Trucking business loans: how to get funding for your business

Author: Fundbox Team | May 17, 2022

The trucking industry is vital to the supply chain and keeps the American economy flowing. Despite intermittent fluctuations in the market, trucking services are consistently in demand, and as such the industry is highly competitive. 

In fact, the trucking industry generates one of the largest revenue streams in the U.S. and is responsible for transporting 70 percent of all goods. According to the National Association of Small Trucking Companies (NASTC), only 15 percent of newly formed trucking companies will survive beyond their second year of operation.

The logistics and high costs associated with owning and operating a trucking business can make it seem very challenging to succeed; however, if managed well, it can be an extremely lucrative business. It isn’t easy to establish and maintain a trucking business. Rising costs, strict regulations, fluctuating markets, and fierce competition are a few examples of the obstacles that can hinder profitability for a small trucking business.  

While trucking may be a costly business, trucking business loans can be an excellent source of funding to help you overcome cash flow gaps or take advantage of an opportunity to grow your fleet. Finding funding for your trucking business can feel overwhelming, but there are several options available. In this blog, we’ll explore the world of financing for trucking businesses and examine some of the key types of loans as well as their benefits.

Trucking business loans to consider

Small Business Administration (SBA) trucking loans  

The SBA is not a lender but instead provides funding through participating banks and credit unions. SBA loans offer trucking and transportation companies that may be unable to get a traditional loan the ability to secure bank-rate financing.

This is because the SBA Loan Guarantee Program can help to qualify a borrower who otherwise may not meet the rigid requirements of traditional lenders. If your trucking business has been operating for a while and your personal credit score is above average (690–850), this may be an option for your business.

Business line of credit 

Trucking is a cash-flow-intensive business. Shippers and brokers can sometimes take 15 to 45 days to pay invoices and this payment delay can create a cash flow gap. 

However, a business line of credit may provide you with the capital you need to invest in a new or used truck, cover the occasional cash flow gap, or even help you pay for unforeseen expenses like a repair, should you need it. If your trucking business is newer or has not established business credit, it will be challenging to get approved for a line of credit from a traditional lender.

That said, if you’ve been in business for upwards of six months and have a FICO score of 600+, you may want to look into a business line of credit from an online lender like Fundbox. Online lenders can provide similar financing options to banks, including term loans and business lines of credit, with significantly streamlined application and approval processes.

Short-term loans

There are several online lenders that offer short-term loans to small businesses, and that includes trucking companies. A term loan may be a great financing option for a trucking business that requires quick access to a higher amount of cash that’s paid out with a one-time lump-sum payout. For instance, a trucking business needing swift access to cash to help bridge a cash flow gap or take advantage of a time-sensitive business opportunity.

Generally, with this type of loan you both borrow and repay the amount within a short period of time. Terms vary from lender to lender, but the term of these loans usually ranges from six months (or slightly less) to three years. This often results in a lower cost of borrowing than a long-term loan. An additional perk of these loans is that they are usually more flexible with the use of funds. Therefore, a term loan can be great for helping your business get through a challenging period, recover from an emergency, or expand your services.

Asset-based financing

If you have limited credit history or a low credit score, asset-based financing options like equipment financing or invoice factoring may be more accessible to you. 

With equipment financing, you could potentially finance the purchase of a new truck, trailer, or other physical asset you need to operate or expand your trucking business. In this case, the equipment itself acts as collateral for the loan — similar to a mortgage. What this means is that in the event you are unable to repay your debt, the lender may repossess the equipment you’ve procured and use it to cover its losses. This type of financing enables you to spread out the cost of purchasing or leasing expensive equipment into manageable payments over time. 

There may also be leasing or rent-to-own financing options you can leverage; however, the cost of leasing may be more expensive than a loan due to higher interest rates. 

Alternatively, if you’re seeking funding to cover a gap in working capital, invoice factoring (another type of asset-based financing), may be a good fit. Invoice factoring enables you to sell your outstanding invoices to a third party, who in turn provides your business with a sum of cash equal to a portion of the invoice amounts.

In summary

With the modern demands of transportation, small trucking companies are more valuable than ever. However, like all small businesses, it can be extremely challenging to build, maintain, and grow a successful trucking business. It often takes a mix of competitive drive, hard work, business acumen, and a steep financial investment to succeed.

Trucking business loans may be able to offer the funding you need to maintain, improve, or expand your trucking company. And, fortunately, there are plenty of funding options for trucking and transportation companies to choose from — even those with minimal credit history. 

The key is to carefully research, consider, and compare options, so you can determine the right type of trucking loan for your business. Regardless of the type of loan you choose, it’s critical to ensure the funding offers returns that outweigh the cost of borrowing. 

Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

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