Owner-Operator Financing Options

Making a move from being a truck driver to being an owner-operator can be financially rewarding. However, it can also be very challenging, especially during the initial months of the business. As a new business owner, you need to worry about things that your employer used to handle.

One of the greatest challenges for truckers is finding a way to finance their new company. However, finding the right financing is key to growing a trucking company and making it successful. This article helps you with your four main financial challenges: startup costs, equipment, operations, and fuel. We cover:

  1. Just starting? Do this first
  2. Financing your equipment
  3. Handling cash flow issues due to slow payments
  4. Handling fuel costs
  5. Conclusion

1) Are you just starting?

There are a few things you need to do if you are starting. It’s important to take these steps first because they help determine your strategy, equipment, lanes, revenues, and expenses. Before starting down this path, your first question should be, “What industry am I going to support?”

a. Determine your industry

Running a dry van is the simplest and easiest type of load to pull. This is what attracts many new owner-operators to dry-van. However, dry van loads are very competitive and pay the least.

Most owner-operators are better off working in a niche industry (e.g., reefer) and pulling specialized loads. These loads have less competition and pay more. However, they are also harder to pull.

b. What are your expected costs?

Have a good idea of what your startup and ongoing costs will be before starting the company. The industry you plan to support determines the equipment you need – a significant component of your initial cost. Do some research to determine your approximate cost-per-mile. This calculation gives you a good idea of the cost to pull a load for one mile.

c. How much money will you make?

Determine your expected rate-per-mile. Research how much is typically paid for loads pay in your industry and lanes. You can use a free load board to get an idea. Since load boards pay the least, you can estimate the lowest you will be paid.

Subtracting your costs per mile from your rate per mile gives you an estimate of your expected profit per mile. This calculation helps you determine if the money you expect you make from pulling these types of loads in these lanes is worth it for you.

d. How to pay for startup costs

The best way to pay for many of your startup costs as an owner-operator is through your savings. This strategy takes time and dedication but is also the lowest risk.

Alternatively, consider using a Microloan from the SBA. Unlike conventional loans, microloans are easier to get, available to startups, and are capped at $25,000 (most cases). Furthermore, they come with business assistance, which is helpful for new entrepreneurs.

Consider working with a CPA before you start looking for ways to finance your new trucking company. Although CPAs are expensive, they can help you examine your options and avoid costly mistakes. Working with a good CPA can save you a lot of money. It’s a worthwhile investment.

2) How to finance your equipment

Buying your truck is your largest startup expense. Generally, you have two ways to get a truck: buy it (using a loan) or lease it.

a. Truck loans

Truck loans work much like any vehicle loan. You make a down payment, and then you pay the remainder in monthly installments. Once the loan is paid off, the truck is yours.

b. Leasing

The second alternative is to lease (or “lease – purchase”) a truck. Leases can be structured in different ways and are often bundled with a purchase at the end of the lease. In some cases, you make monthly payments for several years and then make a balloon payment at the end of the lease to purchase the truck. Other leases are structured so that the truck is yours at the end of the term for a very small payment.

c. Which option works better?

Each of these options has advantages and disadvantages. Your choice depends on how much money you have, your personal credit, and the type of truck you need, among other things. A CPA can help evaluate your situation and make a recommendation. One suggestion we can offer is to comparison shop. Comparison shopping helps you to make an educated purchase and reduces the chances that you will overpay.

Note that Commercial Capital LLC does not provide financing to purchase trucks.

3) Improve your carrier’s cash flow

As an owner-operator, you need to pay for all your business expenses. You can expect to have a steady stream of expenses that include fuel, repairs (varies if you lease), tires, and so on. However, your cash flow won’t always be steady. Many shippers and brokers pay their invoices in 30 to 60 days. This delay can create problems for owner-operators who need funds immediately to cover expenses. There are two ways to handle this situation.

a. Offer early payment discounts

You can often persuade shippers to pay early if you give them an early payment discount as an incentive. As its name implies, early payment discounts give the client a discount on their invoice if they pay quickly. Usually, the client gets a 1% to 2% if they pay the invoice within ten days.

Some shippers refer to their early payment discounts as “quick pays.” They are essentially the same thing. Quick pays can be great but are not offered by every shipper or broker. It’s best to ask ahead of time.

b. Finance slow-paying invoices

If quick pays don’t solve your cash flow problems, consider financing slow-paying invoices with freight factoring. Factoring financing provides you with an immediate advance which you can use to pay your expenses and run your business.

This type of financing has many advantages and can be useful if you are just getting started and have not built a capital reserve. In many cases, factoring can be used by businesses with no credit or bad credit within reason. To learn more, read “What is Freight Factoring and How Does it Work?” and “Factoring for Owner-Operators.”

4) Handling fuel costs

The most significant ongoing cost for most owner-operators is the cost of fuel. Remember that once you take IFTA into account, the lowest price at the pump doesn’t always end up being the best deal. With careful route planning, knowledge of IFTA, and well-timed fuel purchases, you can develop a strategy to buy the cheapest diesel available.

Cash flow problems can affect your ability to buy fuel. This can become a major issue if you cannot purchase fuel to pick up and deliver a load. If factoring does not fix your cash flow problems completely, consider getting a fuel advance. Fuel advances provide you with funds as soon as you pick up a load from an approved shipper. You can use the funds to pay for fuel and other expenses. Keep in mind that fuel advances can be expensive. As a result, it’s best to use them strategically.

5) Conclusion

Running and growing a trucking company can be financially rewarding. However, you will also have to face many challenges. You can increase your chances of success by researching and planning your strategy and partnering with a CPA to help you with some financial decisions.

Do you need factoring?

We are a leading factoring company and can provide you with a competitive factoring and fuel advance plan. For information, get an online quote or call (877) 300 3258 to speak with an expert.

Note: Factoring is available only to owner-operators who operate under their own authority.