Trucking business loans are typically short-term loans for working capital growth or lines of credit (LOC) to help truckers overcome unforeseen cash flow gaps. The best working capital loans from trucking companies have short repayment terms and fast funding because truckers sometimes need to make quick repairs or get owner-operator startup loans quickly.
OnDeck, which sponsored this article, offers both short-term working capital loans and small business lines of credit to help truckers get access to the capital they need. You can qualify if you have at least a 600 credit score, $100,000 in annual revenue, and one year of business history. OnDeck’s online application takes about 10 minutes, and you can receive funding in as little as one day.
Types of Trucking Business Loans for Working Capital
|Short-term Loans||Trucking companies needing quick financing for growth or other short-term working capital needs|
Business Line of Credit
|Owner-operators and trucking companies needing access to recurring capital|
|Small Business Administration (SBA) Loans||Trucking companies making a large business purchase and wanting a long repayment term|
|Equipment Financing||Trucking companies buying equipment with a long shelf life like a new semi-truck|
|Business Credit Cards||Owner-operators needing a credit line to pay for expenses like fuel|
Trucking loans come in all shapes and sizes and finding the right financing for your business can be confusing. We break down all your business loan options in this free webinar. Learn about all your financing options and what it takes to qualify.
How We Determined the Best Trucking Business Loans
Trucking companies have a lot of unpredictable expenses like truck repairs, blown tires, or driver overtime due to unforeseen traffic or unexpected delays in delivery. That’s why it’s important for any loan you get to be something you can access quickly. However, quick access to capital is only one factor we considered when choosing the best business loans for your trucking business.
When choosing the best trucking business loans, the factors we considered included:
- Speed of funding: The speed with which a lender can provide you funding is important so you can understand when you’ll have access to the funds. Online lenders, like OnDeck, provide the quickest funding.
- Loan amounts: The amount of funding you need, and the amount a lender can lend, can be a significant deciding factor when selecting the right financing option.
- Costs: The costs associated with financing options can include not only the interest rates charged but also any fees associated with the financing. Typically, business loans for owner-operators will also carry higher costs than loans for established trucking companies.
- Repayment terms: The length of time you need funding for partially drives your financing choice because you need adequate time to repay the debt. Borrowers seeking large funding amounts often require a lengthier repayment term than those borrowing smaller amounts.
- Minimum qualification requirements: Your credit score, the length of your time in business, and your annual business revenues are determining factors in the financing for which you qualify. This is especially important if you are evaluating business loans for owner-operators.
- Intended use of funds: The financing you need will vary based on your intended use of the funds. Examples include working capital to fund daily working expenses or financing a new piece of equipment.
Many traditional lenders don’t like lending to businesses in the trucking industry because of the uncertainty and seasonality of the business. Only the biggest trucking companies, which bring in millions of dollars in revenue every year, stand a chance of getting the best loans from the biggest banks. However, the trucking industry is huge, and alternative lenders have stepped in, making getting a business loan easier for trucking companies and owner-operators.
The best loans for trucking and freight businesses come from lenders who can approve and fund loans quickly. These lenders typically have less-stringent qualification requirements than traditional lenders (like banks), so the trucking industry isn’t a hurdle for qualifying. These lenders can provide quick access to flexible funding, which is important to truckers needing access to capital quickly.
OnDeck offers businesses working capital in the form of a term loan up to $500,000 or a line of credit up to $100,000. Besides the flexibility in the financing it offers, OnDeck can also prequalify a trucking business online in minutes and have it funded in as little as one business day.
Some of the best options for trucking business loans are short-term trucking business loans, small business line of credit for trucking companies, SBA owner-operator startup loans, equipment financing for trucking companies, and business credit cards for trucking companies.
Short-term Trucking Business Loans
Short-term trucking business loans are a good fit for trucking companies needing working capital to grow their business by fronting the expenses necessary to take on new contracts. These loans carry an expected annual percentage rate (APR) of up to 50%, and you can get it in as long as 36 months with weekly payments.
Short-term loans are best for trucking companies wanting to grow their business because they allow you to fund expenses for new runs before your customer pays you for the work. New routes require capital to pay for labor and truck expenses before you complete scheduled deliveries. Short-term loans work great because they fund in as fast as one day, and you can repay them as soon as your customer pays you, lowering the total cost.
