Successfully Financing a Truck Fleet: 7 Strategies
Getting any business off the ground can be challenging, and truck fleets carry unique obstacles. The average cost of a new vehicle hit a record high in late 2021, and long-haul trucks were already expensive. High insurance rates and maintenance needs further add to the list of expenses.
Thankfully, new fleet owners don’t need to pay for all these factors upfront. Several financing options exist, and which one is the best depends on a company’s specific situation. Here’s a look at seven strategies and who they benefit the most.
1. Bank Loans
The most straightforward financing option for truck fleets is to get a loan from the bank. Large banks may seem intimidating, but many partner with the Small Business Association (SBA) to offer more accessible loans for startups. SBA-backed loans can reach up to $5.5 million and often come with lower payments and fairer terms.
Fleet owners should understand that loan terms vary widely among banks, even with SBA-backed loans. Looking into and comparing available options is a crucial part of the process.
Bank loans may offer some of the most capital, but their approval processes are typically longer and stricter. As a result, they’re best for business owners with good credit who can afford to wait months before getting the money.
2. Alternative Lenders
Institutions other than banks and credit unions offer business loans. Alternative lenders provide rates comparable to most banks and often feature faster approval processes.
Many alternative lending companies offer industry-specific loans that may fit fleets’ unique needs better than banks. Some of these also feature more flexible terms and payment options. However, the amount of capital these loans provide is often not as high as what fleets would get from a bank.
Alternative lenders are typically smaller companies, so they may be more risk-aversive than traditional institutions. Consequently, they’re often better for fleet owners with high credit scores. Some may target those with poor credit, but it’s important to inspect these terms closely to make sure they’re not misleading.
3. Direct Truck Loans
Another loan option is to work with a direct trucking lender. These companies specialize in offering loans to commercial fleets, so they have a more intimate understanding of the industry and its requirements.
Fleet financing companies often have decades of experience, so they’ll be able to understand unique situations. Unlike traditional financial institutions, they lend their own money, making them more flexible than banks. At the same time, that means they may also offer less competitive interest rates.
Direct truck loans may be best for fleets with unique concerns or poor credit histories. They may be a reliable option for all companies, as long as their rates hold up against the competition. Be sure to compare them to other options to find the best deal.
Fleets don’t have to buy their equipment outright, either. Leasing trucks instead of buying them can be a helpful way to finance a fleet since this entails smaller upfront payments. It also means companies can upgrade their vehicles quickly and with minimal investment.
Fleets can also buy out of their leases once they become comfortable with their vehicles and the current market. This may come with high costs depending on the leasing term, but refinancing options can help.
Leasing is particularly attractive to new players in the industry, as it provides quick, affordable access to top-of-the-line equipment. However, buying trucks outright may be better for companies that want more flexibility or control.
Truck fleets could also adopt a franchise business model. In these arrangements, owner-operators pay a franchising fee and a portion of their profits but operate with relative independence.
The most significant advantage of this business model is that it reduces costs. Owner-operators must pay their own fuel bills and take care of maintenance. However, that also means franchisors have less control over vehicle types, maintenance and driving regulations.
Most owner-operators prefer to work with an established name, so startup fleets may not succeed with this model. Profits may be slimmer, too, as franchisors only receive a portion of franchisees’ revenue. Still, it can be an attractive option for fleets that have been in the industry for a while. It may be especially appealing for those that are looking to expand.
6. Invoice Factoring
Loans, equipment costs and business models aren’t the only ways to improve a fleet’s finances. Collecting outstanding payments can be a challenge for trucking companies, especially when they’re new. Payment for trucking invoices takes 36.9 days on average, limiting fleets’ financial mobility. Invoice factoring streamlines the process.
Factoring brokers act as an intermediary between clients and fleet owners. The broker will give fleets an advance on their payment, taking a fee of around 3%-5% in return. This lowers fleets’ overall income, but it can provide almost instant payment, helping them address expenses sooner.
Factoring can be particularly valuable to new fleets, as it enables more fiscal mobility. Faster payments allow companies can expand more rapidly. However, the associated fees may limit this growth.
7. Quick Pay
Quick pay is a similar solution that many brokers offer. Like factoring, this provides faster payments, but it comes from load brokers themselves, not financial services companies.
Choosing this option often means brokers will pay fleets in a week or less instead of the standard 37 days. That’s not as immediate as factoring, but it’s far faster than traditional payment options and provides similar mobility benefits. Quick pay also usually entails a small fee, similar to what a factoring company would charge.
Quick pay removes the intermediaries of factoring, but it doesn’t offer many advantages beyond that. Fleets should compare their options to see which offers the best rates for their specific situation.
Truck Fleets Have Many Financing Options
Financing a truck fleet can be intimidating at first, considering the high upfront and operational costs. These expenses can be high, but the abundance of options in the market today makes them far more approachable. Fleets should determine their budget and compare their available local opportunities to find the best way forward.
Fleets can use one or more of these strategies to become mobile and start serving clients with minimal expenses. They can then fully capitalize on this long-standing and growing industry.
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