Owning a small business can be a rewarding venture – but it can also be financially draining by forcing owners to dip into savings, retirement funds, or even take out second mortgages. For independent owner/operator truckers, that could easily be the case.
Some independent trucking companies consist of only one truck, driven and operated by its owner. In a privately-owned owner/operator situation, you use your own equipment and choose your own transportation contracts, offering a fair amount of freedom and flexibility. However, if that truck goes down for maintenance, gets in an accident, or can’t be driven for some reason, the entire business stops making money. The situation gets worse if there aren’t enough funds to get the truck repaired.
If a trucker doesn’t have the money to get a vehicle back on the road quickly or an owner doesn’t have the capital to maintain their business expenses, it can put them out of business. The problem is that many trucking companies can’t pass the strict requirements that many traditional financial institutions have for loans, making financing in multiple different situations difficult.
Small Business Loans Can Be a Solution
You do have options available if you’re looking to get started in the independent trucking business, or if you need to maintain your already established company. A small business loan can provide the money you need, and many lenders do work with trucking companies, offering both secured and unsecured loans.
Unsecured business loans are loans with no collateral attached. They’re offered through banks or other financial institutions in the form of credit cards, lines of credit, personal loans, or even payday loans. They typically have high interest rates and can be expensive in the long term.
Secured loans have some form of collateral attached. If you’re buying a truck, for instance, the loan would be secured by the truck itself. You can secure your loan with other forms of collateral as well; a second mortgage, cash-out refinance on your home, or another vehicle can provide the collateral you need. Secured loans typically have lower interest rates and fees since they’re guaranteed to be repaid either through payments or by seizing the collateral in the case of non-payment.
The federal government’s Small Business Administration works with approved lending partners to help truckers get loans as well. An SBA-facilitated loan can offer lower rates and better terms than many direct bank loans, and the government will guarantee part of the loan if you default.
Why Would a Trucker Need a Small Business Loan?
We’ve already discussed the potential pitfalls an owner/operator with one truck can run into; accidents, maintenance, insurance, start-up costs, and even general operating costs can be much higher for truckers than many other businesses. An owner of a larger trucking company might need a loan to expand their business routes into new locations, purchase more trucks, or hire more drivers. Some companies pay training costs for their new hires as well, and the cost to train and successfully pass the commercial driving test can run into the thousands of dollars.
While every small business owner tries to set money aside for an emergency or ‘rainy day,’ trucking companies often find that impossible to do. Truckers work on a ‘future income’ concept, meaning they don’t get paid until after their load is delivered. That requires putting up all the up-front costs of transporting the load squarely on the company.
Benefits and Risks of a Small Business Loan for Truckers
Taking out a loan can be a smart – or simply necessary – decision. It can supply a quick influx of cash to facilitate a necessary purchase, or simply be set aside to handle any crisis that may arise.
Taking out a small business loan also increases your working capital. By having enough money set aside for things that come up you can maintain your cash flow even during a business emergency. That means keeping your trucks on the road, making money. If your business fails and the loan was lent to a corporate entity, you personally, as the owner, won’t have to pay it back.
There are risks to taking out a loan as well. It means taking on a monthly payment, and if you’re an owner/operator who’s not running a corporation, that loan is strictly your liability. If you’re getting a loan to facilitate an expansion that fails, for example, you could find yourself in more financial trouble than when you started.
When deciding if a small business loan is right for your trucking business, it’s best to consider factors like how you run your business, any current cash flow issues, and what the purpose of the loan is. Make sure you research various lenders to find the right terms and interest rate, and ask questions about any penalties, fees, and other charges you could accrue over the life of the loan.