Costs of Short-term Trucking Business Loans
While most short-term business loans for truckers have no prepayment penalties, some lenders require that you pay a certain fixed dollar amount regardless of when you pay off the loan. For example, if your term is for one year and you have a fixed interest charge of $500, then even if you pay off the loan within two months, it will still require the full $500 in interest.
The costs of short-term trucking business loans will fall into these ranges:
- Average expected APR: 30% to 50%; can be as low as 9.99% for prime borrowers
- Prepayment penalty: None
While short-term loans through an online lender have a higher APR than traditional financing, the total cost of capital might end up being less. For example, you’ll pay less in terms of total dollars by paying off a short-term loan with a 30% APR over one year than you would pay off a traditional bank loan with 8% APR over 10 years. As an example, a $10,000 loan with an APR of 35% will cost you $3,500 in interest to repay.
Terms of Short-term Loans for Trucking Companies
A short-term trucking business loan typically carries these terms:
- Loan amount: Up to $500,000
- Repayment term: Three to 36 months
- Repayment cycle: Weekly
- Time to funding: One to three days
Short-term loans through online lenders generally require you to make payments on a weekly basis, although some prime borrowers may qualify for monthly repayment terms. This isn’t a problem for trucking companies that are consistently completing runs on long-term contracts, but there might be better solutions for truckers without consistent cash flow.
Qualifications of Short-term Loans for Trucking Companies
Short-term loans are one of the easiest forms of financing to qualify for if you’re an experienced business with plenty of revenue (at least $100,000). For the best chance at getting approved, your revenues should trend up for the last three to six months, especially if you are applying for an owner-operator startup loan.
The typical qualification requirements for a short-term trucking business loan are:
- Personal credit score: At least 600 (check your score for free)
- Time in business: At least one year
- Annual business revenue: At least $100,000
Lenders are typically more concerned with the performance of your business than they are with your personal credit history, although both will be considered in the approval process. This leniency in credit requirements makes a short-term loan one of the few options for trucking business loans with bad credit.
What Short-term Loans for Trucking Companies Are Missing
Short-term loans are great for trucking businesses looking to grow, but they can be an expensive form of financing if you’re looking for long-term capital. Because of the short repayment term, these loans won’t be the best option if you need to make a large purchase, like additional trucks or real estate. If you have recurring financing needs, then a business line of credit would likely be a better solution.
Where to Find Short-term Loans for Trucking Companies
Online lenders use technology to analyze your financials, which allows them to qualify your trucking business for a loan faster than traditional lenders. OnDeck offers short-term loans up to $500,000 and can provide funding in as little as one day. You can start the process by filling out an online application, and you could get prequalified in about 10 minutes.
Small Business Line of Credit for Trucking Companies
A business LOC is a revolving line you can borrow and repay repeatedly without reapplying. It’s used to fund your business growth, to pay for recurring expenses, or to smooth seasonal cash flow needs. With a business line of credit, you only pay interest on the amount you borrowed, not the full credit line.
A business LOC is a good fit for trucking companies needing quick financing to combat unexpected expenses like blown tires, which make up 51% of unexpected expenses on the road for trucking companies. A line of credit can also be useful to cover regular and necessary expenses like your semi-truck insurance when an invoice is late. Trucking and freight companies can apply for a line of credit with either traditional banks or online lenders.
Traditional lenders are slower to fund, typically taking at least two to four weeks. Many also refuse to lend to risky industries or ones they’re unfamiliar with, like trucking businesses. However, alternative online lenders have more lenient qualification requirements and can fund your line of credit within a few days.
Costs of a Small Business Line of Credit for Trucking Companies
A small business line of credit gives you a quick source of capital without incurring a lot of additional costs. This is especially important to owner-operators who likely get paid on net terms for a run upon completion of delivery, or who need to take unexpected runs quickly or miss out on the work.
