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Factoring services vs commercial truck title loans

In the high-stakes world of trucking and logistics, maintaining cash flow is essential to business. Two financing options have emerged as lifelines for many in the industry – factoring services and commercial truck title loans

But which one is the right fit for your fleet? Understanding the differences between these two financial mechanisms can be the pivot point that ensures your business is on the right track.

Factoring services

What is factoring?

Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third party (factor) at a discount. It’s a widely used form of business funding within transportation and many other industries.

Benefits of factoring for trucking companies

  • Immediate cash flow: Rather than waiting for customers to pay invoices, trucking companies receive an immediate advance, typically 70% to 95% of the invoice value.
  • Collection expertise: Factors often have dedicated teams for efficient receivables management, freeing trucking companies from this administrative burden.
  • Flexible funding amounts: The amount of funding grows with the company’s sales. The more invoices a trucking company generates, the more funding available.
  • Credit protection: Some factoring services offer credit protection, ensuring that a company isn’t left empty-handed if a customer fails to pay.
  • Risk mitigation: Factoring services can also help spot potential payment issues, reducing the risks associated with customer credit.

Disadvantages of factoring

  • Cost: Factoring fees can be higher than those associated with traditional loans, reducing the company’s profit margin.
  • Doesn’t build credit: Factoring isn’t considered a loan, so it doesn’t help build business credit the way a loan would.
  • Potential customer impact: Some companies may not want a third party involved in customer collections, potentially straining relationships.

Commercial truck title loans

How they work

Commercial truck title loans are secured loans where the borrower’s truck functions as collateral. These loans can provide quick funding by using the value of the truck as leverage.

Benefits of commercial truck title loans for trucking fleets

  • Fast cash: For companies that need immediate funds, a title loan can be a faster option than traditional financing routes.
  • Less paperwork: Documentation for title loans is often minimal when compared to more standardized business loans.
  • Poor credit acceptance: Title lenders may be more lenient with credit history since the loan is secured.
  • Based on truck value: The value of the asset used as collateral determines the loan amount. This can be useful for companies with older but valuable trucks.

Disadvantages of title loans

  • Default is costly: If a trucking company fails to repay the loan, the lender can repossess the truck, which could pose serious operational challenges.
  • High interest rates: Title loans can have higher interest rates than traditional loans, contributing to a higher overall cost of borrowing.
  • Only for short term needs: Title loans are typically short-term, so they may not be the best commercial truck title loan for long-term financing needs.

Factoring services or title loans?

Cost considerations

Factors typically charge a percentage of the total invoice value, often ranging from 1% to 5%. There may also be fees for account setup, credit checks, and other administrative costs

Title loans on commercial trucks have high interest rates — typically ranging from 20% to 40% or even higher, depending on the lender and the borrower’s creditworthiness. These high-interest rates can significantly increase the overall cost of borrowing.

Impact on cash flow

Factoring services provide immediate access to cash by selling outstanding invoices, thereby improving cash flow. However, this comes at the cost of factoring fees. 

Commercial truck title loans also offer quick access to funds. Unfortunately, interest charges can strain cash flow, especially if the loan isn’t repaid on time.

Risk factors

With factoring services, the primary risk involves losing control over accounts receivable. The factor essentially owns the invoices. There’s also the risk of non-payment by customers.

For commercial truck title loans, the most significant risk is losing the truck or asset used as collateral. This happens when borrowers default on their loans.

Flexibility and scalability

Factoring services offer flexibility and scalability, because the amount of funding can increase in line with the business’s sales and invoices. 

Title loans on commercial trucks have less flexibility and scalability because they’re limited by a truck’s value. The borrower’s ability to secure more collateral also limits them.

Choosing the right financing option

Here are the main points to keep in mind as you decide whether to use factoring services or a title loan for fast funding:

  • Your business has specific needs and goals. Evaluate whether the financing is needed for short-term cash flow management or long-term growth and expansion.
  • Evaluate your financial situation. Assess the current financial health of the business, including cash flow, credit history, and existing debt obligations.
  • Determine the level of risk the business is willing to take, considering potential consequences such as loss of collateral or accounts receivable.

When to use factoring services

Factoring services are ideal for businesses that need to improve cash flow quickly, have a high volume of outstanding invoices, and are willing to pay factoring fees. They are particularly useful for businesses with seasonal or cyclical sales patterns or those experiencing rapid growth.

When to use commercial truck title loans

Commercial truck title loans are suitable for businesses that need immediate access to funds and have valuable trucks that can be used as collateral. They may also be a good option for businesses with poor credit or limited access to traditional financing, as they typically don’t require a credit check. However, these loans should be used cautiously and only for short-term financing needs due to the associated high interest rates.

Why not both?

In some cases, businesses may benefit from combining factoring services and commercial truck title loans.

Factoring services can provide consistent cash flow management, while truck title loans can serve as a supplementary source of financing for specific needs or emergencies. A combined approach allows businesses to leverage the advantages of both options while reducing their respective risks and limitations.

Scale up with the right financing solution

Every trucking company’s financing needs are unique. It’s essential to assess your company’s specific requirements and weigh the pros and cons of each financing option before making a decision. Consulting with financial advisors who specialize in the trucking industry can also help you navigate the complexities of business finance.

Remember, the goal is to solve cash flow issues in a way that supports the long-term financial health and growth of your trucking company. Both factoring services and title loans can be valuable tools in the right context. It’s all about finding the tool that fits your fleet like a glove.


Can a semi truck be used as collateral for a loan?

Yes, a semi truck can be used as collateral for a loan, known as a commercial vehicle loan or equipment loan. This type of loan allows you to use the truck itself as security, which can help you obtain financing, especially if you have limited credit or assets.

What is a CV loan?

A CV loan, or commercial vehicle loan, is a type of financing specifically designed for businesses to purchase vehicles used for commercial purposes, such as semi trucks, delivery vans, or work trucks. These loans are secured by the commercial vehicle itself, which acts as collateral.

What is a good interest rate on a used truck?

A good interest rate on a used semi truck loan can range from around 4% to 8% for qualified borrowers with strong credit histories and lower loan amounts. However, rates can vary significantly based on factors like the truck’s age, mileage, loan term, down payment, and the borrower’s creditworthiness.

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TAFS is More than Freight Factoring

As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and a 1-hour advance option.