FUNDING FOR TRUCKING BUSINESS
Fundamentally, trucking companies move goods from the manufacturer to the retail distributors, and also carry building materials and waste to and from construction sites, using road transportation like semi-trailers, trucks etc., via overland routes. Responsible for most of the overland freight movement in the US, the trucking industry grew at an annual rate of 8.5%, over the last 3 years. Research says, each of the profit-making trucking companies witnessed an average sales of $3.5 million in the year 2021, but, the companies that couldn’t make profits, experienced an average net loss of -6.4%(as per marketresearch.com). A considerable part of the US economy greatly depends on truck drivers to carry freight and keep supply chains moving. However, working as a driver in a trucking company is not easy due to the long hours of constant driving. Sometimes, it takes even days to reach the delivery location. Hence, trucking companies, many times, struggle to find skilled and dependable drivers.
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Factors that Affect The Trucking Industry
Shortage of Truck Drivers
Due to an ageing workforce and people’s decreasing interest in getting into the profession of truck driving in the USA and Canada, the trucking industry often experiences a notable shortage of qualified truck drivers. With the rising demand for drivers, the cost of acquiring skilled and experienced drivers has gone high.
The fuel costs inordinately impact the trucking industry. The rising cost of fuel has always been a matter of concern for trucking companies, as fuel is one of the biggest factors that need to be considered while calculating operational expenses. To save on fuel costs, many trucking companies are switching to electric trucks, which are more expensive.
Seasonal Demand Fluctuations
Seasonal demand fluctuations, which generally involve the fresh-produce industry, or the boost of the shipping activities just before the holiday season, considerably affect the demand for trucks.
The trucking industry is strongly affected by natural disasters like hurricanes, winter storms etc. Weather delays cost trucking companies a whopping amount of around 2.2 to 3.5 billion dollars per year.
Restrictions imposed by the Federal Motor Carrier Safety Administration on the number of hours truck drivers can drive before having to take mandatory breaks and the other regulations, that keep on getting updated quite often, turn out to be quite a big burden on carriers, who are ending up spending the extra money to abide by the new regulations.
WHY NEED FINANCE?
To hire more qualified and experienced drivers.
To uninterruptedly carry out regular business operations and pay the monthly bills even when the payments are scheduled to hit the account 2-3 months later.
To add more trucks to the existing fleet/fleets, cater to more clients and increase profits.
To Purchase fuel, pay for the office space and equipment.
To adopt automated systems, ensure operational efficiency and get a competitive advantage.
Merchant Cash Advances(MCAs) for Trucking Companies
What is Merchant Cash Advance?
Merchant Cash Advances are an advance on future receivables with a flexible and non-stringent repayment structure.
Primarily, the borrower’s personal and company ID proof, profit-loss and business account statements of the last 6 months to 1 year. Also, the entrepreneurs that accept credit/debit card payments, are eligible for MCAs.
Repayment Structure for MCAs
An MCA is priced based on a factor rate, which is generally between 1.1 and 1.5, depending on the industry type, average monthly credit card sales, the amount required and the trade history of the company applied for MCA. As repayment of the advance is based on future credit/debit card sales, the repayment amount can go up or down depending on the daily sales. The factor rate, which generally ranges between 1.09 and 1.5, is multiplied by the principal to determine the total payable amount.
SIMPLE PROCESS TO APPLY FOR MERCHANT CASH ADVANCE FOR YOUR TRUCKING COMPANY
As we mentioned before, the application process is simple.
We will break it down for you step-by-step.
The borrower needs to provide the lenders with social security numbers as well as signatures to get the credit pull authorized.
MCA lenders ask for sales volume by card type, return frequency, processing fees, chargeback history, monthly costs, batch frequency, average transaction size and processor imposed reserves. The borrower needs to submit all pages of each bank statement, besides the above-mentioned documents.
After submitting the primary documents, the borrower needs to provide certain additional documents like Articles of Incorporation, K-1 of recent business tax return, business property lease, driver’s license or any other photo ID, voided cheques, recent business tax return and financial statements.
The underwriters then get in touch with the borrower’s vendors, business property landlord, if any, or the bank holding the mortgage on the business property, to understand if the business has the permission of continuing operating in the same location at least throughout the loan repayment time frame.
The lenders contact the borrowers over calls to review the business information, discuss the use of the advance and assess the borrowers’ willingness to follow through with the contract terms.
Some MCA providers hire inspection firms to perform a site inspection by visiting the borrowers’ location to verify the address, examine inventory and take note of the number of credit card machines available on site.
Finally, the repayment method is decided on.
After getting approval on the application, the borrower gets the funds transferred to his/her business account, within 48 to 78 hours.
Primary Benefits Of MCA
MCAs come with simple application processes and offer quick approvals and fund disbursement.
MCAs come with flexible repayment terms.
MCAs Do Not restrict the usage of the funds.
MCAs do not ask for collateral.
Other Popular Financing Options for Trucking Industry
Business Lines of Credit
The concept of business LOC is quite similar to that of a credit card.
The lender sets a credit limit for the borrower, who can multiple draws, from the approved amount, as per the requirement. In the case of business LOC, one needs to pay just the interest and fees on the borrowed amount.
Technically, it is not a loan, but a financing option where a lender buys a company’s unpaid invoices at a discounted rate. The lender gets the discount for providing a fee and the borrower gets the remainder of the balance. Invoice Factoring is lenient about credit score, business history and annual revenue.