Traditional Loans Vs. Factoring: A Comparison for Fleet Owners

Fleet owners need a reliable source of financing to keep operations moving and to take advantage of growth opportunities when they arise. The two most popular financing methods used by the trucking industry are traditional loans and factoring services. However, the two methods are very different in terms of debt, credit, and the ability to ensure long-term success.

Traditional Loans for Fleet Owners

Traditional loans have been the “go to” for businesses for a long time, including the trucking industry. However, accessibility, terms and interest rates have been changing dramatically since the big economic downturn of 2008. Banks have been tightening their requirements on credit ratings and financial history, making it more difficult for businesses to get approved for loans. Even in the past year, lenders have been tightening requirements for fleet owners where in previous years the trucking industry was given a pass. Loans place debt on the books, impact credit ratings, and have rigid repayment schedules. This means if a trucking company is experiencing any gaps in cash flow, they may not be able to make payments on time, which can trigger penalties. Additionally, interest rates can rise at any moment and are subject to rulings by the Federal Reserve. TO sum it up, traditional lending channels mitigate risk by shifting it to fleet owners.

Factoring for Fleet Owners

Factoring is very different from traditional lending. First, factoring is extremely accessible. Fleets that issue invoices with payment schedules of 30 days or more meet the minimum requirements for factoring services. Second, factoring is not a debt-based financing solution. Invoices are exchanged for cash and funds are made available in a single day. There are no repayment schedules, and fleet owners can preserve their credit ratings. Third, factoring is reusable. Unlike traditional loans that are single-use, trucking fleets can keep using factoring services as long as they are generating invoices. This provides a healthy cash flow so fleet owners can cover overhead and roll out long-term plans without taking on extra debt.

Single Point Capital provides factoring solutions to fleet owners throughout the United States. If you want to pivot away from debt-based financing and improve cash flow, contact the team at Single Point Capital today.