The current state of the Covid-19 economic crisis is leaving many trucking companies wondering what financing is available to help get them through these tough times and how they can take advantage of the “all-time” low-interest rates. According to a July 2020 article in Overdrive magazine, over 100,000 trucking companies received as much as $12 billion in PPP loans at the start of the pandemic. With PPP funds running out and the hopes of a second round of government-assisted funding very much an unknown, what options do small and medium-sized trucking companies have for funding, and how can they benefit from the low rates?
The low-interest rates many banks are offering now can be very enticing. The downside is many small businesses, including trucking companies, have always struggled to be approved for bank loans. Unfortunately, but not unexpectedly, now does not seem to be any different. According to the Biz2Credit Small Business Lending Index™ released in early September, loan approval percentages for both big banks (approval rate of 13.6%) and small banks (approval rate of 18.5%) dropped in August 2020, indicating that the trend of increasing approval rates that started in May is coming to an end. There are many reasons why trucking companies struggle with being approved for bank loans. The biggest reasons tend to be a lack of business credit history and insufficient credit scores for both the business and the owners. For more on why this happens, check out our blog post on the common reasons banks reject loans for trucking companies. Bank loans also tend to have a lengthy approval process anywhere from 2 weeks to 90+ days. Given the current economic conditions, the lengthy approval process can make things difficult for many trucking companies who need access to funding more quickly.
Invoice factoring financing is one financing option that is a consistently reliable option for trucking companies regardless of the economic conditions or how long they have been in business. With much higher approval rates than bank financing and significantly easier and quicker (less than five days) approval process, invoice factoring financing gets trucking companies the funding they need when they need it. Additionally, a key benefit to invoice factoring financing during these challenging economic times is that the financing company will do credit checks on your brokers and shippers (sometimes at no additional cost to you) to help ensure that they are in good financial standing and that you will get paid and they won’t close up shop before paying you.
Equipment leases and loans could be a good consideration for trucking companies with the low-interest rates that are currently available. I have a great friend who owns one of the largest trailer dealerships in the west. Over the last few months, he has been telling me how busy they are and that they are selling everything they can get from their manufacturer. His comments are a perfect example of how trucking companies are benefiting from the low-interest rates that are currently available.
One financing option for small businesses, including trucking companies, that has greatly declined are merchant cash advances. Merchant cash advances are not typically collateralized loans and have been hit very hard by defaulting loans. This has left many companies without this option as a “last resort.”
The good news for trucking companies is that several financing options are available during these challenging economic times due to the Covid-19 crisis. It is essential to consider all your options and make sure you choose the best option for you and your business.
