Money, it’s what keeps you moving, and without access to enough of it, it is also what can slow you down. Trucking owner-operators and small trucking company owners have a few options to get access to the trucking business financing they need, and each comes with its own benefits and drawbacks. Some of the fundamental differences to consider for trucking start-up loads and other financing options are the requirements needed to be approved, amount of time it will take to be approved, cost, additional benefits and long-term effects.
Here are seven trucking start-up loan and financing options available for carriers that you may be considering and the pros and cons of each.
Bank Loans
Bank loans are what most trucking companies think of first when thinking about a business loan. Simply put with a bank loan they give you money up front, and you pay it back over time in addition to interest.
Pros
- Relatively lower interest rate compared to other options.
- The interest you pay on the loan can be a tax deduction.
- It can help you build your business credit; It offers a fixed interest rate.
Cons
- Very hard to get for trucking owner-operators and small fleet owners especially when you are just starting out.
- You need a good past credit history to get approved.
- There is a lot of paperwork that needs to completed.
- Decisions on your acceptance are not made quickly.
Factoring
With factoring the finance partner or factoring company purchases your freight bills, giving you immediate access to cash once you deliver the load.
Pros
- Once your account is set-up you get funds immediately when freight bills are submitted for already approved shippers and brokers.
- The application process is quick and easy, only taking a few days.
- The factoring company will look at the credit history of your shippers and brokers instead of yours, which makes it an excellent option for trucking companies that are just starting out.
- Depending on the factoring company you choose there can be several support services included in the partnership such as invoicing, processing, postage, collecting and more.
Cons
- The rate can be slightly higher than that of a bank loan
- Your financing is dependent on your brokers and shippers paying promptly.
Equipment Lease
There are a few options for trucking owner-operators and small fleet owners who are looking to utilize an equipment lease as a financing option. The first and most commonly known is to use it to help acquire a new to you truck or trailer. With an equipment lease, you can get access to the equipment you need without having to pay for it all up upfront and paying it off over time.
In addition, there is an equipment lease called a sale-leaseback that can help you free up working capital by having a leasing company purchase equipment from you that you already own and are using and then lease it back to you. This can lower your monthly expenses and free up cash.
Pros
- Provides a set rate, so you know what to expect each month to help you manage your working capital.
- Leasing can help you upgrade your equipment, which can save you money on maintenance costs.
Cons
- There is a set term to leasing, making it challenging if you want to change your equipment sooner.
- You will be paying interest on the lease so the overall cost will be more than if you paid for it outright upfront.
SBA Loans
An SBA loan is a loan program established through the Small Business Association to help entrepreneurs secure a loan to help grow their business.
Pros
- Relatively low-interest rates.
- Payment terms that are favorable for small businesses.
- Can be used for a wide range of businesses expenses.
Cons
- Very hard for trucking owner-operators to qualify
- Very lengthy and time-consuming approval process
- You need excellent credit to be accepted.
Credit Card
Credit cards can be a helpful form of short-term financing allowing you to purchase items without having to pay for them right away.
Pros
- One of the most accessible forms of financing to qualify for.
- You don’t need excellent credit to be approved.
- Can be used to cover a wide range of expenses.
- Can help you build your credit.
Cons
- Very high interest rate if you don’t pay it off in full.
- Very few additional business benefits other than access to the capital.
Friends and Family
Friends and family may seem like a natural source of funding, but I choose to live by the old saying of “don’t mix business and pleasure.” You may have supportive friends and family with capital to spare, but with this one, the cons outweigh the pros in spades if you ask me.
Pros
- Based on your friends and family it can be the most accessible form of financing to acquire with no real application process.
- Some degree of flexibility in terms and interest rate.
Cons
- Not a valid business relationship and usually not an official signed agreement so terms, interest rate and everything else is often not structured and open to individual interpretation and free to change at any time.
- Many family feuds and broken friendships steam from situations involving money.
Merchant Cash Advance
A merchant cash advance is any form of accessing capital for your business that pulls funds automatically from your business bank account. They will provide you with funds upfront, and you lose control of when and how you make the payment since they automatically pull it.
Pros
- There is very little paperwork and high approval rates.
Cons
- Merchant cash advances are often unregulated and carry with them an extremely high interest rate of 15%-39+% AND monthly maintenance fees.
- The terms are often very confusing making it hard to truly understand what it will cost you.
I hope we have given you a good sense for some of the options that trucking owner-operator have for start-up loans and financing along with their pros and cons. If you have any questions about how our financing options can help you and your business, please give us a call at (801) 676-0182 we are happy to help customize a solution that works best for you.
