Commercial Truck & Equipment Financing

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Commercial Truck Financing and Equipment Loans in America

Even through the Covid-19 pandemic, trucking has remained a viable business. Trucking is necessary to the lives and well-being of consumers, and the trucking industry is expected to see continual growth in the $700 billion trucking industry for many years. The American Trucking Association estimates that U.S. freight volumes will increase by almost 30% over the next decade, and the industry is expected to grow so much that billions of dollars will be invested in trucks and equipment.

The trucking industry employs millions of people around the country, from warehouse workers to delivery truck drivers, and generates hundreds of billions of dollars annually. Trucks in all forms are the lifeline between producers and consumers; basically, there is no supply chain without the trucking industry. Transportation may come in many forms, but ultimately end-point in the supply chain is the delivery truck. Delivering goods remains dynamic, and what remains constant is the ever-increasing demand from consumers keeps trucking a vital industry.

Trucks do not last forever! Industry and regulations allow the engine renovation to flourish, forcing new technology to make the trucking industry not just mile efficient but also environmentally friendly. Typical diesel trucks emit carbon compared to the hydrogen or electric semi-trucks. These types of trucks are what the industry disruptors are focusing on when building the next fleet of semi-trucks. Electric semi-trucks or hydrogen-powered semis give trucks more than the typical current mileage semi-trucks can operate without becoming a burden to operate—basically,  500,000 miles of life.

Lenders see semi-trucks over 500k in mileage to be worth less than those trucks that have less mileage. The average miles each truck travels per year are over 45,000 miles, and the average lifetime of a long-haul truck is 15-16 years. Cost prohibitive repair costs will make it easier to finance new trucks than giving loans to pay for repairs soon-to-be obsolete trucks with devalued asset value.

With regular maintenance and upkeep, most commercial trucks, small box trucks, and business short-haul trucks today can last for more than 100,000 miles. Their costs vary from $30,000 to $61,000 depending on if you need a refrigerator truck (cold) or just a delivery truck. Semi-trucks can vary from $80,000 to $150,000 or more. Trucks are a good portion of a business's expenses and can use up cash-on-hand quickly.

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Small Business Types of Financing for the Transportation and Trucking

To maintain cash flow, take advantage of write-offs and depreciation; most long and short-haul trucking companies either lease or finance their trucks. Equipment Finance Agreement is the recent form of equipment loan small business can obtain. The difference between equipment lease and equipment loan is that there is no balloon payment at the end of the term. Ownership start out right. Leasing with buyouts are still available but the popularity of the equipment loan has made it not only easy but convenient for lenders as they don’t have to deal with sales tax implications on some types of equipment leases including titling and DMV fees and taxes. They’re basically a loan is made to a trucking company with a lien to the vehicle with very little usage restriction. There are many different financing options for trucking companies, and a few of these options include:

Bank Trucking Loans

Banks offer competitive rates and terms on all commercial truck financing; however, trucking is the most restricted industry for any typical banks. Most commercial truck financing that occurs in the trucking industry comes from alternative equipment finance lender or private lending or private small business lenders. Most funding occurs through captive finance or the manufacturers' financing arms. Their financing packages include equipment financing and as well as leasing for new purchases and also for used trucks.

Commercial truck financing also occurs through alternative equipment finance. Most traditional big corporations typically have term loans, lines of credit, and asset-based lending through their local bank so they can pay cash to the dealer.  However, traditional banks have higher lending requirements than other types of alternative business lenders, and they do require business owners to have acceptable credit, established cashflow, personal collateral, tax returns filings and financial documentation.

Terms are generally from 1-7 years, require collateral, and interest rates are 5-15%. Funding amounts can range up to $5,000,000, but to qualify for such a program from your local or national bank, you must have not just a fleet of three trucks but also a history of business, contracts, and good personal and business credit. In most of your transactions, regardless of the size, banks will require a full financial package. Our alternative equipment loan requires only application up to $250,000 depending on the time in business, credit, equipment age, and industry.

Most bank don’t offer equipment leasing and if they do, they’ll broker it to some other private lenders or institutions who can do equipment leasing, equipment financing or equipment loan. Most bank will offer you a business loan with a blanket lien then you utilize cash from credit line or approved loan to purchase equipment rather that an equipment finance agreement or equipment lease. Tax deductibility are all the same in terms of how the equipment is written off, but equipment leasing has some added benefits besides of having no blanket lien on the company.

SBA Trucking Loans

If you are unable to obtain a traditional bank loan, you can secure financing through the use of the U.S. Small Business Administration's loan guarantee program. The SBA encourages lending from the community and small banks, but shoulders the majority of the lenders' losses should the truck owner default on the loan. To guarantee the loan, the SBA requires documentation from the company owner.

SBA loans have a 3-6% rate, last up to 25 years, and funding amounts can be up to $5,000,000. You do need to have collateral to obtain an SBA truck loan.

