Factoring Line of Credit vs Business Line of Credit

Factoring Line of Credit vs Business Line of Credit

Alma Bailey 0 Comments

You have a thriving business, a fleet of trucks and a pool of drivers that produce good revenues and yet your cash reserves are always low. How do you keep operations moving when fuel expenses, driver salaries, maintenance costs and so many other expenses keep draining available working capital? In an industry known for its slow paying customers and a banking system that typically rejects applications from trucking companies for a line of credit, this is a difficult balance to maintain. A Factoring Line of Credit is the ideal financial solution to solve this cash flow problem.

What is a Business Line of Credit?

First you need to understand the differences of a business line of credit vs. a loan. A line of credit (LOC) is much different than a loan. A loan provides a specific amount of money as a lump sum and is repaid over a specific period of time through regularly scheduled payments. In the trucking business, it is generally used to finance the purchasing of equipment or other large ticket items. A business line of credit is a much different financial arrangement. It is an open-ended loan that allows you to borrow money at any time up to a set limit with no set schedule for repayment. In this way it acts much the same as a credit card without the huge interest charges. It is a low-cost way to borrow just what you need when you need it, and only pay interest on the amounts you borrow. Trucking businesses commonly use a line of credit loan to support large operational expenses.

How to get a Line of Credit for trucking?

Trucking is a tough business, you know it and so does the bank. High expenses, low margins, stiff competition and slow paying customers; you have to love the industry in order to survive as a trucking business owner. Banks, on the other hand do not love the industry. In fact, most trucking companies are rejected by commercial banks when they apply for any form of lending. Unless your business has strong financial records, a solid credit history, use risk management tools and can comply with the bank’s covenants your business doesn’t have a chance of being approved for bank financing. 

A bank is a place that will lend you money if you can prove that you don't need it. ~ Bob Hope

Obtaining a business line of credit for your trucking company may seem impossible, unless you contact a specific factoring company that specializes in trucking. Accutrac Capital developed a Factoring Line of Credit, a unique funding product to meet the specific needs of established and growing fleets. Qualification is easy; it is based on the credit worthiness of your customers rather than the financial status of your business. For start-up companies, businesses in transition, those experiencing seasonal adjustments or high growth companies, a factoring line of credit provides a cost effective alternative funding option.

What is a Factoring Line of Credit?

First and foremost, it is an accounts receivable line of credit designed specifically for the trucking industry. This unique funding option combines the flexibility of a revolving line of credit with the ease of freight factoring (a form of invoice factoring) to provide a cost effective cash flow solution.  As a factoring product, it offers huge advantages above and beyond the restrictive nature of a commercial loan.

Freight factoring is a form of asset based lending, but it is not a loan; it is the selling of invoice receivables at a discount in exchange for immediate cash. With this business line of credit, trucking companies can draw up to 97% of their combined account receivables, paying fees only on funds drawn. A small administrative fee covers the account receivable management services included with this funding option.

Factoring invoices is a sound financial strategy that actually improves your balance sheet. When you sell an invoice to a factoring company, it enters the balance sheet as cash increasing the company’s assets without affecting the company’s debt ratio. Selling invoices and freight bills to a factoring company has become a mainstream financial strategy to improve cash flow, build a strong financial background and establish a healthy credit history.

Although commercial line of credit interest rates are generally better than factoring line of credit rates, they offer far less advantages to the trucking company. The banks protect their own interests, while a freight factoring company provides convenient services designed to improve cash flow and make life easier for trucking company owners. Dedicated customer service, risk management tools, accounts receivable management, fuel saving programs and fast, reliable funding are all part of the benefits truck company owners appreciate when working with a reputable freight factoring company.

Learn more about Factoring Line of Credit, or call: 1 (888) 982-1101

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