Sources of Financing a commercial Transportation Business
Transportation business is associated with an asset-based and non-asset based businesses. Asset-based companies include freight haulers, delivery companies and limousine companies; non-asset based firms include freight brokers and third-party logistics providers. Both have traits that separate them from peers in other industries. In addition, asset-based transportation companies incur considerable capital expenses due to the vehicles and related equipment they purchase or lease. Several industry-specific financing options exist for industry needs.
Equipment lenders often serve as an excellent source of financing for asset-intensive transportation companies. Equipment lenders that focus on the transportation industry understand industry dynamics, characteristics and risks. Banks often consider transportation assets too risky to use as collateral and lend against because the assets are “rolling stock,” which company personnel can readily drive offsite. This makes the equipment difficult to repossess. However, the equipment lenders’ industry knowledge allows them to mitigate their risks. Equipment lenders typically offer both lease and purchase options.
Accounts Receivable Financing
Transportation companies that generate invoices from quality customers can obtain lines of credit from accounts receivable financing, or A/R financing, firms. Transportation-focused A/R financing firms assign more weight to the credit quality of a small company’s customers and adherence to payment terms than to the small company’s credit history. For example, a small local transport company that makes deliveries for large retailers such as,, Target or Lowe’s would typically qualify for accounts receivable financing. This is important because many transportation industry customers pay in 30 to 45 days, which may have caused cash shortages for firms and impacted their credit history.
Transportation companies’ largest variable expense is fuel, whether gasoline, diesel or natural gas. Fuel card providers generally offer up to 30-day payment terms for most small companies. This allows firms to better align their cash outflows for fuel with the cash inflows from customers paying invoices. Companies could use credit cards, but most fleet fuel cards offer tracking services that standard credit cards do not. Therefore, fuel cards have an additional benefit of helping businesses better manage their fuel, supplies and cleaning costs. Both fuel providers and third parties offer fuel cards.
Partnership or Joint Venture
One often overlooked source of financing for transportation companies is a strategic partner or joint venture. Many large corporations and government agencies have small business purchasing programs. Some of these organizations encourage their large suppliers to partner with smaller companies to help mentor and develop the smaller entities, while adding flexibility and responsiveness to the larger company. In addition, a small company may have the opportunity to win a larger contract, but require a partnership with a larger company to access additional capacity. In exchange for the additional business, the larger company may extend a line of credit or guarantee a bank loan on behalf of the smaller company.
Private Money Loans
Private money loans — or simply private money — is a term used to describe a loan that is given to an individual or company by a private organization or even a wealthy individual. The organization or the individual is known as a private money lender. Havelet Finance Limited is a private money loan lender that is poised to helping small business grow. We remain the most recognized financing source for all transportation company financing.
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