The job forecast for the trucking industry is expected to grow about 6% by 2026, according to data from the Bureau of Labor Statistics. Trucking companies are one of a handful of industries expected to have job growth with jobs that don’t require a college degree to perform. And it’s a changing industry, so having the flexibility to stay agile and keep up with the industry can be a great strategy for building a successful business.
Starting off on the right foot could mean securing the right kind of financing for your trucking business. Find out what options are available for trucking companies.
How do you finance a trucking company?
Like most small businesses, there are a number of options for loans for trucking companies. It’s a matter of examining your options and choosing the best one for your current needs.
Some trucking companies take out Small Business Administration (SBA) loan. These loans are highly desirable because they often come with lower interest rates and longer repayment terms, which means your monthly payments will be lower and you’ll be better able to weather the ups and downs of your own accounts receivables.
There are also a few different kinds of short-term business loans that might be available to trucking companies. The first is a working capital, or short-term business loan that is usually for a term of less than a year. The benefits of this type of loan is that you can often get one with less than stellar credit. The disadvantages are that they usually come with high interest rates and the amount available to borrow is lower.
Another kind of short-term loan is known as a merchant cash advance loan. It sounds a bit like a loan from a payday or short-term storefront lender that consumers sometimes use, because it is a lot like those loans. Designed to be paid back within a very short time period, usually 30-days or less, the interest rates on this type of financing are extremely high. In an extreme emergency, they might be a viable temporary option, but are not great as a long-term financing strategy.
A loan option that can sometimes be a good fit for a trucking business is equipment financing. In this case, your truck serves as collateral against a business loan. These kinds of loans can offer good interest rates, but usually come with a term of about seven years, which is when the value of your collateral, the commercial truck, really starts to depreciate.
Lastly, depending on your company, you may be eligible for a business line of credit. These kinds of loan work a little like a business credit card, but with lower interest rates and a higher credit limit. When a bank approves your line of credit, you can then borrow against it and pay it back as needed.
A business credit line can be good for trucking businesses with a small fleet of trucks or other equipment because those assets can serve as collateral against the loan, which keeps the bank confident that they’re taking on a safe risk by lending to your business, which means your interest rate will often be more manageable.
Can I get a commercial trucking loan with bad credit?
You can almost always find someone to fund commercial trucking loans, but the terms of your loan will vary depending on your credit score and other business assets, such as cash on hand for the business or down payment on the truck, how long you’ve been in business, and even the age of the truck you plan to buy.
In general, the lower your credit score, the higher down payment you’ll need to be prepared to pay. Lenders will also consider the length of time you’ve been in business and any other business assets you may have that could serve as collateral.
And yes, buying a new, or almost new, truck from a dealer can actually help secure better financing since the bank sees it as less of a risk since they’d be able to sell a newer vehicle to recoup their loan if it came to that.
Can I use a loan to start a trucking company?
You can take out a trucking business loan. However, unlike some small business loans, you’ll probably be asked to put down a decent-sized down payment against the loan. Trucking can be a volatile business, with risks that include fluctuating fuel prices, traffic delays, and important government safety regulations that drivers must comply with to be successful, and lenders recognize these risks when lending to potential trucking company business owners.
That means that your interest rate on a loan might be higher than it is for other businesses.
How to choose the best trucking company loan for your needs.
However, just like any other business owner, as the owner of a small trucking business, you’ll want to evaluate your financing options and choose the loan with the best terms for you.
Some factors to consider when choosing a loan include:
- Interest rates
- Repayment term, or length
- Collateral requirements
- Down payment requirements
- Associated fees
You’ll want to find the right combination of those factors for your business before signing on the dotted loan to borrow money.
How to apply for a trucking loan
Applying for a trucking loan is a lot like applying for any other kind of financing, like a mortgage. You’ll first want to gather your financial information and documentation.
This will likely include:
- A personal credit score
- Information about any collateral you can offer against a loan. In this case, it likely means a truck, so you’ll need the details about the vehicle.
- The down payment amount for the loan
- Information about your business, including profit and loss statements and any current or upcoming contracts you have in place
Then you’ll fill out a loan application and find out what kind of terms the lender can offer you for a loan. Finally, it’s a matter of weighing your choices and choosing the best terms for your business.