Business Loans for Trucking Company (4 Smart Options)

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If you’re looking to start a trucking company, or you want to expand the one you already own, a business loan may be exactly what you need.

In this article, we’ll discuss the financing options available for trucking companies, what you should look for in a business loan, and a step-by-step process you can follow to secure financing.

Types of Financing Available for Trucking Companies

Merchant Cash Advance

If you need a quick financing solution to meet short-term obligations, consider a merchant cash advance (MCA).

An MCA is an alternative financing solution that’s especially popular among businesses that mainly have credit and debit card sales. You don’t need good credit or a lengthy business history to secure an MCA – you just need to show a decent history of card sales thanks to the more lenient qualifications.

Securing a merchant cash advance is relatively simple. The first step is filling out an application with your funder. You’ll need documentation that shows your history of card sales along with additional details about your business as well as your credit score. Once your application is approved, the factoring company will offer a factor rate based on the loan’s size.

An MCA of $300,000 with a factor rate of 1.3 will have you paying back $390,000, meaning it’ll cost $90,000 to borrow the $300,000. It’s best to work with a factoring company that specifically caters to the trucking industry, as these companies can offer you the best terms.

Usually, an MCA can be disbursed in just 24-48 hours after you’re approved, which means it’s a great financing option for trucking companies that need funds quickly for working capital. Also, you won’t have to put up collateral to secure funding, which can be a huge benefit for many small business owners.

But there are some notable downsides to consider before you opt for this method of financing. For one, you’ll have to start making repayments soon after you obtain your financing, and you may even have to pay on a daily or weekly basis. Also, consistently making repayments on time won’t improve your credit score.

The size of your repayments is determined by several factors, but is typically a percentage of total card sales over a given period, otherwise known as a holdback.

Business Term Loan

The majority of trucking companies opt for a conventional business term loan when they need financing because of the advantages associated with this financing solution.

For one, there’s no maximum, meaning you can secure a large amount of financing for your business, so long as your business’ creditworthiness and financials are in good order and the funder deems it a worthwhile investment. 

Also, you can secure a low interest rate and favorable terms if your credit scores are high and your company has been consistently increasing revenue and profits for several years. Currently, the average interest rate for a conventional business term loan is around 6% to over 20%, but it’s important to remember that this range changes frequently.

The loan’s term, or how long you have to pay it back, is based on a range of factors, including the loan’s size, your business’ creditworthiness, and the loan’s purpose. If the funds are for purchasing new equipment or commercial property, expect a term of 10-30 years. If they’ll be used as working capital, expect a term of 1-10 years.

How often you’ll have to make repayments is determined by the loan’s size and your business’ creditworthiness. Making repayments on a weekly, bi-weekly, or monthly basis is common for short-term loans, whereas most long-term loans require monthly repayments.

The terms of the loan will dictate how the money can be spent. For example, if your loan is approved on the basis that the funds will be used to purchase commercial property, you can’t use the funds as working capital. If you misuse the funds, you could face a range of penalties, some of which are quite severe.

Additionally, you’ll often have to put up collateral to secure a conventional business term loan for a trucking company. The collateral you put up must be appraised by the funder, and can include assets such as real estate, vehicles, boats, furniture, and collectibles.

You may also have to sign a personal guarantee, where you agree that the funder has the right to seize and sell your personal property in the event you can’t pay back the loan.

A down payment of 10%-20% of the loan’s value may also be required which is determined by several factors, including your business’ creditworthiness and the purpose of the loan.

Finally, it’s important to consider the worst case scenario, or defaulting, before you take out a conventional business term loan for your trucking company. Loan forgiveness is seldom a recourse if you’re borrowing for business-related purposes, so defaulting could have you forfeiting your assets and declaring bankruptcy.

Wondering how it stacks up against an MCA? Check out our term loan vs MCA guide for more help.

SBA Loan

An SBA loan is like a conventional business term loan in several ways, but it’s the ways in which they’re different that lead trucking companies to choose one over the other.

SBA loans are backed by the Small Business Administration and therefore easier to acquire. If your credit score is 620 or higher, and your business meets the other requirements, there’s a good chance you can secure an SBA loan.

There are several kinds of SBA loans, but most trucking companies opt for a 7(a) or 504 loan. 7(a) loans are mainly used as working capital, so your company could use the funds to pay fuel costs and employee wages. 504 loans are mainly used for purchasing or developing real estate, so you could use one of these loans to open up a new facility.

SBA loans may be easier to acquire, but they often have stricter repayment terms. However, the interest rates on these loans are capped, meaning they can be more affordable.

For example, a loan of $50,000 or less can’t have an interest rate higher than 15%, whereas a loan of $350,000 or more can’t have an interest rate higher than 11.50%. The interest rate you get is determined by several factors, with the most important being your creditworthiness, your business’ financials, and the current market conditions.

Regarding terms, most 7(a) loans have a term of 10 years or less, but 7(a) loans for real estate development often have a term of 20-30 years. Nearly all 504 loans have a term greater than 10 years, with the average length being 25 years.

One of the notable downsides to an SBA loan is that it can take 2-3 months to secure your financing, whereas a conventional business term loan can be secured in 2-4 weeks. 

As far as collateral goes, this is required for all SBA loans above $50,000. Additionally, a down payment of 10%-30% will be required and you’ll also have to sign a personal guarantee to secure an SBA loan.

Another key difference between SBA loans and conventional business term loans has to do with forgiveness. In the event of default, the SBA is more willing to work with borrowers, so long as the funder approves. Under their OIC program, a borrower can pay back a portion of the owed funds while the remainder is forgiven.

