How to Finance Your Fleet: Truck Financing vs Other Loans Options


Trucking statistics are nothing short of astonishing. According to data tracked by the American Trucking Association, nearly every item available for purchase—as well as the materials used to create these products—spent some time on the road. 71% of U.S. freight is moved by trucks, with over 10 billion tons of freight moved annually by over 3.5 million working truck drivers. In short, trucking is a critical component of the American economy and if you are part of this essential industry, keeping your fleet in good condition is a high priority. Many businesses rely on truck financing to replace vehicles that are no longer safe to repair. While this is a sound option, it is also important to examine all of the choices available before making a decision about funding your truck purchase.

Funding Options for Small Businesses

The decision to invest resources in expensive equipment is a balancing act for most small businesses. While major corporations typically have enough cash to cover debt payments, independent businesses must determine whether the enhanced capabilities that come with the new equipment will offset the related expense.

Your choice of financing method can make a huge difference to the overall profitability of your business, so it’s a big decision. These are the most common options to know for small business financing.

Traditional Term Business Loans

As with other term loans, you can apply for term business loans from traditional lenders. If approved, you can expect to receive a lump sum, which you must then repay according to the loan agreement. Some of these loans require collateral, while others do not. This is generally determined by your personal and business credit histories. Interest rates may be fixed or variable, and your credit history may also be a factor in how much interest you pay.

Depending on the type of loan, you may make payments over time (for example, once a month or once a quarter), or the lender may require you to repay the entire amount in a single payment at the end of the loan term.

The key to successfully using this type of truck financing is reviewing all of the fine print to ensure that the loan terms are manageable based on your company’s financial situation.

Small Business Lines of Credit

Many small businesses choose a line of credit over a traditional term loan because they don’t need the entire amount at once. Credit lines add flexibility to your cash flow because you can draw on them as needed, repay, then draw on them again if necessary. If approved, the line of credit is typically available to your business for a set period of time, such as five years. Once that period expires, you must reapply if you want continued access to the funds.

As with traditional term loans, terms vary based on whether you have collateral and the strength of your credit history. These factors impact the size of the line, as well as the interest rate.

Alternative Short-Term Financing

Fintech financers like Fundbox are focused on making financing available to small and medium-sized businesses that need flexibility in their cash flow. They offer an opportunity to qualify for truck financing in amounts of up to $100,000, and products are typically designed to function as a revolving line of credit. As payments are made and the balance goes down, businesses can borrow again up to the total amount approved.

Such programs are ideal for small businesses who are planning large purchases, as it may be possible to repay the borrowed amount early to avoid some fees and interest expenses. Since many industries have cyclical slow seasons and busy seasons, the opportunity to pay early without penalty during high-revenue periods can lead to significant savings.

Traditional Truck Loans

If you have ever financed a personal vehicle, you are familiar with the basics of traditional truck loans. These are typically term loans with regular payments for a set amount of time. Interest rates may be fixed or variable, depending on the lender, and you can approach your bank or your truck dealer to apply for credit.

The primary difference between the truck loans made to small businesses and the vehicle loans made to individuals is that truck financing can, in some situations, be used to pay for expenses related to maintaining your trucks and keeping them on the road. For example, you can take a loan against your business vehicles to cover fuel, tolls, and vehicle maintenance. In certain cases, you may even be able to borrow against your trucks to pay your employees their wages.

Business Credit Cards

Many business owners rely on credit cards to make large purchases when they don’t have cash on hand. While this can be a convenient payment method, the convenience comes at a cost. Credit card interest rates tend to be higher than other types of financing because the credit lines are unsecured. High balances, such as those that come with a vehicle purchase, mean high minimum payments each month, and if you can’t afford to pay more than the minimum, it can take years to repay the debt in full.

Every business is different, which means there are no one-size-fits-all financing solutions. Before you purchase a truck or decide on a truck financing option, look into all of the options to determine which funding method best meets the needs of your business.

Contributed by: Irene Malatesta, Content strategist at Fundbox, dedicated to helping small businesses grow by democratizing access to credit.

The SmallBizRising Blog is designed to be an educational content hub pulling information, best practices and practical advice for the small business owner and features topics including accountingmarketingtechnology and more.  Be sure to subscribe to stay up to date with new content as it is posted.  The blog was created by The Neat Company and receives contributed content from a group of contributing companies that provide technology, services and solutions to small businesses.

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