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Trucking Loans and Transportation Financing

Working Capital for Trucking Companies

As the economy improves, the energy sector expanding and with foreign trade increasing, we can expect to see continued growth in the $700 billion trucking and transportation industry for years to come, as a report by the American Trucking Association projects U.S. freight volumes should increase by nearly 30% over the next decade. In fact, the industry projects to grow so much that investors are pouring many millions of dollars into trucking and transportation in hopes of accelerating efforts to reinvent the trucking industry. According to ATA Trucking Information Reports Industry Data 2009 there were roughly 26.4 million commercial trucks registered and used for business trucking purposes (including 2.4 million Class 8 trucks 5.7 million commercial trailers). Commercial trucks registered for business accounted for nearly 25% of all trucks on U.S. roads. These trucks log nearly 398 billion miles for business purposes annually — 13.4% of miles logged by all motor vehicles.

In October 2015, a report on truck orders  showed there more than 33,000 trucking company net trailers and the for-hire trucking tonnage index went up by nearly 2%. Also in October 2015 class 5-8 vehicle orders were over 47,000 — an increase of 14% from previous month. While many people assume trucking companies are large firms, 90% of all trucking companies operate 6 or fewer trucks, and 97% of trucking and transportation companies operate less than 20 vehicles. These small trucking companies help lead the industry that employs 3 million truck drivers, and 6.8 million Americans in jobs directly-related to the trucking industry. Salaries for truck drivers have seen gains of 12% over the past year due to a national shortage of long-haul truck drivers. This is quite an increase considering national gains among all sectors was just 2.2% during that same period. A national survey of drivers wages show average pay is now $57,000 per year for long-haul truck drivers in 2015 (which is a 17% jump from the end of fiscal year 2013.

What are the Types of Commercial Trucking Companies?

  • Over-The-Road Truckers: the majority of trucking companies in the United States are over-the-road (OTR) truckers, picking up goods in one area, and driving long distances to complete the delivery. Most over-the-road trucking companies have drivers that will sleep in different states each night while making their deliveries.
  • Less-Than-Truck Load: this type of commercial trucking company transports small loads and small freight through the use of parcel carriers (package delivery).
  • Local/Regional: this type of trucking company makes shipments and deliveries in a local area that doesn’t require the truck driver to sleep overnight in a different state. A trucker that makes local or regional deliveries can usually work normal business hours.
  • Owner-Operator: this relates to truckers who own or lease their commercial truck, and then lease their trucking services to one or multiple companies to deliver materials, merchandise and other goods either regional or long-haul.

What Does a Trucking Company Need Financing For?

  • Semi Trucks
  • Trailers
  • Real Estate
  • Truck Storage
  • Dump Trucks
  • Tow Trucks
  • Repair and Upgrades
  • Pay Business Taxes
  • Pay Invoices
  • Meet Regulations
  • Starting a Trucking Business

What are the Financing Options for Trucking Companies?

There are many financing options available for trucking and transportation companies including bank term loans and business lines-of-credit, SBA loans, asset-based loans, equipment financing, mid prime alternative financing, commercial real estate loans, invoice financing and merchant cash advances. Below we’ll take a look at the main financing options available to truckers and commercial trucking businesses.

Bank Trucking Loans

Banks obviously offer the most competitive rates and terms of all commercial loans. Banks financing facilities include term loans, lines-of-credit, equipment financing, asset-based lending, working capital solutions and other financing options. But, traditional banks have much higher lending requirements than other lenders (especially alternative lenders). Banks require pristine business and personal credit, established cash-flow & profitability, quality business and personal collateral, and lots of financial documentation of the trailing 3 years.

Rates 5-15%
Terms 1-30 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs

 

Bank Line of Credit

Trucking companies can use both secured and unsecured lines of credit to help with business expenses. A line of credit is a preapproved form of financing that allows trucking companies to access funds whenever they should need them without having to seek approval from a lender. A secured loan often uses the trucking company accounts receivable as collateral for financing, but may also use equipment, machinery or commercial real estate. An unsecured line of credit requires a good credit score, and usually comes in the form of business credit cards.

