The logistics and transportation industry is one of the most competitive industries in the United States. Investing in a dog-eat-dog industry means you’ll need to position your business so it can effectively facilitate the flow of goods within the market. One way to do that is to ensure that you have enough working capital to keep your business afloat. Transportation business loans such as transportation equipment financing and transportation factoring can help business owners access working capital whenever they need it. With that said, here are five effective ways to fund your transportation company.
1. Short-Term Transportation Business Loans
Short-term loans are the most popular loan option among small business owners, including transportation business owners. This type of financing is best for transportation businesses looking to increase their working capital to take on new contracts. Short-term loans are perfect for short-term needs. However, due to shorter repayment periods, the rates of the loan can be more expensive compared to long-term loans.
This type of loan is great for transportation companies that want to keep their business on its feet while waiting for client payments. If you’re taking on new routes, you’ll need working capital to pay for labor and daily expenses to get the job done. Short-term business loans can fund your company in as little as 24 to 48 hours. The shorter repayment terms allow you to repay the loan ASAP, reducing the total cost of the loan.
2. Transportation Factoring
Are you tired of waiting for 30, 60, or 90 days before customers settle their invoices? Transportation factoring enables business owners to sell their pending invoices to a third-party company (called factoring companies) in exchange for immediate funding. The factoring company you’re working with will give you 80% to 90% of the total invoice value upfront.
Transportation factoring (also called as freight factoring) is best for small business owners who need immediate funding to take on additional tasks. It’s also an ideal option for transportation owners who are not a prime borrower. Unlike traditional loans, the qualifications of freight factoring are not based on your creditworthiness, but rather your clients’. The terms of your financing will vary depending on the quality of your invoices and the creditworthiness of your customers.
3. Transportation Equipment Financing
There will come a time when your trucks or trailers will need to be replaced. It’s not wise for business owners to pay for these purchases upfront – tying up a huge chunk working capital in the vehicles. If you need to purchase new vehicles, transportation equipment financing is your best option.
Once qualified for one, lenders will give you working capital to purchase the equipment or vehicles you need. With equipment financing, you don’t have to put up collateral since the equipment purchased secures the loan. However, most lenders require a down payment in order to qualify.
4. Transportation Business Line of Credit
A business line of credit is one of the most flexible funding solutions in the market. With this type of funding, lenders will assign you to a predetermined revolving credit limit which you can borrow and repay repeatedly without reapplying. The best part is you only have to repay the amount you’ve borrowed (plus interest) – not the entire credit limit. You can use it for various expenses as long it’s for the benefit of your business.
The application process is longer if you seek funding from traditional lenders like banks and credit unions. In addition, the requirements are stringent and the rate of approval is low. For faster application process and more lenient requirements, you might want to consider alternative lending companies. These companies can fund your business within days, at most a week.
5. Transportation SBA Loans
Everybody knows that it’s a challenge for business owners to qualify for traditional business loans. To remedy this situation, the Small Business Administration created several SBA loan programs to provide bank rate funding to small businesses, including transportation companies. These loans are backed by the government by up to 85%; lowering the borrowing risk associated with small businesses.
There are different types of SBA loans depending on your need. The most popular one would be the SBA 7(a) loan program where borrowers can borrow up to $5 million. The funds can be used for almost any business purpose such as real estate purchases, daily business expenses, and more. Many small business owners apply for SBA loans because of its longer repayment terms and lower interest rates compared to other types of loans.
Transportation Factoring for Immediate Business Needs
If you need immediate funding, transportation factoring is the best type of financing to pursue. Whether you transport goods though air and express delivery services, truck transport, freight rail, or maritime transport, SMB Compass offers different types of transportation business loans for your business. Call us today for a free no-obligation consultation from one of our financial experts. Contact us now at (888) 853-8922 for more information.