The trucking industry is the lynchpin of the U.S. economy. Without truckers, overland eCommerce wouldn’t exist. Fleets of trucks are en transit, collecting payloads, and gassing up by the millions as you read this sentence.
Despite the massive number of truckers on the road and logistics companies mapping routes, trucking is still a low-margin business, especially for solo truckers running their own businesses. Getting caught between jobs can make it impossible to stay up-to-date on truck repayments while covering your personal expenses.
A business line of credit, then, is a uniquely valuable tool for small businesses in the trucking industry.
Key Takeaways
- Continue to meet your business expenses during down periods.
- Manage volatile inflation.
- Prevent your cash flow from going into the red.
- Invest in better technology, equipment, and vehicles.
What is a Line of Credit, and Why Does it Make Sense for the Transportation Industry?
A line of credit, or credit line, is a defined amount of money that a bank or other financial institution has agreed to lend to you which you can draw on as needed. Since cash flow is a constant challenge for the transportation industry and needing cash at short notice can strain even the most well-equipped business, a line of credit effectively gives businesses more power to cover timely expenses and cushion margins.
Trucking margins are no joke, as truckers know: Truckload carriers spent 0.18 cents per mile driven on maintenance costs alone. Specialized fleets spend an average of 18.7 cents per mile on maintenance and repair.
These figures may not sound like much, but significant repairs could quickly land your business with a five-figure repair bill. When your truck is your means of survival, it can be crushing to be hit with bills passing $10,000 just to get back on the road.
Lines of credit are designed to provide access to financing without breaking the bank. Unlike conventional business loans, you only begin making repayments when you make a draw on the money. And as a form of revolving credit, as long as the line of credit remains active, you can continually borrow as you repay. An active line of credit is a far more flexible form of financing for your trucking business enabling you to access money anytime you need it.
Trucker Loan vs. Freight Line of Credit
As a business owner, you’re likely exploring your financing options and looking into the pros and cons of both a conventional business loan and a line of credit. Every financing option has its place. At Kapitus, our intention is to match every small business with the financial products that suit them best.
To get you started un understanding the difference between the two options, here’s a quick overview of each:
Here’s a comparison of each option:
| Business Loan | Line of Credit | |
| Loan Term | Six months to five years | Up to 12 months |
| Repayment | Repayments begin immediately | Repay only when you borrow |
| Secured/Unsecured | Both | Both |
| Interest Charges | Charged upon disbursement | Charged only when you borrow |
| Use Case | Buying a new truck | Covering sudden repair expenses |
Truckers confront a range of fixed and variable expenses that can threaten their cash flow. Any time spent off the road means losing money, but with either of the above, you can continue to fulfill your business obligations – depending on your needs.
Inflation and Fuel Costs Can Make a Line of Credit the Perfect Fit
Today, the trucking industry faces unprecedented challenges. Even the leanest and most savvy trucking companies aren’t above feeling the impacts of inflation and supply chain blockages. Carriers of all sizes have been forced to innovate and pivot to continue to meet the needs of American consumers and businesses.
Taking out a secured or unsecured line of credit can be a great fit for your cash flow needs. Let’s examine why a line of credit is a valuable tool in the current trucking ecosystem.
Confronting Trucker Shortages
According to the American Trucking Association (ATA), in 2021, the trucking industry reported a shortage of 80,000 drivers. Carriers have reported a range of reasons for the shortage, including:
- Retiring workers
- Lifestyle clashes
- Salary/Benefits
One of the most consistent pain points for American truckers is salary. The median annual salary for a commercial truck driver is just $56k. In many areas of the country, $56k is not enough to support a family or justify this challenging lifestyle.
While a line of credit is not the best option to increase salaries, it can help your cash flow remain positive, thereby helping to offset the impact that salary increases would have.
Overcoming Inflation Woes
In 2022, consumer inflation reached its highest level in 40 years. Global supply chain disruption resulting from the global COVID-19 response threw the U.S. economy into turmoil.
The Producer Price Index (PPI) for truck trailers and chassis surged throughout 2022, with February seeing a 6.3% rise, and October logging a 10.5% rise. Raw materials like aluminum and lumber spiked, meaning truckers are left paying record prices for their vehicles on top of other equipment.
Taking out a line of credit can support businesses in managing rising prices. Whether it’s helping to cover the cost of fuel or make repairs to one of your trailers to quickly get you back on the road, having a line of credit can make a big difference if those expenses come in between major deliveries. Financial gaps are inevitable in the trucking industry and lines of credit are a meaningful way to combat them.
Using a line of credit for your trucking business as a stopgap can help you cope with high price volatility caused by inflation.
