Jumpstart Your Truck Fleet’s Turnaround Strategy with Equipment Refinancing
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Fact-checked by: Bruce Sayer
Trucking companies have been operating in a highly volatile market for too many years! Many are now facing financial challenges beyond their means. As 2023 unfolds, the transportation industry is hoping that rates level out and demand ticks up by the end of the year. Meanwhile, high operating costs and the possibility of a recession continue to challenge the financial health of trucking companies. Truck fleets in financial distress need to focus on turnaround strategies to regain control of finances and return to profitability. The first step is to restore financial stability to avoid business failure.
In this article, we take a closer look at the growing trend of leveraging asset equity to shore up business financing. Learn how to jumpstart your truck fleet’s turnaround strategy with equipment refinancing to regain financial footing and set a path toward profitability.
What is equipment refinancing for trucking?
Equipment refinancing for trucking is a customized form of lending intended specifically for asset-based fleets. With tailored features, equipment refinancing for trucking is designed to convert the value you own in working equipment into cash on hand. It provides the ability to carry a term loan of up to 75% of the net orderly liquidation value (NOLV) of your trailers.
Why is equipment refinancing a growing trend?
Lack of capital and inadequate funding is one of the main causes of business failure. The last major trucking recession in 2019 witnessed nearly eight hundred transportation bankruptcies. Fast forward to 2023 is like watching history repeat as projections call for another tough year for trucking.
Conventional lenders are tightening credit. Banks are auditing their lending portfolios closely, looking for credit risks that need to be corrected or removed from their books. 2023 will be a year of reckoning as banks act under the scrutiny of federal regulators to control lending to credit-risk companies.
In response, truck fleets struggling to maintain business financing seek industry-experienced alternative lenders – financial partners who can provide the working capital solutions they need to implement turnaround strategies. Through this emerging funding source, asset-based trucking companies looking to capitalize on their collateral strength are discovering the untapped value in their trailers. Equipment refinancing for trucking is a growing trend as medium and large fleets gravitate to alternative ABL financing solutions tailored with flexible terms.
How to release the value tied up in your trailers?
As a leader in alternative transportation financing, eCapital is forging new ways to deliver more capital in more ways to more trucking companies. If you’re an asset-based fleet, you are literally sitting on trailers of cash! eCapital’s equipment refinancing leverages the equity tied up in your rolling equipment to securitize a term loan.
Here’s how eCapital’s equipment refinancing works:
- Loan applications are received, reviewed, and qualified within days.
- The trucking company provides proof of ownership, insurance certificates, and confirmation as to whether the equipment is free and clear or assigned as collateral to an existing loan.
- A term sheet outlining the estimated equipment value, rate of advance, interest rate, payment schedule, and the loan terms are presented. This term sheet provides the runway needed to arrange a successful exit from an existing lender.
- Once the term sheet is accepted the underwriting process moves into high gear. A qualified third-party appraiser conducts a site visit to assess the condition of the equipment collateral. Following due diligence, the equipment’s appraised value is reported and the advance rate of up to 75% is confirmed.
- At this point, the borrower signs the loan agreement and provides the original to the lender. The lender is then given asset assignments and the original title certificates or access to the official electronic certificate depending on the State in which the equipment is owned. Funds are transferred to the trucking company’s account once the lender receives the original signed loan agreement and processes the loan.
Funds are provided as a term loan with flexible conditions to benefit truck fleets.
What are the benefits of equipment refinancing with alternative lenders?
The most obvious benefit is more liquidity. Equipment refinancing for trucking provides the ability to convert the value locked inside long-term assets into cash in hand. But the benefits of refinancing with alternative lenders extend well beyond the additional capital that conventional lenders can provide and include several important, flexible financing features.
Easy Qualification: Approvals are based on the quality of assets, not the borrowing company’s credit rating or financial performance. Truck fleets with $1,350,000 or more worth of equity in roadworthy trailers may be qualified even if their credit rating is low.
Fast approvals and term sheets: Fast approval processes and term sheets provide the runway needed to satisfy immediate obligations such as outstanding tax debt or to meet the demands of a forced exit from a bank facility. A signed term sheet from a reputable alternative lender will provide confidence to all parties involved that funds are imminent.
Few covenants: minimal rules and no restrictive covenants provide the borrower with more flexibility and control of funds.
No borrowing base monitoring or reporting: ABL financing typically requires regular submission of borrowing base certificates to maintain qualification. Equipment refinancing for trucking is free from regular asset monitoring and reporting allowing fleet owners to focus on their core business.
Blending equipment refinancing with freight factoring: A comprehensive solution
The flexible benefits of equipment refinancing work well with the ease of use of freight factoring to provide a comprehensive working capital solution to overcome financial distress.
A successful turnaround strategy will position your fleet to regain control of its immediate financial position and set the path for ongoing funding to support profitable operations.
Equipment financing provides a large injection of cash upfront to stabilize finances. It is an ideal solution to meet immediate financial obligations.
Freight factoring is a specialized form of invoice factoring designed specifically for the transportation industry to meet the demands of daily operational expenses. Featuring instant payments as soon as freight bills are submitted and approved, this transportation financing option delivers the cash you need when you need it.
Equipment financing and freight factoring go together to provide a comprehensive, flexible financing solution to support turnaround strategies.
Conclusion
2023 will be a pivotal year in trucking as industry conditions filter out vulnerable carriers. Truck fleets, battered by the volatility of the past five years, need to focus on turnaround strategies to recover from years of underperforming financial results.
Equipment refinancing provides access to a substantial source of capital fleets need to meet immediate financial obligations. Fast approvals and term sheet processes offer quick relief from pressing financial obligations. Ease of use allows fleet owners to manage a flexible term loan without heavy lender oversight.
Equipment refinancing delivers the funds needed to balance the books and jumpstart a turnaround strategy. Freight factoring provides the ongoing funding required to restore regular cash flow and help bring operations back to profitability. Packaged together, these two funding strategies give the financial support needed to fund a successful turnaround strategy.
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
eCapital Corp
eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.