Bank Loan vs. Freight Factoring

eCapital Corp

Last Modified : Jun 18, 2024

Fact-checked by: Bruce Sayer

Lock and Load Your Backup Financial Plan – Get Ready for High Demand

Banks are switching gears as we progress further into the year. Soon, they will be changing roles from distributing government-sponsored financial relief packages to protecting the bank’s exposure to risk. This means that America’s traditional bank loans will dry up for small businesses and ramp up the calling in of troubled loans. Now is the time for trucking companies to review their financial situation and prepare for even more tightening of credit. It’s time to lock in secure funding and be prepared for a year of good loads.

The dangers of having a bank loan

For trucking companies with bank loans already in place, be proactive and refer to your loan covenant. A loan covenant is a set of conditions in a commercial loan that requires the borrower to fulfill certain conditions or from undertaking certain actions. Most borrowers are only vaguely familiar with what a covenant is, let alone how significantly it can impact your business! Failure to comply with the terms of the covenant will trigger a bank to withdraw funding and call in the loan. Should this happen to your trucking company, the banks typically allow only 10 days for you to get new financing before they pull the trigger and terminate your loan. eCapital has rescued many trucking companies faced with this exact dilemma. The smart move is to be prepared and have an alternative funding source ready to go should the bank take such action against your commercial loan.

For trucking companies yet to arrange financing, be warned – banks are no longer a reliable source of funding for small to medium-sized businesses. Instead, banks will be more focused on lending to larger accounts. Corporations with revenues of $100 million and up are easier to manage and more profitable.

Freight factoring is the ideal solution

As banks continue to back away from servicing the lending requirements of small business, freight factoring continues to grow in popularity. Unlike a bank loan, freight bill factoring (a specific form of invoice factoring) is designed exclusively for the trucking industry and is therefore tailor made to solve the cash flow problems faced by busy carriers and brokers.

The advantages of utilizing freight bill factoring over a commercial loan are huge:

• Freight factoring is easy to qualify for
• First funding can start within a few days of applying
• The funding process is fast and convenient
• The more business you do, the more funding become available
• Collections and accounts receivable management are included
• Additional cost-saving services are available

Freight factoring companies don’t look at your trucking company’s performance or history to assess whether to fund you or not — they look at your customers. Whether you’re a start-up or an established company, have a solid balance sheet or are struggling to be profitable, if you have creditworthy customers you will qualify for funding.  Unlike a bank loan, there are no restrictive covenants attached to control how you manage your business. Instead, there is something far more helpful — a dedicated accounts manager, ready and able to streamline your user experience. In addition, a professional accounts receivable team is working in the background to improve collections and various measures are in place to enhance your credit risk management.

The difference between how a bank manages a borrower and how a factoring company helps its trucking customer is vastly different. A bank wants to protect their interests by using covenants to control your finances and govern how you operate your business. A freight factoring company wants to provide easy access to working capital and help your business grow.

Here are just a few of the additional services eCapital provides to our trucking company clients to make life as a business owner easier:

• Fuel Programs: the fastest and cheapest fuel advance program in the industry.
• Fuel Cards: discount fuel pricing and delayed payment terms.
• Credit Check Tool: unlimited access to a free service to avoid hauling for poor paying customers.

Non-Recourse Factoring

Another option to consider when shopping for invoice factoring is non-recourse factoring. Unlike traditional factoring, in non-recourse factoring, the factor assumes the risk of non-payment by the original debtor. If the debtor doesn’t pay the invoice, the business is not required to repay the factor. This method allows businesses to obtain immediate liquidity without the liability of potential non-payment by their customers. Not all companies that offer non-recourse factoring cover the same liabilities. You can find some things to look out for in our blog Top 8 Things to Understand Before Signing A Non-Recourse Factoring Agreement.

Be prepared for good times ahead

Like the rest of the world, the trucking industry has suffered through the pain and anguish of COVID-19. But the pandemic provided a background that highlighted trucking’s importance as an essential service and proved the resilience of an industry that refuses to quit in the face of adversity. Hard working trucking companies kept medical supplies moving and grocery stores stocked with food and water. Now is the time to prepare for your time in the sun. The freight market is expected to fully recover by late 2021 as truckloads return to pre-pandemic levels. Will you be ready to respond to increased market demand with your operations intact and a cash flow solution to keep your trucks moving? Freight factoring provides working capital to support operations, pay bills, hire more drivers and more.

For more information about freight factoring and how to grow your business, visit eCapital.com

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.