A business line of credit for owner-operator trucking companies will carry these costs:
- Expected average APR: 20% to 40%; can be as low as 13.99% for prime borrowers
- Prepayment penalty: None
Prime borrowers―typically a credit score of at least 700―can get approved with an online lender for interest rates competitive to the rates offered by traditional lenders. Interest rates on a small business line of credit from an online lender are often more affordable than other alternative financing options, like freight factoring. As an example, a $10,000 draw with one-year repayment terms will cost your business $2,500 in interest at an APR of 25%.
Terms of a Small Business Line of Credit for Trucking Companies
The terms you can expect with a small business line of credit for trucking companies are:
- Loan amount: Up to $100,000
- Repayment term: Up to 12 months
- Repayment cycle: Weekly or monthly
- Time to funding: One to three days
Your repayment cycle depends on your creditworthiness and the terms offered by your lender. Some online lenders require weekly payments, while others will allow the best borrowers to make monthly payments.
OnDeck, for example, requires weekly payments on your line of credit. However, the repayment term on a line of credit through OnDeck is one year. This helps keep the total cost of capital down compared to lenders willing to let you stay in repayment and accrue additional interest for years.
Qualifications for a Small Business Line of Credit for Trucking Companies
The minimum qualifications to get a line of credit for a trucking company include:
- Personal credit score: At least 600
- Time in business: At least one year
- Annual business revenue: At least $100,000
A business line of credit from an alternative or online lender is generally accessible for trucking companies because the majority have been in business for years and have predictable income. Owner-operators may find it more difficult to qualify for if they don’t have long-term contracts lined up for at least one year.
What’s Missing With a Small Business Line of Credit for Trucking Companies
A business line of credit is a great financing option for truckers who have recurring cash flow gaps or need to pay for expenses quickly. However, a line of credit limits how much you can borrow. If you’re looking for a larger amount of capital to fund a new contract, and you need more than $100,000, you may be better served by a different financing option like an SBA loan.
Where to Find a Small Business Line of Credit for Trucking Companies
You can obtain a business line of credit from both online and traditional lenders. OnDeck offers a small business line of credit of up to $100,000 with rates starting as low as 13.99% for prime borrowers. You can get approved by filling out its online application, which takes about 10 minutes. If approved, you could draw on your line of credit within one day.
SBA Owner-operator Startup Loans
An SBA loan is guaranteed by the SBA and offers longer repayment terms with some of the lowest interest rates available to trucking companies. Sometimes, you may qualify for an SBA loan as a startup. However, these loans typically require a significant amount of collateral. These loans are most commonly used for long-term financing to make large purchases like real estate or to buy a business.
With an SBA loan, you can borrow up to $5 million with a repayment term of up to 10 years on working capital and equipment. They can be a good fit for trucking businesses looking to fund the purchase of multiple trucks, to expand by buying out a competitor or open a new hub in a new location. They are also good for startups as the industry grows beyond $700 billion in annual revenue, there are more owner-operators needing funding.
Costs of SBA Owner-operator Startup Loans
The typical costs you can expect with an SBA owner-operator startup loan are:
- Interest rate: 8% to 11%
- Prepayment penalty: None
- Origination fee: 0.5% to 3.5%
- Loan packaging fee: $2,000 to $4,000
- SBA guarantee fee: 2% to 3.5%
SBA loans have low interest rates, but the fees can be expensive. However, you can save money on interest by paying the loan off early. That’s one of the main reasons that SBA loans are a better fit for trucking companies looking to finance a long-term asset, like real estate.
Terms of SBA Owner-operator Startup Loans
SBA owner-operator startup loans will generally carry these terms:
- Loan amount: Up to $5 million
- Repayment terms: Up to 10 years (25 years for real estate)
- Repayment cycle: Monthly
- Time to funding: At least 30 to 90 days
SBA loans can take three months to get funded. You generally must complete a lot of paperwork, make several trips to the bank, or take many phone calls from your lender throughout the application process. That’s why these loans are not a good fit for trucking companies needing quick working capital financing.
Qualifications of SBA Owner-operator Startup Loans
It is possible to get an SBA loan even if you have no hard collateral to pledge for the loan. However, SBA lenders typically want to see at least 50% of the loan amount supported by collateral. You also must have 10% or more of the total loan amount available as a down payment, which can make SBA loans harder to qualify for than short-term loans.
