How to Finance Fleet Expansion in Your Transportation Business

Running a transportation business can mean many different things, whether you’re moving hazardous materials, running coach buses, or hauling freight. One thing all transportation businesses have in common, though, is that they stay on the move... both literally and financially. Owning a fleet of reliable vehicles and equipment is non-negotiable to keep your business running and growing, but buying or upgrading those vehicles can be expensive. And not all businesses have the cash available to cover these costs out-of-pocket.

That’s where financing your fleet business comes in. From loans and leases to lines of credit, transportation companies have several different funding options to choose from, whether trying to manage everyday operations or support growth.

Here’s a look at the most common financing methods for your transportation company, some things to consider before expanding your fleet, and tips for preparing a strong application if you decide that a small business loan for your transportation business is the right call.

Common Financing Methods for Transportation Businesses

One important aspect of fleet management is not only figuring out what your transportation business needs, but also the best way to finance those needs and optimize spending. Depending on what you need to buy — and whether you need the money in real-time or in the future — some of the most common financing methods include loans, credit cards, lines of credit, and leasing.

Business Loans

Small business loans give you access to lump sum financing that you can use for everything from new vehicles to equipment repairs, payroll, fuel purchases, marketing, and more. These small business loans for transportation businesses typically come from banks, credit unions, or alternative lenders.

Depending on your creditworthiness and business history, transportation loans can give you access to larger borrowing limits that you can use for purchasing multiple vehicles, making major upgrades, or even expanding your company. There may be setup fees (in the form of application or origination fees) when taking out one of these small business loans for a transportation company, but you’ll be able to choose the repayment term that works best for you and your business’s budget.

Equipment Leasing

One very customizable option for transportation businesses is equipment leasing. With leasing, you can get the equipment and machinery you need now in exchange for an agreed monthly payment. Unlike buying this equipment outright, though, you’re essentially renting it from the lessor (lender), often without a large down payment or upfront requirement.

Since the lessor owns the equipment during the lease period, you won’t build equity in the asset. However, at the end of your lease, you may have the option of giving the machinery back or buying out the lease and assuming ownership. This makes leasing a great option for businesses with limited capital or that only have short-term vehicle needs.

Lines of Credit

Lines of CreditWhile not a traditional small business loan for transportation companies, lines of credit can provide business owners with on-demand funding that they can use for various expenses, equipment needs, fluctuating costs, and even everyday purchases like fuel expenses.

A revolving line of credit acts a bit like a small business credit card. You don’t pay any interest on the line of credit unless you borrow funds, but you can pull from that line of credit as needed (up to your spending limit) without waiting for approval. This makes it very useful as working capital or even for emergency expenses that arise. You can then repay what you borrowed to renew your credit limit and borrow again.

Business Credit Cards

Fuel costs are one of the biggest ongoing expenses for U.S.-based transport businesses — which collectively rack up more than 331 billion miles annually. Even if you don’t need a loan for this category of expenses, getting the right small business fleet fuel card can be a great way to track fuel expenses, unlock fuel savings through certain discount networks, and even earn cash back each time you (or your drivers) fill up.

Small business fuel cards offer easy ways to streamline employee fuel spending with customizable spending controls and an expense management system. Business gas cards make it simple to track spending through an online account dashboard, where you’re able to see which U.S. gas stations or truck stop fueling locations your employees are using, and the fuel prices (and fuel rebates) they’re getting.

If you need to make changes, some of the best fuel cards offer online account management through a mobile app. There, you can increase or decrease card limits by driver ID and even shut down a card if it’s lost, stolen, or access needs to be revoked.

While you may pay annual card fees (and even fees for individual employee cards) for some of these products, the right fuel card will more than make up for its cost in features like expense tracking, benefits, and even cash back rewards.

Key Factors to Consider Before Financing or Expanding

Whether you’re considering small business loans for your transportation company, taking out a small business fleet fuel card, or anything in between, there are a few things to consider that will help you choose the right path and products.

Cash Flow and Budget

It’s important to spend some time analyzing your company’s budget, funding needs, and what your cash flow will support each month. Taking out a small business loan as a transportation business can help you meet big growth goals, but if you can’t make the required monthly payments you’ll quickly find yourself in big trouble.

Additionally, over-leveraging yourself can have negative effects on your company’s present and future cash flow. Even the best small business fleet cards can have high interest rates if you don’t pay off your balance right away, leaving you with a monthly payment and finance charges that your business might not be able to support.

Whether considering small fleet fuel cards or a small business loan for your transportation business, it’s important to keep in mind upfront expenses as well as the ongoing cost.

Vehicle Type and Purpose

If you’re using a small business loan for a transportation purchase like new vehicles, make sure your purchase is a wise one. Consider the differences between light-duty, heavy-duty, or specialty vehicles, and really analyze what your company needs (and why).