Rates 5-15%
Terms 1-3 years
Funding Amounts $50,000-$5,000,000
Collateral May not be Required
Fees Medium costs

 

SBA Trucking Loans

SBA loans offer trucking and transportation companies that probably couldn’t obtain a traditional loan the ability to secure bank-rate financing through the use of the U.S. Small Business Administration’s loan guarantee program. The SBA tries to encourage lending from traditional bank lenders, community banks and small bank lenders by agreeing to shoulder the majority of the lenders’ losses should the borrower default on the loan. In return for the loan guarantee, the SBA requires certain documents be provided and requirements be met to ensure the integrity of the lending program.

Rates 5-8%
Terms 3-25 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs

 

Asset Based Trucking Loans

Asset based financing uses either business or personal assets as collateral for either a business loan or business line of credit. By monetizing the trucking company’s balance sheet the company can access financing that they wouldn’t normally get from a bank or other conventional lender. Common assets used for asset based trucking company financing include invoices, accounts receivables, commercial real estate, personal real estate, or trucking company equipment.

Rates 10-25%
Terms 1-3 years
Funding Amounts $50,000-$5,000,000
Collateral Required
Fees Medium costs

 

Alternative Business Loans for Trucking Companies

For trucking companies that don’t meet traditional and SBA financing guidelines and criteria, there are alternative business loan options available including mid prime alternative loans. While mid prime alternative lenders don’t offer rates as low as traditional banks, they do offer rates that are much lower than many online business loans, factoring companies, and merchant cash advance lenders. On top of that their loan terms are generally much longer than advance lenders — which allows you easier debt service coverage. A huge advantage that alternative loans offer over bank loans is how fast they are able to fund. Pre-approvals takes minutes and the entire funding process takes anywhere from 3-7 days.

Rates 8-20%
Terms 3-5 years
Funding Amounts $25,000-$500,000
Collateral Sometimes Required
Fees Medium costs

 

Invoice Financing for Trucking Companies

Invoice financing (also referred to as “invoice factoring”, “invoice discounting”, “invoice finance”) is the selling of a trucking company or transportation company’s unpaid invoices to a factoring company at a discount. Rather than taking out a loan and making daily, weekly or monthly payment during the term of the loan, trucking companies and simply sell their 30, 60 and 90 day unpaid invoices, and the factoring company will forward the trucking company between 70-92% of the unpaid invoice’s value (minus a fee for the factoring company).Each week the invoice goes unpaid after the factor buys it, the factoring company will charge the trucking company a fee (usually 1-2% of the invoice’s value). Upon full-payment of invoice, the factoring company then forwards the trucking or transportation company the remainder of the balance.

Rates 1-3% monthly
Terms 1-2 years
Funding Amounts $10,000-$5,000,000
Collateral Required
Fees Medium costs

 

Equipment Leasing for Trucking Companies

Equipment Financing and Leasing allows trucking companies to obtain new or used trucks and/or machinery without having to pay the full price of the equipment upfront. Equipment leasing companies will purchase the new or used truck or equipment, and then lease the equipment to the trucking company for a period of years. Upon conclusion of the agreed upon term, the leasing company will then offer the trucking company the ability to buy the equipment from the leasing company, or extend the lease for a longer period.

Rates 8-20%
Terms 1-10 years
Funding Amounts $10,000-$5,000,000
Collateral Required
Fees Medium costs

 

Trucking Cash Advance

For trucking companies that need immediate business financing, has bad credit, or lacks documentation that conventional business lenders require, an easy form of funding is a merchant cash advance. This form of trucking financing isn’t a loan at all. Instead it involves the B2B sale of the trucking company’s future revenue. By selling future receivables the trucking company is able to access capital that they would have had to wait up to 24 months to receive.

Factor rates 1.10 – 1.50
Terms 3-24 months
Funding Amounts $5,000-$2,000,000
Collateral Not required
Fees Low to High costs

Summary

There are plenty of funding options for trucking and transportation companies. The key is getting the loan or line of credit with the lowest rates, fewest fees and longest terms. If you need help getting the best possible financing for your trucking company, please reach-out to one of our funding specialists and we’ll help you navigate the process.

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