Whether you run a transportation company, are an owner-operator truck driver, or simply run a business that uses commercial vehicles, you know how costly transportation equipment can be. Buying a new truck can eat up your cash flow and leave you without working capital for emergencies and unforeseen expenses—thus the need for transportation financing.
That’s where transportation financing comes in handy. Small businesses and transportation companies find that, by exploring their funding sources, they are able to find business financing options that help them with their transportation investment while freeing up cash flow.
You actually have several options when it comes to transportation financing, which we’ll discuss in this article. The key is knowing what your needs are, how much money you require, and how long you want to finance the loan.
Transportation Equipment Financing
Transportation financing (also known as equipment financing) provides capital specifically to purchase vehicles for your business. The vehicles themselves act as your collateral for the loan.
Transportation Financing Offers:
We have partnered with several lenders that offer financing specifically for commercial vehicles or equipment.
(call out in our marketplace that finance the industry)
Types of Transportation Financing:
There are a few financing options when it comes to financing commercial vehicles.
First, consider loan programs to purchase a motor vehicle for your company. Once you pay off the loan (the payoff period will likely be 1-6 years), you own the vehicle free and clear and can sell it.
You may be able to use a variety of small business loans to pay for your vehicle purchase, but make sure to read the fine print to be sure that what you want to buy qualifies.
Transportation Lines of Credit
But what if you need to purchase a fleet of vehicles, or have a continual need for funding for vehicles? In that case, look for finance companies that offer lines of credit. Rather than getting a lump sum all at once that you immediately begin paying back, you have an available credit limit and can borrow against it at any time. You only pay back what you’ve borrowed.
Transportation Collateral Loans
While many other types of loans require that you put up collateral like real estate, cash, or other assets, this type of asset-based lending is easy because the vehicle you are buying serves as the collateral. Should you not be able to make payments, the lender would take the vehicle to cover your debt.
Another option to consider is leasing a vehicle. The advantage with a transportation lease is that you spend less up front and don’t have a loan. Then, when the lease is up, you aren’t left with a greatly-depreciated asset that you can sell only for a fraction of what you paid.
Leasing companies may negotiate lease options with you, especially if you need a fleet of vehicles.
Why Finance Transportation Equipment?
So, why finance vehicles or equipment in the first place? Isn’t it better to pay cash so you don’t accumulate debt?
Well, yes and no. Certainly, you don’t want your business to be saddled with so much debt you can’t grow, but smart funding tools, such as transportation loans or equipment leasing, can help you build your credit and free up working capital. Rather than lay down $100,000 on a new commercial vehicle and then have a hole in your bank account, you pay a little each month and reserve that cash for your business needs.
Requirements for Transportation Financing
So what do you need to qualify for a transportation loan, line of credit, or lease? While requirements for transportation financing vary among lenders, you may need a credit score of 650 or higher and proof of revenue.
If your credit scores aren’t that high, you may still be able to find a lender who will offer you credit, albeit at a higher APR. You may be asked to provide your tax statement from last year as well as your profit and loss statements. (Check your free business credit scores so you know what you come to the table with.)
Nav’s Final Word: Transportation Financing
When it comes to transportation and equipment finance, you need to make a smart decision that allows you to get the funding you need while retaining working capital for other purposes.
Only you know whether purchasing vehicles with a transportation loan or line of credit or leasing a vehicle makes more sense. Be sure to do your research so that you find the lender with the best rate and terms for your business.