Bank Loan vs Freight Factoring

The recent economic crisis in the US has hardly affected the trucking industry insofar as volume goes; while market forces shift depending on prevailing consumption, there will always be the need to transport goods from one place to the other. A well-managed trucking business will survive no matter what.

What has become a matter of concern for all businesses in general and including the trucking industry is the difficulty in getting ready capital. This is especially critical for those in the trucking industry because good cash flow keeps the wheels turning; when the cash stops, so does the business.

Traditionally, one would open a line of credit or an outright business loan with a bank, using the company’s assets as collateral. Lately, though, it has become more difficult to get the bank to take the risk as more and more people are defaulting on loans. According to the website of TBS Factoring, an alternative to a bank loan that has become more popular of late is that of freight factoring, and this is because of some crucial differences.

Credit Rating

Banks are concerned with the ability to pay of the borrower, or the trucking company owner, so if you have a less than stellar credit score, you won’t get approved for a business loan no matter how well your business is doing. Freight factoring companies, on the other hand, are more concerned with the credit rating of the client because this will determine if the invoice will be paid.

Flexibility

Banks deal with everyone, so they tend to be more rigid in the programs they offer. Freight factoring companies deal solely with freight transportation, so they have a better feel for what works in the industry and can offer options that will answer the needs of the company more effectively.

Repayment

Bank loans have to repaid; factoring does not because it’s not a loan. The trucking company owner basically sells the invoice so unless it is recourse factoring and the client doesn’t pay, that’s the end of that. In non-recourse factoring, even if the client doesn’t pay, the factoring company cannot demand that the owner make good on the invoice.

Overall, bank loans are not the best solution for trucking companies with temporary cash flow problems. They take too long to process, and there are no guarantees of getting approval. Freight factoring is definitely the easier and smarter way to go.