To qualify for an SBA owner-operator startup loan, you must meet these minimum qualifications:
- Personal credit score: At least 680
- Collateral: Typically required
- Down payment: At least 10% to 20%
- Time in business: Any, from startups to mature businesses
SBA financing can also be used for owner-operator startup loans. However, borrowers will typically have to have excellent credit and be able to put up at least 30% of the startup costs themselves to qualify.
What’s Missing With SBA Owner-operator Startup Loans
SBA loans offer the largest loan amounts and longest repayment terms of the loan options available to trucking companies. However, these loans are difficult to qualify for and can take months to get funded. The extended funding time can be difficult for trucking businesses, especially for owner-operators, who often need quick access to financing. If you are looking for faster funding, a short-term loan from OnDeck may be a better option.
Where to Find SBA Owner-operator Startup Loans
SBA loans can be obtained through a traditional bank or other SBA-approved lenders. The top 100 SBA lenders are fluent in the SBA loan process. Using an experienced lender for your SBA loan can help expedite the loan process for your company, as the lender will be familiar with the nuances of SBA financing.
Equipment Financing for Trucking Companies
Equipment financing is the best fit for trucking companies looking to grow by acquiring or replacing their trucks and trailers. If you need to purchase a brand-new rig, then this is likely the best option for you, especially if you are starting a new trucking business. Equipment financing is most often used for expensive purchases that require a long-term financing option with low interest rates.
Equipment financing uses your truck or other equipment you are purchasing, as collateral for the loan. Because the loan is collateralized, the lender can offer lower interest rates on your loan to purchase a semi-truck. However, to get qualified for equipment financing, you will need to show proof of a down payment. If you don’t have a sufficient down payment, consider equipment leasing as an alternative.
Costs of Equipment Financing for Trucking Companies
Equipment financing for trucking businesses carries these costs:
- Interest rates: 6% to 9%
- Prepayment penalty: None
Equipment financing carries low interest rates and has no prepayment penalties. The interest rate depends on whether you’re leasing or buying your equipment outright. If you’re purchasing equipment, your monthly costs will be higher than if you are leasing equipment, because you’ll own the equipment at the end of your term. As an example, a $10,000 equipment loan with an APR of 9% would cost you $900 in interest every year it’s outstanding.
Equipment Financing for Trucking Companies Terms
Equipment loans for trucking companies typically have terms that look like this:
- Loan amount: $10,000 to $500,000; up to 95% of equipment costs
- Repayment terms: Two to seven years, based on the useful life of the equipment
- Payment frequency: Monthly
- Funding speed: Two to five business days
Equipment financing amounts vary by lender, but most equipment financing providers will typically finance 85% to 95% of the value of the equipment. This means you will be responsible for providing a down payment of 5% to 15%. Typical repayment terms for large equipment purchases, like a semi-truck, are five years but vary based on the expected useful life of the equipment being purchased.
Equipment Financing for Trucking Companies Qualifications
The minimum qualification requirements for equipment financing to purchase a truck are:
- Credit score: At least 600
- Down payment: At least 5%; 10% to 20% for owner-operators
- Collateral: Financed equipment
- Time with CDL license: At least five years
- Age of truck: Less than 10 years
- Truck mileage: Less than 700,000
- Time in business: At least two years for many lenders; some will fund startups with industry management experience
Equipment financing isn’t difficult to qualify for if you’ve been in the industry for many years and buy a valuable truck. The truck requirements could be difficult for startups or owner-operators to stomach since the costs will be higher than you need to spend if you were to get an older truck with more miles.
When to Consider Equipment Leasing Instead of Equipment Financing
Business owners needing a truck but unable to afford equipment financing because of the high down payment requirements may want to consider equipment leasing instead. There are many types of equipment leasing options available, but you’ll typically need a credit score of 680 or higher, with at least two years in business. The lease will cost you 8% to 18% in interest on average, but maybe even more expensive sometimes.
The rates, terms, and qualifications for equipment leasing are:
- Average interest rate: 8% to 18%
- Lease term: Typically at least three years
- Minimum credit score: At least 680
- Time in business: At least two years
- Funding speed: Two to five days
Some equipment leasing options are available online and can get you funded in two to five days. It’s a good option if you don’t have enough collateral and there are even some leases that allow you to buy the equipment at the end for a nominal price, like $1. However, in most cases, you will pay significantly more for the same piece of equipment than you would if you were financing it instead.
