The 8 Best Loans for Transportation

10+ min read • Mar 03, 2020 • Grant Olsen

If there’s ever been an industry on the move, it’s trucking. So it stands to reason that finding the right loan is an important objective for any small business operating within the long-haul world. Having the capital needed to start, sustain, or grow your business is crucial when things change so quickly.

Lifeblood of America

More than 70% of all freight in America is hauled by trucks, accounting for more than 10 billion tons. And the industry employs about 6% of the nation’s full-time workers. All told, the $700 billion generated by the trucking industry in the US tops the GDP of 150 countries around the world.

Basically, if you buy it, a driver probably hauled it. This is especially true with the things we buy most, such as food at the grocery store. If long-haul truckers were to remain idle, store shelves would start going bare in just a few days. That’s as high an impact as any industry could hope to have.

“It is still too early to tell if we are entering a golden era for truck drivers,” says Sandeep Kar, a trucking expert. “However, the heightened efforts to advance the industry in that direction currently involve a wide array of organizations—from OEMs, to system suppliers, to connected vehicle technology providers, legislators, freight brokers, and early-stage companies that deal with computing, IT, health care, and simulation, among others. This is all a clear indication that commercial vehicle product planning will continue to focus squarely on truck drivers for many years to come.”

In these booming times, there are 33.8 million trucks registered for business on America’s roads, logging a total of 297.6 billion miles. To make this all happen, about 3.5 million truck drivers and 5.2 million support workers join forces to keep the industry humming along.

Demands Facing the Industry

Although there are more than 8 million total workers within the trucking industry, there is currently a demand for more. Research suggests 60,000 drivers are needed to keep things functioning smoothly.

“It’s certainly a natural market reaction whenever there’s a shortage—pay goes up, and we’ve seen that,” explains Bob Costello, the American Trucking Associations’ chief economist. “If you’re not getting a 401(k), health care, paid time off, you need to get a different job, because you can get all of that.”

This shortage of drivers puts pressure on business owners, as they must increase their offerings to stay competitive. If you pay meager wages and don’t offer benefits, you’ll likely struggle to attract and retain your employees.

In addition to hiring employees, there are other considerable costs to consider. A new cab has a price tag between $130,000 and$180,000. And you can’t do much hauling unless you add a trailer to that cab, which adds up to $80,000 more.

It’s often said that you’ve got to spend money to make money. This adage is particularly true in the transportation industry, where small business owners must handle high costs before they can begin to see revenue.

The Nuances of Small Business Loans for Trucking

When small business owners seek the best loans for transportation, they quickly learn that their industry presents unique challenges. First, there are the large expenses mentioned above. Compounding the situation is the fact that lenders often consider trucking companies to be a risky investment.

So whether you’re repairing your current truck, leasing a new vehicle, buying your dream rig, or simply getting equipment to keep your fleet running, you’ll want to do your due diligence. Research the best loans available and don’t settle for a subpar lender. By carefully making this decision, you’ll set yourself up for sustained success.

Given the unique nature of trucking, not every small business loan is a solid fit. Here are 8 of the most popular:

1. Equipment financing

Trucking is an equipment-heavy field, so it makes sense that this type of financing can be a good fit. The amounts go all the way up to $5 million, providing the capital to invest in trucks and support equipment.

While the name “equipment financing” may conjure up images of machinery and the like, it’s important to note that the definition is actually quite broad. You can buy new desks for your office, get fridges for your breakroom, install solar panels on your office building, or upgrade your computer with new accounting software.

Compared to other financing options, equipment financing is fairly easy to qualify for because the equipment you’re purchasing acts as the collateral for the loan. With solid collateral in play, you’ll often be able to qualify for generous amounts even if your credit score isn’t particularly high. The downside to this arrangement is that if you were to default on the loan, the lender would then take possession of your collateral.

