Freight Factoring: How Does Trucking Factoring Work?
The state of the trucking industry presents business owners with opportunities that are ripe and ready for the picking. Here are a few quick facts to illustrate just how strong the transportation sector in the United States really is:
- 7.5 million people are employed by trucking companies, including 3.5 million drivers
- 70% of domestic freight in the U.S. is moved by trucks
- Over $700 billion in revenue is generated by the trucking industry every year
There’s no question about whether or not the transportation industry is booming – it is. But that doesn’t necessarily mean your freight company will be immune to the difficulties that small trucking businesses regularly face. When it comes to meeting the financial demands that your trucking company faces, transportation factoring can be the solution that you’re looking for.
What is freight factoring?
Freight factoring (also referred to as trucking factoring or transportation factoring) is essentially a type of invoice factoring that is made available specifically to trucking companies. Freight bill factoring is a particularly useful financing solution for trucking businesses that have a significant volume of unpaid invoices.
Trucking factoring companies will typically provide borrowers with 80-90% of the total amount of all of their unpaid invoices in a lump sum, and then pay the remaining 10-20% after the customers have paid their bills.
How is freight factoring used?
Transportation factoring can be used for a wide variety of business-related expenses including (but certainly not limited to) hiring more help, scaling up the business, overcoming a slow season, and many more. Plus, the size of your fleet of trucks isn’t going to change your ability to qualify for a trucking loan. Trucking factoring is one of the most flexible funding options in the sense that it can be used by any size of freight company for virtually any purpose.
On the other hand, it should go without saying that freight bill factoring is only useful for freight companies. So if you’re searching for loan solutions for other industries, factoring services for trucking companies is not going to be applicable to your needs. In general, trucking factoring companies are meant for freight businesses that have difficulty dealing with unpaid invoices and non-paying customers.
It’s important to note that transportation factoring comes at a cost – the interest rates for freight factoring are higher than some other types of business financing. The reason for the higher interest rates is the quickness with which trucking businesses can obtain the funds, as well as the relatively shorter repayment periods (normally a number of weeks, up to a few months).
Recourse vs non-recourse freight factoring
When comparing different trucking factoring companies, one of the key considerations should be whether they offer recourse freight factoring or non-recourse freight factoring. While neither type of transportation factoring requires collateral, the distinction is whether the borrower will be required to provide a guarantee.
Recourse trucking factoring
In plain language, recourse trucking factoring is a type of trucking factoring that holds the borrower responsible in the event that the customers don’t pay the invoice they owe. In other words, if you obtain funding through recourse transportation factoring and your client refuses to pay your loan provider, then you will be required to pay the lender the remaining amount of unpaid invoices. Trucking factoring companies can seem a bit tough on borrowers, but that’s why they also offer an alternative type of freight bill factoring.
Non-recourse trucking factoring
As you may have already guessed, non-recourse trucking factoring doesn’t require the borrower’s guarantee to cover any irrecoverable unpaid invoices. So if any of the customers don’t pay the trucking factoring company, the borrowing freight company isn’t held responsible. While non-recourse freight factoring is understandably the preferred type of transportation factoring, it comes at a higher cost than recourse freight factoring.
What are the best factoring companies for trucking?
Become partners with dozens of the top lenders across the United States and Australia to provide small businesses with the optimal funding match for their specific profile and needs. Below, we list a handful of lenders that can assist in factoring services for trucking companies.
Loan amount: Up to $250,000
Loan term: 3-24 months
Loan amount: Up to $200,000
Loan term: 6 or 12 months
Loan amount: Up to $100,000
Loan term: 3 months
Applying for transportation factoring through Become not only eliminates a vast amount of the time spent filling out forms, but it also does away with the need of applying to dozens of separate lenders one-by-one. Fill out one easy to understand application online through Become, and then sit back and let us do the rest of the work for you.
How to qualify for freight factoring
If you’re applying through traditional lending institutions like banks, then odds are that qualifying for freight factoring can be difficult, specifically for smaller trucking companies. In fact, 82% of small business loan applicants in the U.S. (particularly startups) are denied financing by their bank. Fortunately, today there exists a wide variety of alternative business funding opportunities that small-to-medium sized businesses can use to bypass the high disapproval rates of traditional lending institutions.
Become, for example, uses advanced algorithms that assess a large variety of factors (including business age, monthly revenue, existing loans, credit score and more) to determine how well your business is doing. Regardless of whether you qualify or not, our proprietary LendingScore™ technology is there to guide you and help you improve the specific funding factors that are holding you back from accessing even better funding options. Of course, the type of business will affect the kind of industry loans a business needs, as well as the specific circumstances that business finds itself in.
Now that you know how to qualify for freight factoring, the question still remains: how do you apply for freight factoring?
How to apply for freight factoring
Step-by-step guide for applying for trucking factoring:
- Choose your desired loan amount and select ‘Get Loan Offer’
- Fill in the requested information (including time in the industry, revenue, business, etc.)
- Submit your business’s checking account information for analysis
- Wait for offers. You can also review your status by clicking ‘Access Your Loan Application’
- Review offers and select your preferred lender
- Receive the funds to your business checking account
- Review your tailored LendingScore™ dashboard to improve your funding options
- Improve your rates – if your LendingScore™ is insufficient, follow the personalized plan (8-12 weeks to unlock funding)
Alternative financing options to trucking factoring
Even the best factory company for trucking might not meet your business financing needs. If you feel that trucking factoring in and of itself isn’t the type of business loan that will be the best solution for you, consider the following alternative financing options for trucking companies.
Unsecured business loan
Unsecured business loans provide business owners with a form of financing that doesn’t require any collateral to be put down. That means their valuable assets are not in jeopardy if they aren’t able to repay the loan for whatever reason. If you don’t have assets to offer as collateral, or don’t want to put them at risk of repossession, consider an unsecured business loan.
APPLY FOR UNSECURED BUSINESS LOAN
A Small Business Administration loan is actually not a loan, but rather a guarantee that the government gives to lenders to cover up to 85% of the loan amount. This makes loan providers more likely to approve a small business for financing, and also gives small businesses more confidence to borrow funds that can ultimately help improve their business. SBA loans are a useful financing option for businesses in need of longer repayment periods and lower interest rates.
Business line of credit
Business lines of credit work similarly to the way credit cards do in the sense that the borrower has access to funds on an as-needed basis. Oftentimes a business line of credit will be revolving, meaning the borrower can continuously withdraw and repay funds. This is especially helpful as a form of backup financing in the event that hard times fall on your trucking business.
Don’t stall now
The best factoring company for trucking is within your reach. You need only to apply through Become to get quick and easy access to funding solutions that can help your freight company refuel and keep its gears turning. With the knowledge of how well the trucking industry is doing, along with all of the helpful information provided in this article, you should be well on your way to the next mile marker in your journey towards business success. Please feel free to share the link to this article with friends, family, or colleagues that you think would find it useful. And, of course, go ahead and share it on social media as well!