Successfully financing a fleet of trucks: 7 strategies

Starting a business can be tough, and truck fleets come with unique obstacles. The average cost of a new vehicle hit an all-time high in late 2021, and long-haul trucks were already expensive. High insurance rates and maintenance needs add to the list of expenses.

Fortunately, new fleet owners don’t need to pay for all of these factors up front. Several financing options exist, and which one is best depends on the specific business situation. Here are seven strategies and who they benefit the most.

1. Bank loans

The easiest financing option for truck fleets is to get a loan from the bank. The big banks can seem intimidating, but many are partnering with the Small Business Association (SBA) to offer more accessible loans to startups. SBA-backed loans can be up to $5.5 million and often come with lower payments and fairer terms.

Fleet owners should understand that loan terms vary widely from bank to bank, even with SBA-backed loans. Reviewing and comparing available options is a crucial part of the process.

Bank loans may offer the most capital, but their approval processes are generally longer and stricter. Therefore, they are best suited for business owners with good credit who can afford to wait months for the money.

2. Alternative lenders

Institutions other than banks and credit unions provide business loans. Alternative lenders offer rates comparable to most banks and often offer faster approval processes.

Many alternative lending companies offer industry-specific loans that can better meet the unique needs of fleets than banks. Some of them also offer more flexible terms and payment options. However, the amount of capital provided by these loans is often not as high as what fleets would get from a bank.

Alternative lenders are generally smaller companies, so they may be more risk averse than traditional institutions. Therefore, they are often better for fleet owners with high credit scores. Some may target those with poor credit, but it is important to inspect these terms carefully to ensure they are not misleading.

3. Direct Truck Loans

Another lending option is to work with a direct trucking lender. These companies specialize in providing loans to commercial fleets, so they have a more intimate understanding of the industry and its requirements.

Fleet finance companies often have decades of experience, so they will be able to understand unique situations. Unlike traditional financial institutions, they lend their own money, which makes them more flexible than banks. At the same time, this means that they can also offer less competitive interest rates.

Direct truck loans may be best for fleets with unique concerns or a poor credit history. They can be a reliable option for any business, as long as their pricing holds up to the competition. Be sure to compare them to other options to find the best deal.

4. Rental

Fleets also don’t have to buy their gear outright. Leasing trucks instead of buying them can be a useful way to finance a fleet, as it involves lower upfront payments. It also means companies can upgrade their vehicles quickly and with minimal investment.

Fleets can also buy out their leases once they are comfortable with their vehicles and the current market. This can lead to high costs depending on the length of the lease, but refinancing options can help.

Rental is particularly attractive to new entrants to the industry, as it provides quick and affordable access to high-end equipment. However, buying trucks outright may be preferable for companies that want more flexibility or control.

5. Franchising

Truck fleets could also adopt a franchise business model. In these agreements, owner-operators pay a franchise fee and a portion of their profits, but operate with relative independence.

The most important benefit of this business model is that it reduces costs. Owner-operators must pay their own fuel bills and take care of maintenance. However, it also means franchisors have less control over vehicle types, maintenance, and driving regulations.

Most owner-operators prefer to work with an established name, so start-up fleets may not succeed with this model. Profits may also be lower, as franchisors receive only a portion of franchisees’ revenue. Still, it can be an attractive option for fleets that have been in the industry for a while. This can be especially appealing to those looking to expand.

6. Invoice factoring

Loans, equipment costs, and business models aren’t the only ways to improve a fleet’s finances. Collecting overdue payments can be a challenge for trucking companies, especially when they are new. Paying trucking invoices takes an average of 36.9 days, limiting the financial mobility of fleets. Invoice factoring streamlines the process.

Factoring brokers act as intermediaries between customers and fleet owners. The broker will give the fleets an advance on their payment, taking a commission of around 3% to 5% in return. This reduces the fleets overall income, but it can provide nearly instant payment, helping them meet expenses faster.

Factoring can be particularly valuable for new fleets, as it allows for greater tax mobility. Faster payments allow businesses to grow faster. However, associated fees may limit this growth.

7. Prompt payment

Quick payout is a similar solution offered by many brokers. Like factoring, this allows for faster payments, but it comes from the charging brokers themselves, not the financial services companies.

Choosing this option often means brokers will pay out fleets in a week or less instead of the standard 37 days. It’s not as immediate as factoring, but it’s much faster than traditional payment options and offers similar mobility benefits. Prompt payment also usually involves minimal fees, similar to those charged by a factoring company.

Prompt payment cuts out the middleman from factoring, but it doesn’t offer much benefit 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 fleet of trucks can be daunting at first, given the high upfront and operational costs. These expenses can be high, but the abundance of options on the market makes them much more accessible. 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 customers with minimal expense. They can then fully capitalize on this longstanding and growing industry.

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