Trucking Business Loans: Costs, Terms & Requirements

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.

Types of Trucking Business Loans for Working Capital

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 small business 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. Other factors included the amount a lender is willing to provide, and the costs and repayment terms of the financing.

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.

Short-term Business Loans

Short-term 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 repayment terms of 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.

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 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.

SBA Owner-operator Startup Loans

An SBA loan is guaranteed by the Small Business Administration (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. SBA 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, 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.

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. 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.

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. Because 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.

Improving Your Chances of Getting a Trucking Business Loan

Regardless of which type of 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.

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.

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.

Typically, you can improve your score before applying for a trucking business loan by doing these three things:

1. Verify everything on your credit report is accurate.
2. Make all of your credit payments on time.
3. Spend much less than your maximum approved credit limit.

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.

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.

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.

Bottom Line

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.