Due to a number of factors including high operational costs, inconsistent cash flows, regulatory challenges and depreciating equipment, among others, small businesses operating in the trucking/logistics industry are considered high risk companies and lending sources often deny their requests for the financing they may desperately need to keep their businesses running. However, despite that, there are several options that trucking companies can consider that are able to provide financing to trucking companies, as detailed below:
Equipment financing: Equipment financing is where a borrower is loaned a sum of money to be utilized to cover the costs of any business related equipment (such as machinery, vehicles, or technology, among others) without having to swallow the potential large cost of a new piece of equipment up front (thus, also preserving the business’ cash flow). Rather, smaller periodic payments (including interest) will then need to be made to repay the loan instead. Often, financing terms can match the expected lifespan of the equipment and certain lenders offer payment plans that can be customized to suit the business’ budget and seasonal cash fluctuations.
Line of credit: This is a type of financing that provides the small business owner with access to a fixed amount of capital in order to help pay for expenses of the business such as inventory, purchasing new equipment, making repairs to existing equipment or shoring up gaps in cash flow, among many other uses. A line of credit provides the business owner with quick and convenient access to funds, along with flexible payments and terms. With a line of credit, the business owner is only charged interest on the funds once they are used and interest is only charged on the funds that are used, not the entire amount of the line of credit.
Small Business Administration (SBA) Loans: Another option trucking companies can consider are loans through the Small Business Administration (SBA). The SBA’s 7(a) loan, a CDC/504 loan, or a microloan can be used to purchase or build a building, make real estate renovations, cover equipment and maintenance costs (such as additional trucks, trailers and maintenance supplies), and investment in expansion and growth initiatives. It should be noted that there are several requirements the business must meet in order to qualify for an SBA loan including a strong credit history, showing the businesses’ ability to pay back the loan and providing financial documentation including corporate tax returns, profit and loss statements, balance sheets, along with accounts receivable and payable reports, among others.
Factoring: Factoring is a common solution for trucking companies as this allows companies to sell unpaid invoices to the factoring company at a discounted rate in exchange for a lump sum of cash (minus a fee). This essentially provides the company with access to cash right away without having to wait for the customer to pay the invoice.
Direct financing through a vendor: This type of financing involves the trucking company partnering with a vendor who provides services and support to the company. Often, these vendors will provide financing directly to the trucking company, which can be used to cover any operational costs, without having to go through a traditional lending source.
Grants/financial assistance: As grants do not require repayment, this is a very favorable option to any small business owner, especially those in an industry such as trucking; however, it can be difficult to find sources that offer grants. But do not despair as organizations and government entities offer grants that support trucking services, such as the Department of Transportation. These entities commonly offer grants to fund projects that improve safety and efficiency in the trucking industry. These grants can cover everything from purchasing new equipment to implementing advanced technology, among others.
Alternative lending sources: Alternative lending refers to the process of securing funds through sources outside of traditional banks/credit unions. These sources offer a wide range of options with differing conditions to choose from. There are a wide variety of alternative lending sources operating in the United States that offer various forms of financing including term loans, merchant cash advances, lines of credit and equipment financing, among others.
If your trucking company is in need of a quick source of working capital, consider reaching out to Penhurst Capital. Penhurst has access to a network of lending sources that specialize in helping small/medium sized trucking companies secure the much needed financing they need to ensure the business continues to thrive for years to come.
