trucking company is to invest in marketing. With competition being so stiff in the trucking industry, it’s important to make sure that potential customers know about your company and what services you offer. A well-executed marketing campaign can help increase awareness of your company and ultimately lead to more business opportunities down the road.

Funding Options for Trucking Companies

There are a few different types of financing that trucking companies can apply for, each with its advantages and disadvantages. The type of loan you choose should be based on your specific needs and goals. Some of the most common types of trucking company loans include:

Term Loans

The term “term loan” can encompass a vast number of different types of loans. Any type of loan which involves a financial institution

Secure loans are secured by the collateral of your trucking company’s assets, which can include things like vehicles, equipment, and accounts receivable. These loans tend to have lower interest rates than unsecured loans. If you’ve got bad credit, it’s more likely that you’ll be asked to provide real estate. With good credit, lenders see you as more likely to repay your loan.

SBA Loans

SBA loans are government-backed loans that are available to small businesses. These loans tend to have very favorable interest rates and terms, but they can be difficult to qualify for.

SBA loans are offered through traditional financial institutions but they’re guaranteed by the United States Small Business Administration. That means if a borrower isn’t able to pay back the loan, the government uses taxpayer dollars to pay the lender a larger percentage of the value of the loan.

That’s why the application process for SBA loans is so difficult and particular. The government doesn’t want to lend precious taxpayer money to businesses likely to lose it. On the other hand, the SBA doesn’t want business owners paying exorbitantly for their loans. So if you do qualify for an SBA loan, they often come with the least expensive interest rates and fees of any type of loan.

Business Lines of Credit

Business lines of credit are effectively the inverse of a traditional loan. While a normal trucking business loan involves receiving the full loan amount in your bank account up front, a business line of credit means having access to a certain credit limit and only withdrawing what you need

Many businesses, including those in the trucking industry, keep a line of credit available to cover business expenses as they come up. If you need to hire truck drivers in a pinch, a line of credit can help you cover wages. If you need to repair or upgrade one of your trucks and no other funding options are fast enough, a line of credit can allow you to make that fix. Best of all, you’ll only pay interest on what you borrow.

Equipment Financing

Equipment financing is a type of loan that allows you to finance the purchase of new equipment for your trucking company. This can be a good option if you need new vehicles or other equipment but don’t have the cash on hand to pay for it outright.

In an equipment loan, the small business owner makes a down payment on the new or upgraded equipment, and the lender finances the rest. The lender then holds the new equipment as collateral, so if you’re unable to make monthly payments, they can repossess and resell the equipment to recoup a large percentage of the loan amount.

The trucking industry is incredibly equipment-intensive. These equipment loans can be used for office equipment, truck financing, or any other equipment you need to operate your company.

Alternative Financing: Invoice Financing and MCAs

There are also some funding options that are not loans. These options are not subject to the same laws and regulations as loans.

Invoice Financing

Invoice financing is a type of asset-based financing that uses your accounts receivable as collateral. This can be a good option if you’re having trouble getting traditional financing because it allows you to use your customers’ payments as collateral.

In an invoice financing, or invoice factoring, transaction, the factoring company buys your accounts receivable at a slight discount. For example, if you’ve got $20,000 in outstanding customer invoices, a factoring company might pay you $19,000 for the right to collect those invoices in full. Your company gets a quick infusion of cash with no regard for whether you’ve got good credit or not, while they’re able to earn $1,000 on cash that was already coming your company’s way.

Merchant Cash Advances

Merchant cash advances, or MCAs, are a transaction-based form of financing in which a company purchases a share of another company’s future credit and debit card sales. The company that receives the advance hands over a certain percentage of each transaction as payment instead of the traditional monthly repayment terms that come with other types of lending.

Cash advances use factor rates instead of traditional interest to make money. These rates are typically expressed as a number between 1 and 2. Multiply the size of the advance by the factor rate, and the product is the total repayment amount. For example, if you take out an MCA for $17,000 at a factor rate of 1.15, you’ll repay 17000 x 1.15, or $19,550.

Because the total repayment amount is fixed from the beginning, MCAs sometimes carry an effective APR in the triple digits. Rest assured, they’re one of the most expensive forms of business financing. However, because they’re based on your annual revenue instead of your credit report, MCAs are often available to companies that more traditional bank loans are not available to.

If your trucking company processes many card-based transactions, has a low credit score, or needs money very quickly, an MCA can be a great option.

Final Thoughts

Entrepreneurs have a wide variety of options available when it comes to taking out a loan for a trucking company. The most important thing is to make sure that you have a solid business plan in place before applying for any type of financing. Once you’ve done that, you can shop around and compare interest rates and terms before choosing the right type of loan for your business needs.

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