Financing a Freight Carrier During a Credit Crunch

The transportation industry was very affected by the recession that finished in 2009. Although the recession has formally ended, the credit crunch that started with the recession is still ongoing and will remain so for the foreseeable future. Although some banks are lending more, for the most part, getting business financing remains very difficult. This is especially true for transportation companies and not likely to change in the near future because a number of lending institutions are still in trouble themselves.

To qualify for bank or institutional financing the carrier needs to show a few years worth of profitable operations, strong growth, strong assets and have a good management structure in place. Unfortunately, few of the carriers and brokers that weathered the recession will be able to meet all these criteria. Fortunately, conventional business loans are not the only financing option for this industry. And in many cases, it may not be the best option either.

Most freight carriers and brokers experience cash flow problems because they cannot afford to wait 30 to 60 days for customers to pay their freight bills. Most transportation companies have heavy ongoing expenses - there are drivers to be paid, trucks that need repair and a number of other expenses. It's not unusual for undercapitalized carriers to run into cash flow problems because they can't afford to wait for their freight bills to be paid. One way to fix this problem is to implement a freight bill factoring program.

Freight factoring solves this cash flow problem by providing you with an advance for your freight bills. Instead of waiting 30 to 60 days to get paid by the shipper, you can get up to 90% immediately from the factoring company. This provides you with the cash you need to pay your drivers and cover your business expenses. Once your shipper pays the bill in full, the factoring company rebates the remaining 10%, less a small financing fee.

One of the advantages of freight factoring is that is fairly easy to obtain and it does not have the burdensome qualification requirements of conventional business financing programs. The most important variable for qualifying is having customers with good commercial credit. This is your most important collateral from a factoring standpoint. Additionally, the business and its owners need to be free of legal and tax problems. This makes freight factoring an accessible solution for new and established freight companies that are looking to grow.