One Financing Option For Truckers'

Are you an over-the-road trucker looking for funding for your business? Do you need cash to grow and expand, or to get started? Over the road, trucking is considered a high-risk industry. This is per SIC (Standard Industrial Classification) and NAICS (North American Industry Classification System) standards. Normally, high-risk industries have some things in common. There can be high risks of injury on the job, or an industry may engage in a lot of cash transactions. This is true regardless of the safety record of a particular business, or the majority of its transaction types. Trucking comes under the injury risk umbrella. Conventional banks are not a good place to look for loans for high-risk industries. Over 89% of business applications are denied by the big banks. High-risk industries are subject to stricter underwriting guidelines. It is possible to get loans from conventional sources, but it’s not easy. Alternative lenders are often your best bet.

In this article, we will share an alternative financing option that can help with financing over-the-road trucking businesses. There are a lot of different financing options available today. There are so many options that one may not be sure where to start.

Most business owners try to first apply for financing at their bank. But according to the Department of Revenue, only about 1.1% of all business funding comes from conventional banks, like SBA loans. Your bank can help you with credit lines and loans. One must have financials and good credit for approval.

Most business financing happening today comes from alternative lenders, not the big banks. These are lenders which have carved out niches in the business funding world. They often focus on only one aspect of your business to make a lending decision. If that one area of your business is strong, you can get approval even if you are weak in other areas. This is very different from SBA loans looking at the entire picture.

Alternative lending is much easier to secure than conventional loans. You can usually get approval and funded much faster as well. The terms often are not as favorable as conventional financing. But you can often get approval when your bank would say no. Alternative lending can be divided into three categories: credit, collateral, and cash flow.

Revenue Based Financing is a fast easy way to obtain alternative financing for an over-the-road trucking business. In a revenue-based financing investment, investors do not take an upfront ownership stake in the business. The business owner is selling the future revenue for a fee (a discount). Revenue-based financing goes by many names such as cash flow financing, cash flow loans, revenue-based loans, bank statements loans, and ACH financing just to name a few.

Revenue financing is not a loan, it’s an advance off of your revenue. It’s like a cash advance in the consumer world where:

-Your current pay is analyzed.

-You are then lent money based on the stability and amount of your pay and you have a short time to pay back what you borrowed.

With revenue financing, the lender checks two main forms of documentation. One is your bank statements. The other is your merchant statements if you have a merchant account. They also want to see a driver’s license. Rent, lease, or ownership information for the property is also verified.?Lenders are looking for very specific requirements when qualifying you.?

The bank statement is analyzed for consistent deposits of eight or more per month. Lenders do not want to see only a few big deposits. Instead, they want to see many smaller deposits, as a retailer would have, and not a real estate agent.

Positive ending bank balances are also important. If one does not have money left over each month at the time they apply, lenders know it will be tough for the business owner to pay them back. They are looking for positive cash flow each month. They want to see responsible bank account management, with little to no NSF charges. They also don’t want to see a lot of chargebacks which could reflect unexpected future expenses.

The longer time you have been in business, the better your chances of getting approved. Most lenders want you to be in business for 12 months or more. There are some lenders who only want you to have been in business for six months. Usually, they want to see compensating factors. Personal credit is not a big factor in approval. It will go into the terms you will pay. There are no credit requirements for approval. Often, lenders won’t even pull your personal credit if your bank deposits and ending balances look good. Lenders are most concerned with you being in current trouble like an imminent bankruptcy or very recent liens and judgments. If one does not have those types of issues they can get an approval, even with recent collection accounts and late payments. This is one of the best types of financing to secure if you have credit issues.

Revenue-based financing is not a loan. There is no standard interest rate to pay. Instead, you are selling your future revenue for a discount fee. For example, you might get a loan for $100,000. The lender then might charge a discount of 20% and your total payback would be $120,000. If the lenders were to finance the $120,000 over 12 months, your payback would be $10,000 monthly. Most of the time the payments are withdrawn from your bank account daily. This is usually Monday through Friday. There are lenders who accept weekly or monthly payments. They are hard to find and you must be lower risk.

One may pay back $500 per day, Monday through Friday, until the total amount is paid back 12 months later. The $500 would be automatically deducted each day. Often, you would not notice it was gone. The business owner will usually have a choice to pay more of a discount and get a shorter term, or pay less of a discount and get a longer term. Each option has a different daily payback amount. Usually, the payback amount is 8 – 12% of the actual revenue.

With revenue-based financing, loan amounts vary based on the current revenue of the business. One can usually secure as much as 10 – 12% of the annual revenue. So, if one makes $500,000 per year in revenue they could secure approximately $50,000. Most loan amounts won’t exceed $500,000 for most small businesses. The business owner must have at least $120,000 in annual revenue to qualify. There are no upfront charges with revenue financing. The business owners are charged a discount based on risk. This discount varies wildly. Rates commonly range from 8 – 45%. 20 – 30% rates are common and the charges are tax deductible. Factors affecting risk include?time in business, bank account management, positive cash flow, industry, personal credit score, and if one has had past successfully paid advances.

Revenue financing is very fast and easy to secure. Due to limited document requirements, one can get the initial approval in 24 hours. Once the term sheet is signed, a due diligence process takes place for 24 to 48 hours. During this process, they are looking for potential issues, such as having outstanding advances that were not mentioned, or signs one is going out of business. The business owner must verify their renting and owing arrangements are in good standing. If due diligence is good, one can close once this period expires.?

This is 24 hours to first underwrite, 24 to 48 hours for typical due diligence, 72 hours to get funding, and expect 7 days in case of unexpected delays.

There are more alternative funding options for over-the-road trucking available, revenue-based financing is a great way to secure capital if needed in a timely manner.