Be sure to match each vehicle’s capabilities to your business model and operational requirements. Everyone enjoys shiny new trucks or big, fancy equipment, but if those purchases are costly and over-engineered for your needs, you might be spending more than your business requires.

ROI and a Cost-Benefit Analysis

Of course, every big business purchase should involve a cost-benefit analysis to determine whether you’ll get a return on your investment (ROI) and how long that will take. Will your new vehicle or fleet generate enough revenue to cover its cost?

Be sure to also factor in maintenance, insurance, fuel, and depreciation on the purchase, as well as the cost of any small business loan for that transportation purchase (like origination fees, finance charges, etc.). If you’re considering buying new vehicles versus used vehicles, these added expenses will be even more important. While you may pay less for a used fleet, the cost of maintenance may increase, especially if your purchases don’t include a warranty.

Tips for Preparing a Strong Financing Application

So, you’ve decided that a small business loan for your transportation business is the right choice to support, grow, or expand the company?

Great! Now, here’s how you can prepare so your application is strong enough to get approved and get you the funding you need.

Boost Your Credit Score and Financial History

The better your business (and sometimes, personal) credit, the better your chances of getting approved for loans, lines of credit, credit cards, and other forms of business funding. Lenders will look at things like your payment history, the types of accounts you have, how long you’ve had your accounts, and your credit utilization (how much of your available credit is being used). If your business can’t qualify on its own, you may be asked to personally secure the debt.

To improve your credit history, be sure to make your payments on time every single month. You can also limit the new accounts you open and try to pay down balances you’re carrying.

Prepare Documentation

Applying and getting approved for a significant small business loan for a transportation company will usually require a lot of documentation. Be prepared to provide profit and loss statements (P&Ls), bank account statements, tax returns, existing loan agreements, licenses, and other financial records. The sooner you begin collecting these documents, the faster and easier the loan application process will be.

Business Plan and Financial Projections

Lenders will usually want to see how the loan will be used and how your business will pay it back. This is especially true if you’re taking out a significant loan and/or if you’re taking out debt as a relatively new business.

You’ll need to provide things like realistic revenue projections for your company and growth plans. If you’re using the funds to expand or grow your business, be sure to include how you plan to use the cash and how it will ideally impact your revenue.

Shop Around for the Best Fit

Finding the right small business loan for a transportation company isn’t always a straightforward process. If you want to find the best fit — and best possible terms — prepare to shop around a bit.

In most cases, it pays not to settle for the first offer or opportunity that comes your way. Instead, spend some time comparing your options; after all, this is an investment in your business’s future. Be sure to look at everything from interest rates and repayment terms to fees, funding timelines, and even lender reviews to decide which one is the best possible choice.

Final Thoughts

Financing can be a smart move for any transportation business, but it takes a little bit of planning to get it right. From small business fleet fuel credit cards to lines of credit or even small business loans, transportation companies have many funding options to start, grow, expand, and even acquire their business.

As a business owner and borrower, being prepared and informed ahead of time sets you up for long-term success. Not only will the process go smoother and better your chances for approval, but adequately comparing your options can save you time, money, and years of headache.

FAQs on Small Business Loans for Transportation Companies

Can I start a transportation business without any investment?

Whether you’re moving things across town or across the world, there is some investment required to get your new transportation business, usually in the form of an initial truck purchase. However, you can use small business loans for transportation companies to fund those initial investments without paying out-of-pocket, allowing you to start your company, get operational, and even expand before you personally have enough capital to do so.

How do I fund a transportation company?

Credit cards, lines of credit and small business loans for transportation companies can all be used to start a new transport business or grow, expand, or acquire an existing one. The right choice for you depends on your operational costs, how much funding you need to start (or grow), your credit history, and how much capital you already have available.

Can I use credit cards to grow my transportation company?

Depending on your expansion plans, small business credit cards can absolutely be used to help grow a transportation company. Credit cards can be used to cover fuel expenses, maintenance or repairs, make equipment purchases, pay for marketing, and more.

What’s better for transportation businesses: loans or credit cards?

Both credit cards and small business loans for transportation businesses can be valuable, depending on your company’s needs. Credit cards can pay for unexpected expenses or everyday costs, make it easy for employees to access funds as needed, and even allow you to earn cash back on the things you buy anyway. Loans, on the other hand, give you access to larger amounts of capital that can be used to fund vehicle or entire fleet purchases, cover cash flow needs, or even expand and grow your business.

What’s the benefit of using a credit card for business fuel expenses?

Credit cards can be a great tool for businesses of all sizes, particularly when it comes to buying fuel as a transportation company. Fleet cards for new businesses allow drivers to purchase fuel when and where it’s needed, while enabling business owners to manage spending limits and track transactions. Many fuel cards unlock rebates, special pricing, or offer cash back rewards on spending, giving back to businesses on the fuel they’re buying anyway.

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