When most businesses have accepted the SBA PPP program, what happens to the future of other SBA transactions? No one has talked about what other SBA options small businesses will have post-COVID19, post-PPP. Will you borrow at a higher rate to pay off a lower rate to access more capital? SBA and the PPP, EIDL, have many more questions. The answers will only come in times when businesses encounter anticipated issues on how liabilities are allotted when small businesses grow or default. All we know is that when you take an equipment loan from an alternative lenders, you other assets typically will not be encumbered unless specifically added as additional collateral. Meaning, lenders can only repossess specific equipment financed contrast to a blanket lien which they could forcibly liquidate your personal and business assets.

Asset-Based Trucking Loans

Asset-based financing has been one of the oldest alternative loans available for the trucking and transportation industry in America. Typically, business assets used as collateral to obtain or secure business line of credit or loan in turn use the capital to purchased equipment. Monetizing, the trucking company's balance sheet provides lending to the trucking company if they cannot find financing through conventional lenders. Common assets used for commercial truck financing include accounts receivables, invoices, real estate, or trucking equipment.

Interest terms are 8-18%; you need to pay back the loan in 1-3 years, and funding amounts can be up to $5,000,000.

Alternative Financing for Trucking Companies

If a trucking company cannot meet traditional or SBA financing guidelines, conventional banking approval, to cover operating capital, businesses turns to alternative business financing options. These options include mid-prime alternative loans to sub-prime alternative loans. The rates are higher than a bank loan, but terms are usually shorter process than primary lenders. The advantages of alternative loans include quick funding for working capital - trucks operating expenses. Approval generally only takes days than the alternatives.

Terms on alternative financing utilized for the transportation industry will be only 12 months to 24 months. Funding amounts can be as high as $5,000,000, and collateral is not always required for a traditional working capital loan, line of credit or term loans. If you go with a traditional bank, you will likely be required to put up additional collateral with bigger down payment than typical alternative lenders.

What's better than a bank loan? An alternative loan for the trucking industry is less conforming and faster than a typical bank loan could do locally or nationally.

Invoice Financing

Invoice financing or discounted financing includes selling the trucking company's unpaid invoices to a factoring company at a discount. Commercial truck financing, in this case, is not taking out a traditional loan and making payments, trucking companies sell their unpaid invoices. The factoring company lends the trucking company between 70-92% of the invoice's value as long as the invoices are not over 60 days past due.

Each week the invoice goes unpaid, the factoring company will change the trucking company a fee for having the capital upfront rather than waiting for the trucking company to get paid. Big companies offer net term discounts typically costing the factoring fee, which could be net/10 term @ 3% discounts to cover the factoring fee. If payment is received within ten days from the invoice date, the customer receives the discount, and the company no longer has to pay the factor. Upon payment of the invoice, the factoring company forwards the trucking company the remainder of the balance. Trucking companies can use these funds to purchase trucks and equipment and free up their cash flow.

Interest rates are from 1-3% months, the payback terms are 1-2 years, and you can finance up to $5,000,000. Collateral is required.

Equipment Loan or Leasing

Equipment loan allows trucking companies to purchase new or used trucks and equipment without having to pay the full price of the equipment upfront. Equipment leasing companies purchase the equipment or truck and lease the equipment back to the trucking company for years. After the agreed-upon terms, the leasing company offers the trucking company the ability to buy the equipment or extend the lease for a longer period.

Since most banks don’t offer equipment leasing or loan, these customers will have no choice but to depend on truck dealers to get them the right financing and some turn ton high-risk lender other than a captive financing to acquire equipment. Captive lenders usually only finance their own inventory and only new equipment but when it comes to used equipment financing, they end up using an alternative lenders to access an alternative equipment loan.

When a utility truck or semi-truck costs upward of $100,000, leasing can be a very viable way to gain new equipment.

Alternative Cash Advance for Trucking Companies

If a trucking company needs immediate business financing, going to a bank will make it more time consuming that just takin an alternative loan. Alternative loan has taken market share from invoice factoring. The ease of access to capital in alternative loan, alternative working capital loans, provide convenience to cash strap truckers. Lacks documentation requirements makes it an attractive source of fund even if it cost more, typically, not more than invoice factoring. This isn't a loan but involves the B2B sales of the trucking company's future revenues. The trucking company sells future receivables, which gives them access capital quickly.

Merchant Cash Advance or Alternative Loan factor rates are from 1.10 – 1.50 and last for up to 24 months. You can fund up to $2,000,000, and you do not need collateral.

Whatever type of commercial truck financing, utility truck financing or simple office equipment leasing you need, there are many options. Sit down with your accountant and determine if buying outright and tying up your cash flow is more cost-effective than financing.

When deciding to finance, you must weigh the cost-benefits, risk-reward analysis to determine what’s best for you and your business.