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Best Business Loans for Truckers

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The trucking industry was a $791.7 billion industry in 2019, and has only grown since the coronavirus increased the nation’s reliance on shipping and home delivery. According to the U.S. Department of Transportation, 91.5% of trucking companies operate less than six trucks, and 97.4% have less than 20 trucks. This means less competition for newer entrants into the market.

Experts predict an upcoming labor shortage of 160,000 drivers by 2028. Your company may have to pay more to attract top talent. If you’ve been working for a trucking company, now would be the time to launch out on your own.

It’s a great time to invest in your trucking business. If you lack the capital reserves to fund an investment yourself, lenders offer a variety of loans for trucking companies. Read on to discover the best uses for a trucking business loan, the questions to answer before borrowing, and your best loan options.

Best Uses for a Trucking Business Loan

When would a trucking company or owner-operator need to borrow? These are some common situations you might face when building or growing your business where borrowing would be a good choice.

  • You want to stop driving for another company and become an owner-operator
  • It’s time to expand your commercial truck fleet
  • An emergency vehicle replacement
  • To meet working capital needs
  • Hiring more drivers
  • Upgrading technology and improve logistics
  • Realize inventory savings

Questions to Ask Before Taking Out a Trucking Business Loan

Before filling out a loan application, ask yourself these questions. The answers will guide you to the best lender and loan product to meet your borrowing needs.

Why Do You Need to Borrow?

Why have you decided that it’s time to borrow? Do you need to purchase a new truck, or cover payroll and rent? The reasons that underlie your borrowing need often can guide you to the best loan product. 

To cover daily operating expenses, a working capital loan is the best option. Equipment financing loans will have the best terms for a new truck purchase. Establishing why you need to borrow leads to the next question – how large of a loan to take out.

How Much Do You Need to Borrow?

How much capital do you need? Once you know why you need to borrow, put together a budget that covers the total cost of your project – whether it’s the purchase of a logistics tracking software or adding to your fleet. You’ll need this number before approaching lenders. 

Traditional borrowers prefer to extend capital for longer terms and a larger amount. If you need a smaller loan for just a few months, they might not work with you. To fund a large commercial truck purchase, you’ll need to approach an equipment financing lender who extends credit large enough to cover the total purchase price. 

When you apply for a loan, you want it to cover your entire borrowing need. Otherwise, you could end up having to stack loans on top of each other to complete the project. Loan stacking is a risky practice that could harm your cash flow and business’ long-term operations. 

Can You Pay the Loan Back?

Make sure to add loan payments to your budget. Depending on the size of your project, you’ll likely have to make payments before it begins to generate revenues. Make sure that your business’ cash flows cover those payments before you’ve seen an increase in revenues. 

Prepare cash flow projections for several scenarios – if the project takes longer to complete than planned, if snow delays and road closures impact the month’s revenues, or if you can repay the loan faster.  The more you plan for the loan ahead of time, the more successful your borrowing experience.

When preparing your budget, you may discover that your business can’t support the loan payments. If that’s the case, consider scaling back your plans or revising them so that you don’t have to borrow as much. 

What is Your Credit Score?

Traditional lenders prefer to work with borrowers with a credit score above 720. In rare cases – such as if you have strong collateral – they will extend credit with borrowers who have a score down to 650. But if you have a low credit score, you will need to approach alternative lenders for your funding needs.

Before you begin the months-long process of applying for and receiving approval for a bank loan, check your credit score. If you have a low credit score, save time and approach lenders you already know will extend you credit.

Best Business Loans for Truckers

Armed with the answers to the above questions, and a clear budget and financial plan, you can easily identify the best loan to meet your capital needs. 

Working Capital Loans for Trucking Companies

Working capital is the money used to support your business’ daily operations. It’s rent, payroll, utilities, and other expenses that keep the lights on. It’s often a last minute surprise when a small business owner realizes that cash flow issues could cause them to miss an important operating expense, so lenders fund these loans quickly.

Companies in the trucking industry often deal with payment delays of up to 90 days. While you wait for clients to pay, bills still come due. Working capital loans are a great way to cover cash flow bumps.

A working capital loan can be funded within as few as 24 hours from application. Alternative lenders require a minimum credit score of 650, at least two months in business, and minimum monthly revenues of $10,000. Because these loans fund quickly, lenders have less time to verify your creditworthiness. This increases this risk, so they’ll charge a higher interest rate, typically between 9% to 45%.

Equipment Financing Loans for Truckers

In the trucking industry, equipment financing funds the purchase of a new or used truck, a trailer, or other long-term physical assets that are necessary for operations. 

Purchasing this equipment upfront could be several thousand dollars. It’s difficult for many small business owners to set aside this much money. A loan which breaks down the larger amount into smaller payments enables small business owners to grow. 

You have two options for equipment financing:

  • Equipment Loans: With an equipment loan, you own the truck or truck trailer at the end of the loan’s terms. Scheduled payments go toward the principal balance and interest. This is the best option if you plan on using the equipment for many years.

The equipment serves as the loan’s collateral. With a collateralized loan, the lender has less risk, so you’ll pay a lower interest rate and receive better terms. For larger equipment financing loans, the lender could require a down payment.

The biggest risk with an equipment financing loan is that if you default, the lender could seize the equipment to cover their losses. 

  • Equipment Leases: When you lease equipment, monthly payments cover the equipment’s lease. Once your lease is over, you don’t own the equipment. After returning it, you can upgrade to the latest model. Some lessors give you the option to pay the remaining balance and purchase the equipment outright.

With a lease, you could have a lower monthly payment. Some leases don’t require a down payment. However, the total cost of the lease typically is more expensive than loans due to higher interest rates.

Short-Term Business Loans for Truckers

A short term loan could fund the purchase of truck trailers, load boards, or new fleet tracking software. If you have the opportunity to purchase tires, mechanical parts, or lights at a discount, taking out a short-term loan to fund the purchase could still save you money in the long run. 

A short-term loan has a repayment period of several months. After two years in business, and with a minimum credit score of 650, you could qualify for a loan between $15,000 and $750,000. 

Bad Credit Business Loans

Small business owners with poor credit still have options – look for lenders who offer bad credit business loans. Alternative lenders extend credit to businesses with blemishes on their credit reports, though they will charge a higher interest rate than a bank. The interest rate reflects the lender’s risk – with a low credit score, they have less assurance that you’ll repay the loan. Charging more helps mitigate their risk.

If you have a credit score as low as 500, but minimum monthly revenues of $8,000, you could still borrow. Repayment terms are anywhere from 2 to 18 months and interest rates of 12% to 45%. 

If it’s time to take out a loan for your trucking business, contact Shield Funding today. Our loan specialists can review your funding needs and match you with the best loan product.