Coping with High Fuel Costs
Fuel costs have been the headline headache for professional drivers worldwide. Russia’s war in Ukraine caused oil prices to spike to $123.07 per barrel in March of 2022. The impact of higher oil prices led to fuel hitting $5.00 per gallon nationwide, with some states experiencing up to $6.00 per gallon.
At the height of the fuel crisis, truckers reported spending $2,400 to fill up their tanks, which is alarming as recent rates ranged from $800 to $1,000.
While prices have come down some, gas is subject to the Feather Theory. This means gas prices have a habit of spiking quickly before slowly decreasing to previous levels.
Operating with a line of credit can provide short-term capital to cope with high fuel costs. Sudden surges can catch even the most well-prepared trucking businesses out. If you’re tied to a fixed contract, you cannot pass these costs onto your clients at short notice.
Your line of credit can stabilize your business and let you get back on the road regardless of which way fuel prices are turning.
Other Use Cases for a Trucker Line of Credit
| Use Case Example | |
| Tied Your Trucking Company Over | If you need to wait 90-180 days for a client to pay you, a line of credit can sustain you until that invoice is paid. |
| Invest in Your Business | Whether upgrading your administrative software or investing in a new hydraulic lift, your line of credit can cover the cost. |
| Pay High-Interest Debts | Lines of credit offer lower interest rates than many other lending options. Tapping a line of credit to pay an expensive credit card bill can save your business money. |
| Build Your Credit | Borrowing and repaying via a line of credit enhances your trucking business’s credit score. Higher credit scores open up new doors for more extensive financing in the future, such as if you need to expand your fleet. |
How Hard is it for a Trucking Company to Get a Line of Credit?
Trucking companies often struggle to secure any form of credit because of unavoidable realities of the industry. Owner-operators are especially vulnerable as most already have outstanding credit they used for their initial purchases of their vehicles and equipment.
As discussed, the trucking industry has low margins compared to other industries and stiff competition for lucrative contracts. Lenders are well aware of this which is why trucker loan applications tend to receive extra scrutiny.
This doesn’t mean, however, that trucking companies can’t get financing. Unlike other businesses, truckers frequently opt for a secured line of credit against their vehicles. As a trucker’s most valuable asset, securing a line of credit against a truck can be one of the easiest ways to get approved.
How to Apply for a Trucking Line of Credit
Applying for any kind of financing ought to come with some introspection about your business and current margins. Moreover, you’ll need to prepare documentation in advance to avoid additional delays to your application.
Understand Your Business Needs
Evaluate your operation from all points of view. Focus on the root cause of any financial issues and you’ll likely see whether or not a line of credit would fit well for your business.
Ask yourself three questions:
- Which expenses are causing me the biggest problems?
- How much capital do I need to accomplish my business goals?
- How much can I repay in a billing period?
Lines of credit ought not be used to revive an unsustainable business model. Lines of credit require prompt repayment, so any expenditure on the line must be one that you certainly can pay within the terms of your line.
Asking the above questions is an important first step that will make your conversation with lenders easier and more productive.
Prepare Your Documentation
Lenders will require you to present specific documents that paint a full picture of your trucking business. You will likely need to provide copies of bank statements, existing credit information, and in some cases a business plan. Each lender requires different documents from the businesses they partner with, so be certain to prepare these ahead of time.
Preparing this documentation in advance will enable you to speed up the application process so that you can access the capital you require as quickly as possible.
Review Your Eligibility
Trucking businesses must meet eligibility requirements set by the lender. Any reliable lender will make their minimum business requirements clear.
Applying for a line of credit through Kapitus requires you to meet minimum standards to take advantage of approvals in as little as four hours, no origination fees, and competitive rates. To apply, your trucking company must meet the following minimum requirements: :
- 650 credit score
- 2+ years in business
- $180,000 average annual revenue
Lenders give requirements to paint the picture of a business who could best partner with them. While these requirements represent a baseline, they are not an upper limit.
There are several ways trucking companies could benefit from a line of credit. From emergency purchases to maintaining daily expenditures, a line of credit offers the flexibility to borrow as and when needed with no ongoing fees.
At Kapitus, our customers can apply for and get approved for a line of credit in as little as four hours. Our commercial lending specialists are ready to pair you with the financing that best fits your business.
Join the more than 50,000 businesses that have chosen Kapitus as their financing partner of choice. Connect with a Kapitus certified financing specialist to apply now for your line of credit.
At Kapitus, our customers can apply for and get approved for a line of credit in as little as four hours. Our commercial lending specialists are ready to pair you with the financing that best fits your business.
Join the more than 64,000 businesses that have chosen Kapitus as their online lender of choice. Connect with a Kapitus specialist to apply now for your line of credit.