Why Banks Don’t Approve Small Business Loans for Trucking Companies

Trucking companies of various sizes from owner-operators to those with several trucks regularly struggle to be approved for small business loans. Here are five reasons why banks don’t approve small business loans for trucking companies. 

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Credit Score

Your credit score gives lenders a glimpse at how likely you are to repay them. Making it a significant factor in their decision to approve or reject your loan application. When applying for a business loan for a small trucking company through a bank, they will look at the credit score for the owner of the business and the business itself. A low credit score is often a reason businesses, including trucking companies, are rejected by a bank for a loan. This could be a low credit score for the owner and/or the business. Banks typically consider a good personal credit score to be a FICO score of 670 or higher.

Business Credit History

Business credit history is a tough one for trucking companies seeking small business loans from a bank. Frequently, trucking companies need financing early on as you are establishing, building, and growing your business. Banks typically like to see a personal credit history of at least three years and a business credit history of a year or more to approve the small business loan for a trucking company. 

Business Performance and Cash Flow

Banks want to ensure you will be able to repay the loan. To do so they will take a look at your funds coming in and your spending.  They want to ensure you have money for your daily operations and are not in the red on your financials. If they determine that you have a weak business performance and inadequate cash flow, it could mean they will reject your loan request.

Existing Loans / Debt

Banks will take into consideration other business debt, including other loans. This other existing debt often causes them to reject the loan. This is a main reason why obtaining a bank loan is difficult for trucking companies since many have had to finance their equipment to get started. For more on financial considerations for acquiring new equipment when you start a trucking business, check out part one of our series on Financial Considerations for Starting Your Own Trucking Business.

Insufficient Business Plan

The bank needs to see a clear, concise, and solid plan for the direction and growth of your business. The plan needs to be written well, include details with no assumptions. This is the only factor you have direct control to change right away when applying for a loan.
Other options when banks don’t approve a small business loan for your trucking company

Applying for a business loan through a bank can be a long and time-consuming process. When you combine that with their low approval rates, what should trucking companies do when they need funds? Luckily there are alternative financing options available that are easier, less time-consuming, and have higher approval rates. One of those options is factoring for trucking companiesWith freight factoring, the approval process takes only a few days. Additionally, factoring companies look at the creditworthiness of your brokers and shippers and not yours or your business’. Plus, with factoring for trucking companies, your cash flow will improve because you will receive funds within hours of delivering your loads and no longer have to wait to get paid. Give us a call today at (801) 676-0182 to see if freight factoring could be the right fit for you and your trucking business.