What’s Missing With Equipment Financing for Trucking Companies
Equipment financing is specifically for expensive machinery and tools that can act as collateral for the loan, and it the least expensive option for this type of financing. However, it can’t be used for other working capital purposes. As an alternative that’s more flexible consider getting a short-term trucking business loan or line of credit.
Where to Find Equipment Financing for Trucking Companies
You can find equipment financing at traditional lenders like banks and at many truck dealers. Typically, traditional lenders will offer a variation on one of its small business loans, that is specifically tailored for semi-truck financing.
Business Credit Cards for Trucking Companies
Business credit cards are a good fit for any trucking company because they allow you to float expenses for up to 30 days. A business credit card is a miniature small business line of credit, with a maximum credit limit of around $30,000. Business credit cards are also the easiest type of financing for trucking companies to qualify for.
Business credit cards can be used to pay for all business-related expenses while on the road. Many business credit cards provide rewards for spending on ongoing expenses like fuel, insurance, tolls, and more. Since the cost of fuel is one of the biggest expenses (15.2% of total costs) for your trucking business, using a business credit card to fund these purchases during your runs would allow you to take advantage of cash back rewards provided by the card.
Costs of Business Credit Cards for Trucking Companies
Business credit cards typically carry these costs:
- Interest rate: 15% to 29%; some have 0% introductory offers
- Annual fee: Up to $350 or higher
Some business credit cards require you to pay an annual fee. Many of those cards carry higher rewards, but the rewards may not benefit your company. You should make sure that any card you apply for provides rewards for fuel purchases or other purchases you’re likely to make consistently. You don’t want to pay an annual fee for a card that won’t give you any relevant rewards for your business.
Business Credit Cards for Trucking Companies Terms
A business credit card will generally carry terms such as:
- Loan amounts: Up to $100,000, but typically less than $30,000 for most businesses
- Repayment terms: 30 days interest-free
- Time to funding: Instantly to two weeks, which is the time to receive your card
- Initial rewards: Introductory APR of 0% for seven to 18 months
- Ongoing rewards: Cas hback on fuel purchases
Many cards will offer an introductory period with 0% APR. This can be good to help you fund purchases you need to pay off over time since you’re borrowing for free during that period. Your business can also potentially increase its credit limit as it grows, making business credit cards a great financing option in the long run as well.
Business Credit Cards for Trucking Companies Qualifications
To qualify for a business credit card, you must have a personal credit score of at least 680 for the best offers.
Business credit cards take into account your personal credit score and the annual business revenue of your trucking company. Some credit card providers will also ask you for your monthly expenses to gauge your ability to repay your approved amount. While owner-operator startup loans can be difficult to get, it’s often much easier for startups and new owner-operators to qualify for business credit cards.
What’s Missing With Business Credit Cards for Trucking Companies
A business credit card is easy to qualify for compared to other financing options, and you’ll be able to use them repeatedly without reapplying. However, these cards won’t likely give you a large amount of financing. If you need more than $20,000 to $30,000, then a small business line of credit may be a better option for your business.
Where to Find Business Credit Cards for Trucking Companies
Small business credit cards have simple online applications that can be completed in minutes and are available for many business expenses. Those trucking companies that primarily spend money on fuel and maintenance may want to see if a fleet card or fuel card is a good option. Fuel cards are typically used by owner-operators whereas fleet cards offer the best rewards if you have two or more trucks.
Improving Your Chances of Getting a Trucking Business Loan
Regardless of which trucking business loan is right for you, there are certain things you can do to improve your chances of getting approved. You need to keep your business and personal income separate, improve your credit score, grow your revenue, or eliminate how much you pay out on a monthly basis by reducing business expenses.
The five things that can improve your chances of approval for a trucking business loan are separate business and personal income, improve your personal credit score, apply when revenue is trending up, eliminate unnecessary expenses, and maintain adequate insurance coverage.
