With over 500,000 trucking businesses in the United States, it is one of the country’s most competitive industries. As of 2020, the U.S. trucking industry was valued at $732.3 billion, with 902,000 truck drivers employed.
But therein lies a problem.
With about 900,000 drivers to 500,000 businesses, there are fewer than two truckers for every company. To succeed, your trucking business must overcome driver shortages and cash flow problems. A trucking business loan can help with the latter by financially boosting your business to hire skilled employees at an attractive pay scale.
What are Trucking Business Loans?
Trucking business loans are business funding options available to the owners and operators of trucking companies. They provide capital, which can be used to cover cash flow issues, buy new trucks for your fleet, expand your business, or pay for emergency expenses. A lender may require collateral against the loan depending on your trucking business’s profitability and usage of the loan. For example, when you are buying a truck with a business loan, you don’t need to offer collateral because the truck you purchase with the loan amount acts as collateral.
Some large banks offer trucking business loans. However, you’re more likely to find alternative and online lenders offering this niche financing solution.
Benefits of Trucking Business Loans
There are several ways your business may benefit from a trucking business loan.
Builds Working Capital
You need working capital to ensure you have liquid cash on hand to pay for operational expenses, such as employee wages and fleet maintenance. A trucking business loan ensures you have that cash available even when business is slow.
Refinancing Business Debt
If you have multiple debts with several creditors, you can use a trucking business loan to pay your business debts. From there, you have a single loan to deal with, rather than several.
Buying a Competitor
Purchasing a competitor is one of the best ways to scale your trucking business in an already competitive market. The right loan could fund your purchase, paving the way for future growth.
Expanding Your Trucking Company
Expansion can take many forms in the trucking sector. If you’re not buying a competitor, you’re likely looking to hire new people, buy more trucks, or move into new territories. A loan can help you do all three.
Loans Catered To Trucking Needs
Trucking business loans are designed to meet the specific needs of the trucking industry. Lenders that offer these loans often customize the terms of the loan as per the trucking company’s financing requirements.
The Different Types of Trucking Business Loans
Choosing the right type of loan is critical for your trucking business. Here are four that lenders typically offer.
Commercial Truck Financing
With commercial truck financing, the trucking equipment you purchase serves as collateral on the loan. As such, the loan is usually set to the value of the truck, plus interest.
Short Term Business Loans
A short term business loan offers more flexibility in terms of how you spend the money. However, you’ll often find that lenders have stricter loan qualification criteria for these loans than they do for equipment loans.
Business Line of Credit
A line of credit functions similarly to a credit card. Your lender sets a limit on how much you can borrow. When you need the money, you can draw money up to the set limit, and repay it with interest.
Working Capital Loans
Working capital loans help you to fund the everyday running of your business. You can use them for a variety of purposes, including wages, inventory purchasing, and marketing. As such, working capital loans can help you grow your trucking business by resolving temporary cash flow issues.
How Do Commercial Trucking Loans Work?
Commercial trucking loans work similarly to any other type of small business loans. Before you apply for one, you need to collect all appropriate financial documents and make a business case for why you need the loan.
After choosing a lender and filing an application, the lender decides whether to approve you for the trucking loan and what terms to offer. Assuming you agree to the terms, which include the amount you can borrow and the interest rate attached to repayments, you sign off on the loan and receive your money. From there, you repay the loan with interest based on the agreed-upon terms.
How to Get a Commercial Trucking Loan
Though the basics of getting a commercial trucking loan are simple to understand, it’s still crucial that you follow the appropriate steps to improve your chances of loan approval.
1. Determine What Your Business Needs
As there are several types of loans available, gaining clarity on what you need is critical. For example, if you want to use the loan amount to buy a new truck, an equipment loan is the best choice as the lender uses the new truck as collateral and offers the loan at lower rates compared to other loans. But if you need money to solve cash flow issues, a line of credit or working capital loan may be a better choice.
Think carefully about the loan’s purpose before applying. Consider how you’ll use the money and how much you need to borrow to ensure the loan fulfills its purpose without placing your business in a precarious financial position.
2. Choose a Trusted Lender With Experience in Trucking Loans
You need to feel certain that your lender understands the challenges inherent in the trucking sector. If you use an alternative lender, look for experience in offering loans to trucking companies. Online reviews can offer insight here, as can your conversations with the lender.
When using a traditional lender, look for those that offer loans backed by the Small Business Administration (SBA).
3. Know the Lender’s Qualification Requirements
The qualification requirements for a commercial trucking loan vary depending on the lender and the type of loan you choose. Most will look at your personal and business credit scores, which help them to determine how reliable you are as a borrower. A good track record of repaying your existing loans on time may help you to secure more money or get a better interest rate on the loan.
Beyond that, the lender will usually ask to see documents pertaining to your business, including the following:
- A bank statement
- General information about the age and type of trucking business you operate
- Trucking business plan
- Yearly revenue figures
- Your existing debt-to-credit ratio
The latter is particularly important in helping the lender create your risk profile. The lower your debt-to-credit ratio, the more likely you are to get approved for your loan.
4. Gather All Financial Documents
Lenders typically ask to see the following financial documents as part of the application process:
- Bank Statements
- Proof that you own the business
- The most recent tax returns of all the company’s major shareholders
- A debt declaration
Combined, these documents help the lender establish trust in your trucking business.
5. Apply for a Trucking Business Loan
With your documents gathered, you’re ready to apply for a loan. Major banks often require you to apply in person at a branch. Alternative lenders usually give you the option to apply online or via the phone. Speak to a funding specialist at National Funding if you have any questions about the process.
6. Review the Terms and Conditions of the Commercial Trucking Loan
Receiving approval for your commercial trucking loan is a happy moment. However, don’t jump the gun and sign the lender’s documents without reading them thoroughly first.
The lender sets the loan’s terms and conditions based on how well you meet their qualification criteria. These conditions cover how much you can borrow, the loan’s term, interest rate, repayment, and collateral conditions. With some loans, such as equipment financing, there are usually conditions related to how you can spend the money.
Review these conditions and only accept the loan if they align with your trucking company’s needs.
Trucking Business Loan FAQs
When should I apply for a trucking loan?
You should consider applying for a trucking loan if you have plans for growth but need funding to buy new trucks or acquire a competitor. Alternatively, a trucking loan may be a good choice for your business if you have a short-term working capital issue that’s negatively affecting your cash flow.
Are loan options different for owner-operators?
Owner-operators need to be able to demonstrate that they have a strong credit history and that any truck they purchase meets the lender’s criteria. Furthermore, many lenders want to see a commercial driving license under the owner-operator’s name before they’ll approve them for a trucking loan.
Can you get a trucking business loan with bad credit?
Most traditional lenders will refuse your application for a trucking business loan if you have poor credit. However, some alternative lenders offer ways to get a loan, such as securing additional assets against the loan. As such, it’s possible to get a trucking business loan with bad credit with some lenders if you are willing to offer collateral of great value and can deal with higher interest rates.
There are several costs to consider when starting a trucking company, including licensing with the Federal Motor Carrier Safety Administration, hiring employees, and buying or leasing trucks. As an owner-operator, expect to spend between $100,000 and $200,000 to start your business. Add a further $60,000 per employee, along with the costs of additional trucks, truck maintenance expenses, and fuel charges.