How to Finance a Trucking Business Expansion

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Trucking Business Expansion

Without trucks, the American economy comes to a complete standstill. 3.6 million heavy-duty Class 8 trucks transport 10.5 billion tons of freight each year.

Are you the owner-operator of a trucking business? Read on to learn ways that you can finance your trucking business expansion. 

SBA Loans for Trucking Funding

Your local Small Business Administration (SBA) may be able to give you a very low interest rate to finance your trucking expansion.

SBA loans are generally long-term loans. You can borrow up to $5 million with a repayment term of up to 10 years for equipment.

If you want to buy several trucks, open a new location or buy a competitor, an SBA loan is a good place to start. 

Operating Lease

If you need access to new trucks, but can’t afford high monthly loan payments, an operating lease may be a good fit for you.

With an operating lease, you lease (or rent) a truck from a supplier. You don’t own the truck. At the end of the term, you give the truck back or pay fair market value to keep it.

The monthly lease payments are quite lower than many loan payments which makes this option good for business owners who need to keep costs down.  

Small Business Line of Credit 

Another option for commercial vehicle financing is a business line of credit. The good thing about lines of credit is that they are not a one-time loan.

A line of credit gives you access to a set amount of funding. As you pay it down, you can use the funds again. This way you can fund your company’s growth.

And, you only pay interest on the amount you use, not the full amount of the line of credit. Having a line of credit for an owner-operator trucking business gives you peace of mind because you have access to funds should you need them for unexpected costs.

You only need to apply once and then you always have that line of credit available for you to use as needed. Don’t forget that your business has various tax deductions that can help you save money come tax season. 

Equipment Financing 

When you want to replace trucks or acquire new ones to add to the road, equipment financing is a great option. Basically, you use your existing trucks or other equipment as collateral for the new loan.

Because the loan is secured (through your collateral), the lender can afford to give you a lower interest rate.

It is common for new and expanding trucking companies to choose this financing because it is a long-term option that comes with low interest rates. Typically, you can expect to pay between 6-9% interest.

Best of all, there’s no penalty to pay off the loan early. So if business is booming, go ahead and pay off the loan as soon as you can. 

Short-Term Trucking Business Loans

Short-term trucking business loans work best for companies that need to take on a new expense in order to grow their business. 

Let’s say you have a profitable new route available to you, you’ll need to fund the labor and other expenses for the job before your customer pays. This is when short-term loans are worthwhile.T

You can get approved for a short-term loan in one day, which makes it a great way to get funds quickly. 

Be careful though, the APR can be as high as 50%. Yet, if you repay the loan within the first year, the total cost is a pretty good deal.

If you plan to pay this loan back in full as soon as your customer pays you, it’s a great option for expanding your trucking enterprise.

Invoice Factoring

It’s important to understand that loans aren’t the only options for trucking funding.

One -outside-the-box option for you to consider is invoice factoring. This option lets you turn unpaid invoices into cash. 

You sell your unpaid invoices to a factoring company who pays you cash for the total amount minus a small percentage. This factoring company then deals with your customers to get paid.

Not only does this give you an influx of cash all at once, but it also frees you up from having to work on accounts receivable work. 

Plus, invoice factoring doesn’t impact your credit rating in any way. You can get your funds in just a few quick days from a factoring company.

Invoice factoring is not a loan. It’s just a smart way that you can get an influx of your cash without going into debt.

Working Capital Advances

Another trucking finance option is a working capital advance. This option is not a loan. It is a new source of funding for various types of business.

These advances give you funds upfront that you will then pay back over several months. The advance amount you qualify for depends on your company’s revenue.

Over the following months, you will put a certain percentage of your income to pay back your advance.

This option is not available to everyone. To qualify, you must be in business for a minimum amount of time and earn a certain revenue each month.

Approval is easy and only takes a couple of hours. That means the cash could be in your account in just a day or two.

If your trucking business has got a steady track record, this may be your best bet. 

Final Thoughts on Trucking Business Expansion

Thanks for reading! We hope this guide helps you understand your options for your trucking business expansion.

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