2. Line of credit

While equipment financing offers massive loan amounts, a line of credit is better for the smaller expenses trucking businesses often face. This kind of financing eschews a lump sum for a revolving amount of credit. Much like a credit card, you access the money when you need it, pay it back, then repeat the process as often as necessary.

With a business line of credit, you get an impressive amount of flexibility. Want to hire a couple more drivers? No problem. Need to renovate the office? That’s just fine. Want to buy deluxe mattresses for all the trucks in your fleet? More power to you.

This kind of financing starts small and goes up to $500,000. You can usually acquire the money in as little as a week, so you won’t have to fill out mountains of paperwork and jump through too many hoops.

3. Term loan

Like the Old Faithful of the financing world, term loans have been reliable for generations. They may not be the flashiest financing available (even the name is a little boring), but they deliver speed, convenience, and flexibility.

One benefit of a term loan is the fixed interest rates or fixed flat fees. You lock the amount at the onset, and your payments will never change over the lifetime of the loan. With terms lasting up to 5 years, this stability is a big deal. It saves you money and helps you identify the costs up front so you can confidently decide how much you can afford.

Term loans provide amounts up to $2 million, with interest rates starting in the neighborhood of 6%. The money can hit your account in as little as 2 days, ensuring you don’t have to wait long for your desired capital.

4. Short term loan

Believe it or not, sometimes 2 days is too long. When small businesses are in need of truly rapid cash, they often turn to a short term loan. They move at blazing speeds, often delivering money to your account in 24 hours. Imagine that—getting the money you need in about the same amount of time it takes Amazon to deliver some of their fastest packages.

Short term loans have so much in common with term loans that whoever invented them simply put a “short” at the beginning of the name. In addition to funding faster, they also have shorter repayment terms lasting from 1–3 years.

Just know that speed in the financing world typically comes with extra cost. You’ll find interest rates that start around 8% and go up from there. As long as you have good credit and have been in business for at least a couple of years, you should be a strong contender for approval.

5. SBA 7(a) Loans

Financing options provided by the US Small Business Administration (SBA) are different from all others on this list because they involve a third party. Essentially, the SBA guarantees a portion of each approved loan, which works wonders for the borrower. With the typical risks associated with loans reduced, third-party lenders suddenly become more generous in their rates and terms. They’ll even fight for your business.

The SBA has been facilitating these kinds of loans for a long time, connecting entrepreneurs with tens of billions in total financing each year. And they’re especially keen on helping small business owners who have been rejected by traditional lenders. So if you’ve faced financing challenges, you could be a prime candidate.

Because of their benefits, SBA loans like those in the 7(a) program are highly sought after. It’s not often that you can qualify for up to $5 million in cash with such borrower-friendly terms. But SBA loans are also known for tedious amounts of paperwork. And the approval process can really drag, lasting up to 3 months. This timeframe obviously makes them unrealistic for anyone facing immediate financial needs.

Much like term loans, SBA 7(a) loans have been popular among small business owners for decades. In fact, more small business owners choose to go with this program than any of the agency’s other offerings.

One main benefit is that they offer great rates and terms. Because these loans are intended for those who have been turned down by lenders in the past, it’s quite unusual to get access to financing this favorable.

Flexibility is also a hallmark of 7(a) loans. There are few limitations on what the money can be spent on, so trucking companies will find that most of their needs are covered.

Businesses can qualify for these loans as long as they operate for profit, do business in the United States or its territories, and meet the basic size and financial requirements. You’ll also want to craft a solid business plan so you can confidently express to the lender how you intend to use the money.

6. SBA Express Loans

Just as short term loans are expedited versions of a standard term loan, SBA Express Loans are intended to be a speedier version of 7(a) loans. Of course, using the term “express” is a bit of a misnomer. While these loans are among the fastest offered by the agency, they still take about a month to fund.

As is often the case with expedited loans, this type of financing requires less paperwork and has a shorter approval period. Likewise, the maximum amount you can borrow is much smaller than with a 7(a) loan.

