If you own a trucking company, you know how expensive commercial trucks and other equipment can be. And even if business is going well, you may not have the funds on hand to purchase new equipment or hire new employees when needed, so how can you find the money to do so and keep your business running smoothly? Trucking business loans can help cover a variety of expenses that you need to handle. Whether you have a successful trucking company or are interested in starting one, you have several loan options available to you.
What Is a Trucking Business Loan?
A trucking business loan is a loan that can be used to finance a variety of expenses for your trucking company. There are some loans that help with trucking industry-specific things, like equipment financing to purchase a commercial truck, and other loans that help with general business expenses. Whether you are looking to start a trucking business or are ready to expand operations, you can use a trucking business loan for a variety of reasons.
A trucking business loan can be used to expand existing operations by purchasing commercial trucks to expand your fleet, hire additional drivers, and invest in new technology that will help make your business more efficient.
Trucking Business Loans Pros & Cons
As with any loan, there are some pros and cons to be aware of before you apply for a trucking business loan. One of the biggest advantages is that oftentimes there is no cash collateral required. If you are using the loan to purchase equipment, the equipment itself acts as collateral. That leads to another pro for trucking business loans: low interest rates. When the truck or other equipment acts as the collateral for the loan, you can expect lower interest rates than unsecured working capital loans. These loans also offer longer payment periods, which means you have more time to pay off the loan and smaller monthly payments for less of a strain on your profits.
All of that does not mean that trucking business loans do not come with any drawbacks. Although there is no cash collateral required, you will still be required to make a down payment, which can vary from 5% to 25% of the loan amount, depending on your credit. Additionally, trucks depreciate in value relatively quickly, so you will probably only receive a fraction of what you paid if you sell the truck after the loan is paid off. And if you miss any payments, the lender can seize the truck, which can have a serious impact on business operations.
Types of Trucking Business Loans
As mentioned previously, you have several options when looking for the ideal trucking business loan. From small business term loans to business lines of credit, each type comes with different requirements and advantages.
Equipment loans are especially beneficial for trucking companies as they provide the funds to purchase commercial trucks, both new and used, as well as trailers and other long-term physical assets that are necessary for regular operations. This allows you to break down the cost of expensive equipment into smaller and more manageable payments over time. And once you have paid off the loan, the equipment is yours to keep and do whatever you need.
Another option is a Small Business Administration loan. Because these loans are backed by the government, they can be a good option for smaller businesses that may not qualify for other conventional loans. They are more flexible and—unlike equipment loans—can be used for many different business expenses.
Term loans are also available and can be used for many purposes. However, short-term loans are one of the most expensive forms of credit and should be considered only when necessary. As an alternative to term loans, factoring allows you to turn your invoices into cash so that you have instant access to your money. And the best part is that it is money you have already earned, so you don’t have to worry about high interest rates and short payment periods.
Also available are lines of credit and small business credit cards. Lines of credit are similar to a credit card in that you can make multiple draws and only pay fees on what you borrow. Your lender sets the credit limit and then you can borrow as much and as often as you need up to that limit. Asset-based lines of credit can be a good fit for large trucking fleets who regularly have $5 million or more tied up in accounts receivable at any given time. Business credit cards also allow more flexibility, with a revolving line of credit that you can use at any time. They can help boost your credit score and may even come with a rewards program, so there are other benefits to this option in addition to the accessible funds your business needs.
Can I Get a Loan to Start a Trucking Company?
Yes, you can use the loan to start your operation, whether that means buying a single truck or a small fleet to get started. It will depend on the type and size of loan that you get, which depends on factors such as your credit score and qualifications. Fortunately, most trucking business loans are flexible in how you can use them to get your company up and running. If you currently work as a truck driver and want to start your own company, a trucking business loan is a great way to get started.
How to Qualify for a Trucking Business Loan
The requirements and minimum credit score will depend on the lender you choose, but there are a few main criteria that will be evaluated to determine whether you qualify for the loan. This includes your monthly revenue and bank statements, which confirm your business’s income and expenses and show that you have enough money coming in to make the payments. You will also need to show the purpose of the loan and how you intend to use the funds. For example, you may use them to purchase additional equipment or to pay new employees. Finally, the lender will look at both your business credit score and the personal credit scores of the company owners. This can help determine the loan amount as well as the size of the down payment that will be required.
Applying for a Trucking Business Loan
Just as the requirements vary by lender, so do the methods to apply. The main thing to do is find a lender that offers the type of loan that best suits your needs. If you are not sure which financing option is the best choice, you can meet with an expert to discuss the different options and what you need the funding for. If you need to purchase a truck (tractor) or trailer, an equipment loan is a great choice. And if you need cash quickly to cover other, smaller expenses, you may be interested in invoice factoring. Whatever financing you need, and depending on which company you choose, you can often apply online and receive the funds in a relatively short amount of time.
Fuel Credit Card Options
Running a trucking company comes with a lot of different expenses, but one of the biggest ones is fuel and maintenance for the trucks. While there is not a specific loan to help with this, there are fuel credit cards that can help cover the costs and may come with a discount. You can use your fuel card to put gas into the trucks, and some can even be used to help pay for maintenance and repairs at specific locations. This can also help you track and manage the expenses of your drivers while they are on the road.
Choosing a Trucking Business Loan
The loan that you choose will depend on several factors, but keep these considerations in mind when you choose a lender. First, understand the options available to you and the different benefits and disadvantages of each. Some loans may seem like a great option upfront but come with short payment periods or high interest rates that you cannot cover. Once you determine the best type of financing for your company, take the time to shop around and see what each lender has to offer. And before you apply for any loans, see if the ROI exceeds the cost of the loan — if it doesn’t, you should probably keep looking.
TAB Bank has several business loan options that can help you start your trucking company or expand operations to meet the needs of a growing business, including equipment loans. Ready to get started? Apply now and get the funds you need.
Frequently Asked Questions (FAQs)
- How do I get funding to start a trucking company?
There are many financing options available, and you just have to find the one that works best for you. This could be a small business term loan, or you could start with an equipment loan to purchase your first truck to get your company started.
- Can I get a trucking business loan if I have bad credit?
Absolutely! There are loan options that you can qualify for even if you have a lower credit score. However, your best chance of success is taking steps to rebuild your credit score before you apply for the loan. Alternatively, you could apply for invoice factoring, which looks mainly at the credit of your clients rather than your own or your company’s credit.
- Can I get a grant for my trucking company?
Unfortunately, most businesses don’t qualify for startup grants, so it is unlikely that you can get a grant for your trucking company. And if you do find one that you qualify for, the process is often lengthy and will not get you the funds as quickly as you may hope to start your business or expand operations.
