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Guide to asset-based lending for trucking businesses

Are you a part of the trucking industry and in need of financing? Asset-based lending may be the solution you’re searching for.

This type of secured loan utilizes collateral, such as vehicles or equipment, to obtain funding. Asset backed loans are a popular choice in the trucking industry, as they allow businesses to leverage their assets for financing.

In this article, we explore the benefits of asset-based lending for trucking and provide tips on how to choose the right asset-based lender for your business. Read on to learn more about asset-based lending and how it differs from other loans for trucking companies.

And when you’re finished, check out the other articles in our ‘Asset based lending for truckers’ series:

What is asset-based lending for truckers?

What is an asset based loan?

Asset-based lending for truckers is a type of financing in which trucking companies borrow against assets as collateral. These loans may be secured, for instance, with vehicles, trailers and other pieces of equipment. They’re very popular types of loans for trucking businesses. 

This form of trucking business funding is based on the value of the assets that the trucking company owns. Other loans, in contrast, rely on business creditworthiness or cash flow.

The lender provides the asset loan, and the trucking company uses the funds as needed. For instance, the capital may go toward:

  • Buying new vehicles, trailers or equipment
  • Repairing or maintaining assets
  • Fuel costs
  • Other business-related expenses

In the event that the trucking company fails to repay the loan, the lender may seize the assets used as collateral to recover their funds.

Example of asset-based lending

Let’s say a trucking business needs funds to buy new trailers. The company owns several trucks that can serve as collateral for a loan. A potential lender would appraise the trucks and determine the maximum loan amount based on their assessed value. 

If the lender approves the loan, the company is required to repay it over a specific period, along with interest and fees. In the event of default, the lender may seize the trucks to recover the outstanding debt.

Asset backed lending is typically more flexible than traditional trucking business loans. Trucking companies can use the funds for a variety of purposes, including buying new equipment, hiring staff or expanding operations.

Speed is also a major benefit of this trucking financing option. Asset-based lending is often much quicker than traditional business loans for truck drivers. Once a loan is approved, funds can be deposited into the borrower’s account within days. They often come with lower interest rates than other types of loans. This can make them a cost-effective way for trucking companies to get the capital they need to grow their businesses.

Overall, an asset-based loan for trucking businesses offers the necessary capital for growth, expansion and operational expenses.

For info on the best asset-based lenders and asset-based lending banks, check out our article on the Best equipment financing companies.

Which factors should be considered when choosing an asset-based lender?

There are several factors that trucking businesses should consider when choosing a lender:

  1. Freight industry focus – It’s important to choose asset-based business loans from a lender that understands the nature of your business. They can provide more tailored and appropriate lending solutions for your specific needs. Check out the 8 best semitruck financing companies for more info.
  2. Lending terms – A borrower should assess the lender’s loan terms to decide whether they are flexible and reasonable enough to accommodate their financial needs. Understanding your terms is critical with asset-based financing. 
  3. Collateral requirements – Asset-based lending is primarily based on the borrower’s assets. Thus, a business must carefully verify the collateral requirements of the lender before proceeding with trucking equipment financing.
  4. Interest rates and fees – It is advisable to compare the interest rates and fees of different lenders before choosing one. Look for the best possible offer with the lowest interest rates and fees.
  5. Reputation – The reputation of the asset based lending broker is equally significant. Look for reviews, expert opinions and testimonials from companies that have previously used their services.
  6. Customer service – Choose asset-based lending companies with good customer support that can help you throughout the lending process.
  7. Future flexibility – Since your business requirements may change over time, consider whether this trucking business loan can potentially grow with you or support your future needs.

In summary, choosing the right lender for borrowing against assets requires careful consideration of various factors. By comparing interest rates and fees, researching the reputation and customer service of different lenders, and assessing their loan terms and flexibility, you can make an informed decision that best suits your business needs.

Asset-based lending could be a good fit for your business

There are many reasons why asset-based lending can be advantageous for the trucking industry. This form of financing for trucking offers capital even to companies with poor or no credit histories. Asset-based lending companies can often tailor their loans to the specific needs of the borrower. This means that trucking companies can get the exact amount of funding they need, on terms that work for them.

FAQ

What is an example of asset-based lending?

An example of asset-based lending is when a company uses its assets as collateral to secure a loan. The lender uses the value of the assets to determine the amount of the loan and sets specific terms and conditions for repayment. Assets often include accounts receivable, vehicles or equipment.

What is the interest rate for asset-based lending?

Interest rates vary depending on several factors. These may include the borrower’s credit, collateral type and quality, and prevailing market conditions. Typically, the interest rate for asset-based lending ranges from 7% to 15%. Lenders may also charge origination, appraisal and legal fees, which adds to the overall loan costs.

What are the disadvantages of asset-based lending?

Potential drawbacks include high asset lender interest rates and risk of seizure if you default on a loan against assets. Read Alternate financing options in trucking for further information on financing. 

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