You stand a good chance of qualifying for an SBA Express Loan if your credit score is at or above 680. To apply, you’ll need to gather all the necessary documents, including your business license, business tax returns, personal tax returns, YTD P&L statement, YTD balance sheet, and debt schedule.

Also, be aware that SBA Express Loans have stricter rules for usage. The funds must be intended for financing equipment, increasing working capital, or debt consolidation.

7. SBA 504 Loans

These loans are even more limited in scope than SBA Express Loans and can only be used for purposes related to real estate. You’ll be a prime candidate for a 504 loan if you plan to do any of the following:

  • Purchase existing buildings
  • Purchase land or land improvements like grading, street improvements, utilities, parking lots, and landscaping
  • Construct new facilities
  • Modernize, renovate, or convert existing facilities
  • Purchase long-term machinery
  • Refinance debt to expand your business with new or renovated facilities or equipment

In order to qualify for one of these loans, your business’s tangible net worth must exceed $15 million, and its average net income can’t be more than $5 million. Additionally, you’ll need to reference the SBA’s size standards before applying to ensure you meet the criteria.

8. SBA Disaster Loans

Trucking companies aren’t immune to disasters, and some business owners find themselves struggling to rebuild after calamity strikes their community. For this reason, the SBA offers low-interest disaster loans to help businesses in declared disaster areas recover both physically and economically.

In order to benefit as many small business owners as possible, the SBA loosens the qualifications on these loans. You won’t find size restrictions and other barriers that sometimes prevent businesses from qualifying for other SBA financing.

The 4 main kinds of disaster loans are Home and Personal Property Loans, Business Physical Disaster Loans, Economic Injury Disaster Loans, and Military Reservists Economic Injury Loans. They’re all meant to enable you to get back to where you were before the disaster struck. So you can repair or replace your property, machinery, inventory, or whatever else, but you can’t use the money to expand to new levels.

To get started with an SBA disaster loan, you need to confirm that your business is located within a presidential and SBA declared disaster area. Instead of leaving this step to guesswork, you can easily search by state and territory within the SBA’s online database.

Picking a Winner

With so many loan options to choose from, some trucking business owners struggle with identifying the ideal match for their needs. The best place to start is by evaluating how much money you’ll need to borrow. Loans come in all shapes and sizes, so it’s always important to have a firm number written down as you begin evaluating options.

Another key factor to consider is when you’ll need the money. Remember, some loans hit your account in as little as 24 hours, while others drag along for months. Your timeline will be one of the most effective ways to weed out the pretenders among the loan options as you search for your ultimate contender.

Once you’ve whittled down the list of loans, you can begin pitting the options head-to-head. It’s not much different than how you make decisions while purchasing equipment for your business—you line up the comparables and then choose the quality option that also has the lowest price tag.

The 4 most effective comparables to use in the financing world are:

  1. Total Cost of Capital (TCC)
  2. Annual Percentage Rate (APR)
  3. Average Monthly Payment
  4. Cents on the Dollar

The problem is that many lenders list these metrics in their own unique way, making it difficult to clarify the differences between loans. Basic loan calculators can be helpful, but sometimes you need to break out the big guns. One of the fastest ways to cut through unfamiliar terminology and differing definitions is with SMART Box™ (Straightforward Metrics Around Rate and Total cost). This comparison tool was created by a team of experts from the Innovative Lending Platform Association in partnership with many of the nation’s top lending platforms.

“Access to capital is a top priority for NSBA and we appreciate how SMART Box allows small businesses to more fully assess and compare lending options,” says Todd McCracken, president and CEO of the National Small Business Association.

As you do your due diligence, leveraging available tools like calculators and SMART Box, you’ll be in the perfect position to choose a great loan. Whether you need to purchase a new Peterbilt truck, expand to a larger office location, or bring on seasonal employees, there’s definitely a small business loan out there that’ll make it possible.

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Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.