Equipment Financing

Equipment financing is another popular financing solution in the trucking industry, mainly because equipment is the backbone of any trucking company.

Equipment financing is similar to home and auto financing in that the loan is secured by the equipment. The term on this kind of loan is usually 10 years or greater, and you could get an interest rate between 7% and 20% depending on your business’ creditworthiness and other factors.

To secure an equipment loan, you’ll need to explain why the new equipment will be a good investment for your business. Additionally, you’ll need to present a feasible plan for paying off the equipment.

You’ll also need to meet several requirements to secure equipment financing. For example, you’ll have to prove that the equipment you want has a useful life greater than 10 years.

Finally, you may have to put up collateral or sign a personal guarantee to get equipment financing but this will vary from funder to funder.

What to Look for in a Trucking Company Business Loan

Flexible Terms

Trucking companies aren’t the riskiest businesses out there, but since they do face a handful of risks on a day to day basis, it’s best for these companies to choose business loans with flexible terms.

Say, for example, one of your trucks loses its cargo in an accident. You’ll have to pay insurance and accident-related expenses, and you won’t get any money from the customer because their shipment never made it.

In this case, you’ll probably be strapped for cash, which means you may not be able to make a repayment on time. This is when flexible loan terms are a huge advantage. Understanding your situation, the funder may give you more time to make the repayment, and they may not charge a fee for the delay.

Low Fees

To secure a business loan, you’ll have to pay origination fees, which are essentially charges for reviewing your application and providing the approved funding. In most cases, origination fees are rolled into the loan’s total cost and amount to 2%-5% of the loan’s value.

Additionally, you’ll have to pay a fee every time you miss a payment, and you may also incur additional fees if you pay back the loan early.

Business loan fee structures vary from funder to funder, which is why you should shop around for the best deal before choosing a funder.

Quick Funding Timeline

In most cases, trucking companies want the funds they are borrowing sooner rather than later, so consider the funding timeline when you’re weighing financing options and comparing funders. With an alternative financing solution, like an MCA, you can get funding in as little as 24 hours. Traditional funders take longer – usually a couple weeks or longer.

Just remember that a quicker funding timeline usually comes with higher borrowing costs and stricter repayment terms.

How to Get a Loan for a Trucking Company (Step by Step)

1. Choose an Ideal Financing Option

Before you look at which financing options are available for your trucking company, determine what the loan will be used for. 

  • If you’re looking for fast funds to meet short-term expenses, a merchant cash advance may be what you need.
  • If you’re looking for a sizable loan that’ll take 10-30 years to pay back, a conventional business term loan or an SBA loan may work out best for your business.
  • If you’ll be using the borrowed funds to purchase a new truck or maintenance equipment, equipment financing may be best.

2. Determine Your Business’ Creditworthiness and Financial Situation

Before you submit an application, it’s important to look at your business through the eyes of a funder. This way you avoid wasting time and unnecessarily harming your credit score.

First, determine how much revenue your business brings in on an annual basis, as this is an important metric to most funders. Typically, funders want to see annual revenue between $100,000 and $250,000.

Next, look out into the future and determine if any obstacles will prevent you from consistently making repayments on time.

You’ll also need to assess your business’ creditworthiness honestly, as this is arguably the most important factor to most funders. If your credit rating looks good, you should be able to access any financing option. If it’s poor, consider an SBA loan or an alternative financing solution like an MCA.

Once you know your creditworthiness and the strength of your business’ financials, you can start comparing funders.

3. Compare Funders to Get the Best Terms

Every funder is different, so you should compare several funders before deciding on one. When you’re comparing funders, it’s important to consider:

  • Approval requirements
  • Loan terms
  • Interest rates
  • Fees
  • Incentives and perks

If your trucking company is in good financial shape, you should spend a fair amount of time searching for a funder that’ll be willing to offer great terms and rates to lower the costs of your financing. Even if you have poor credit or limited business history, weigh your options carefully, as selecting an unreliable funder can do more harm than good.

4. Gather Necessary Business and Financial Documents

Next, gather all the business and financial documents you’ll need before you submit your application. Gathering everything in advance ensures the review process isn’t delayed because of missing paperwork.

You’ll need personal and business credit reports, profit and loss statements, balance sheets, cash flow statements, tax returns, financial projections, legal agreements, and a handful of other documents.

If there are documents the funder didn’t ask for, but you believe they’d help you get approved, have them ready in case the funder asks for additional documentation during the review process.

5. Submit Your Application

Once you have all the required documents in order, fill out an application with the funder you’ve chosen. 

6. Review and Accept the Loan Agreement

Upon approving your application, the funder will propose a loan agreement. Review this document carefully before signing.

If something doesn’t make sense in the agreement, ask the funder for clarification. If they can’t provide an answer that makes sense, consider hiring a business attorney who specializes in loan agreements.

When everything in the loan agreement sounds good, you’re ready to sign. Upon receiving your signature, the funder will begin the disbursement process. This process could take 2-14 days depending on the funder you choose.

Final Thoughts

If you need financing for your trucking company, first determine which kind of financing will be best for your business. Once you know the kind of financing you want, compare funders to get the best deal.

When you need funds fast, and you have bad credit, getting a merchant cash advance may be your best bet. If a sizable loan with a longer term is what you’re after, consider a conventional business term loan or an SBA loan. Finally, if you need funds for new equipment, look into equipment financing.

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