Companies operating in the trucking industry have significant expenses, such as the truck driver’s salary, fuel, vehicles, insurance, and other fixed costs. The challenging thing is that the trucking business gets paid after finishing the work.
A trucking company will receive the quote after transporting the freight to the client. Therefore, capital is required, and the return on investment comes later.
With this being said, transporting companies rely on debt. While this might sound difficult, it is the way these businesses operate. However, it is essential to balance the credit. This post shares valuable tips on how to use the credit to your advantage.
Business growth
The demand for transporting services grows. Trucking companies like MigWay have excellent growth opportunities in the market. Growing your truck fleet means that you will have increased profitability. Using the credits wisely offers you a chance to expand your business. While trucking businesses might need to take debt for additional warehouse space, new trucks, and staff, this investment will bring profit.
But don’t forget that trucking businesses have varying profits throughout the year.
Businesses need to ensure they have the funds to pay off the debt. The busy season is around the holidays and stops right after Christmas.
Therefore, you need to consider the company revenue during the slow periods. Debt isn’t your option if this isn’t enough to cover the monthly payout.
Debt consolidation
Business credit cards are beneficial in some situations but have high-interest rates ranging from 18% to 29%. Loans for debt consolidation are feasible for businesses. Companies take out a debt to cover the credit card and avoid paying the hefty interest. The difference in interest rates is the reason why. You will take a loan with a lower interest rate to cover your credit card debt. With this, you save lots of money on the credit card interest.
The US Small Business Administration provides loans for small businesses. Spending on the loan, the interest rates range from 10.5% to 13%. The interest rates also depend on your business credit score.
Also, look for companies that specialize in providing services for the trucking industry. They know the specific situation of your business and can provide tailored offers.
Manage unexpected problems
Even the strongest business suit there will face difficulties at a certain point. Therefore, you need to develop a strategy for coping with any problems that could arise. For example, your truck drivers might resign from their jobs. Or the shipment can arrive late. But also, vehicles can have mechanical issues and require costly repairs or replacements.
In such cases, you would need money quickly to solve the problem and prevent it from causing more significant losses.
Freight factoring
No trucking company wants to get into debt. However, there are still other options to ensure a smooth workflow. Freight factoring arrangements are a great way to ensure steady cash flow. Freight factoring companies charge an upfront fee, but you get your money paid within a few days.
Final thoughts
Trucking companies should take advantage of the benefits that loans provide. However, planning how you use your loan and how repayments align with your revenue is essential. It is an intelligent decision if you make more money than the money spent on interest. However, be very cautious with debt and don’t let it put your company at risk.