There are a few truths to owning a trucking business that many people don’t fully comprehend – unless of course you’re a trucking business owner. The adage ‘it takes money to make money’ is one that immediately comes to mind. You land a great customer. It’s your biggest opportunity yet and you salivate as you send out the invoice. Unfortunately the terms that the customer is imposing means that you won’t get your money for 30 days. You do your work, pay for the fuel it takes to get to the destination, complete the job, and eventually get paid. Now, flush with cash, you need to find another customer or opportunity. If you had access to those invoice funds at the start of the job, you might have been able to get your business better positioned for the next opportunity and take on more jobs. Yes… it does take money to make money.
So where does this money – most commonly referred to cash flow or working capital – come from? Trucking company owners do have options, albeit some better than others, and here are a few worth considering.
1. Small business loans
Small business owners with bankable assets or collateral, such as home equity or capital equipment, or have been in business for 3 or more years.
How it works:
Depending on the type of business you own you might have capital equipment or assets that can be used as collateral to secure a bank loan. This debt capital can be used to boost cash flow or invest in additional equipment or personnel. If you run a service based business that you likely have no collateral to secure a loan. In this case you can use personal assets such as your house, but these secured loans come with obvious risks that should be avoided if possible. If you’ve been in business for more than three years and have a nice average bank balance, you’ll likely qualify for a business line of credit, but interest rates on these can be 8 to 14 percent or more, which in the long run is not going to help your cash flow. Just visit your business banking representative.
2. SBA7(a) loans
Small business owners that operate at a profit, does business in the US, has reasonable invested equity, has exhausted other alternative financial resources including personal assets, demonstrate a need for the loan, and not be currently delinquent in any debt to the US Government.
How it works:
Working with the Small Business Administration (SBA), small business owners can sometimes have them secure part of a bank loan, making part of it guaranteed. This helps loosen credit requirements that the banks traditionally have to follow. But a loan is a loan and they carry interest rates and penalties for non- or late-payment. Start by visiting the SBA website, where you’ll find loan application checklists and other information on how to apply.
3. Family and friends
Small business owners with a strong network of business professionals and/or a close-knit family that is supportive and that has available resources to loan.
How it works:
Many small business owners solicit family and friends for loans to help fuel their business growth. This popular method of raising working capital requires some effort and depending on the type of person you are and the friends you have this can be an easy proposition or an uncomfortable one. It can strain strong relationships and hurt friendships, but of course it can make them money as well. Prepare a well-written plan that details how the funds will grow your business, and most importantly, how and when this growth will pay them back their loan plus any interest or proceeds negotiated with the loan.
4. Small Business Innovation Research grants (SBIR)
Small business owners whose business provides public services and works to stimulate the economy. Visit GRANTS.Gov for a list of eligible businesses.
How it works:
If you have the time to complete a rigorous application process, depending on the type of business you own this can be a great way to go. It’s not for everyone, the timing isn’t always in your favor, and it can be tedious, but check out GRANTS.Gov to what might be available.
Trucking companies of all sizes, start-ups, smaller companies who sell products or services to larger companies, businesses that are waiting 30+ days for their customers to pay.
How it works:
Also called accounts receivable factoring and freight bill factoring, this method of accessing cash is one that many people are unaware of and that is offered extensively. The scenario we opened our blog with is one that we hear quite a bit from our customers. ‘It’s not the revenue that slows growth, but the speed in which customers pay that hurt our cash flow.’ With invoice factoring there’s a simple solution! You simply sell your accounts receivables or invoices (those you want) to a third-party company called a factor at a small discount. The factor takes over the accounts receivables task of collecting the invoice based on the invoice terms (30, 60, 90 days). You get your money fast and can use it to fund business growth. The interest rates are tiny compared to almost any loan and since it’s your money there’s no collateral needed to gain access to it.
Working capital, cash flow, call it what you want. It drives small business growth and gives you the funding you need to take your business to the next step. It does take money to make money in today’s small business environment, and it’s nice to know there are options available to secure it.