1. Separate Business and Personal Income
Traditional small business loans for truckers can be difficult to qualify for, especially for owner-operators who complete jobs for other trucking companies. This difficulty stems from the uncertainty of the industry and the inconsistency of revenue. You must take extra care in separating your business and individual income if you want to get funded. A dedicated business bank account and proper accounting software for trucking are essential.
According to Ty Kiisel from OnDeck, a lender that works with trucking businesses:
“Owner-operators will want to treat his or her truck like a business, not simply an extension of personal life. In other words, most small business lenders will want to see a business license and a business checking account—and will want to review several months of business bank statements. Depending upon the lender, it will also be important to make sure they can demonstrate some time in business.”
2. Improve Your Personal Credit Score
Regardless of which loan you choose, your personal credit score will make a big difference in your ability to get approved. Improving your score could open opportunities to either get financed or to get approved for larger loan amounts.
You can typically improve your score before applying for a trucking business loan by doing these three things:
- Verify everything on your credit report is accurate.
- Make all of your credit payments on time.
- Spend much less than your maximum approved credit limit.
If your credit has taken a hit because of poor repayment performance or unforeseen circumstances, you can get help by working with one of the best credit repair companies. Although you need to pay for the service upfront, it can often save you money if it helps you qualify for lower overall rates.
3. Apply When Revenue Is Trending Up
The amount of business revenue generated annually is the second most important factor that will be considered in a trucking business loan application. To maximize your potential for getting approved, you should be strategic about when you apply. This means that you should wait and apply for a loan when your revenues have had a positive trend over the past three to six months.
In the trucking industry, this can sometimes take one new payment for a contract you’ve recently signed. If you know that you signed up a new customer and expect to receive payment from them within the next 90 days, then it might benefit you to wait until you can show that revenue on your business books.
4. Eliminate Unnecessary Expenses
The fewer expenses your business has on a monthly basis, the higher your debt service coverage ratio (DSCR) will become. DSCR is important for many lenders to decipher your ability to repay the amount you’re borrowing. If your DSCR is below 1.25x, many lenders won’t approve your loan application.
DSCR is calculated by dividing your business annual net operating income by your current year’s debt obligations. It’s an accurate way of showing how much your business can pay back in addition to your current debt obligations.
5. Maintain Adequate Insurance Coverage
If you are already active in the freight business and own your own truck, your lender will want to know about the insurance coverage you maintain on equipment. By maintaining a high level of insurance, your lender will feel more confident providing capital for additional equipment, knowing that the collateral will cover the outstanding balance were anything to happen.
Trucking Business Loans Frequently Asked Questions (FAQs)
Getting a trucking business loan can be complicated, especially if you are getting one for the first time. We’ve done our best to cover the options. However, you may find you have some unanswered questions. We’ve gathered the most frequently asked questions from around the web and answered them below. If your question was not answered, ask it in the Fit Small Business forum.
How much is a down payment on a semi-truck?
The down payment on a semi-truck can be as little as 5% to 25% depending on your individual qualifications. Borrowers with a high personal credit score and extensive experience in the freight business can qualify with low collateral whereas owner-operator startups are more likely to have a higher requirement.
How can I buy a new truck with bad credit?
When getting trucking business loans, bad credit can be a hurdle. You must apply for a loan but, before that, it’s important to work on increasing your credit score by making on-time payments. You should also start saving money because most lenders will require a larger down payment to make up for your credit history.
How much money do you need to start a trucking business?
Starting a trucking business has two components: equipment and legal paperwork. To found the company, get all the proper license, and file the paperwork can be anywhere from $6,000 to $15,000. Depending on the truck you buy, you must pay another $15,000 to $175,000 or more.
Bottom Line: Small Business Loans for Trucking Companies
When looking for trucking business loans, you have plenty of options. The best loan for you will depend on what you plan to spend the funds on and what your credit profile looks like. If you need working capital fast, then your best bet is to get a short-term loan or small business line of credit from an online lender that can fund you quickly.
OnDeck offers short term small business loans for truckers of up to $500,000. If you’ve been in business for at least one year, have at least a 600 credit score, and annual revenues exceeding $100,000, you may be eligible for a short-term loan from OnDeck. You can apply online in minutes and receive funding within one day.